Customer Loyalty

I.Perspectives of customer loyalty II. Factor that affect customer loyalty III. Attitudinal and behavioral components of loyalty

I. Perspectives of customer loyalty (1/2)  customer loyalty—a customer’s commitment or attachment to a brand, store, manufacturer, service provider, or other entity based on favorable attitudes and behavioral responses, such as repeat purchases

I. Perspectives of customer loyalty (2/2) 1-1 Brand loyalty as behavior 1-2 Customer loyalty as attitude 1-3 Relationship commitment

1-1 Brand loyalty as behavior(1/3)  behavioral approach to brand loyalty— assesses how consistent customers are in repurchasing brands and is measured by the proportion of purchases – the number of times the most frequently purchased brand is purchased divided by the total number of times the product category is purchased

1-1 Brand loyalty as behavior(2/3)  Researchers view a brand loyalty continuum and classify customers from complete undivided loyalty to completer brand indifference  Customers can also be classified into different categories based on the sequence of their brand switching  Exhibit 5.1: Variations in Behavioral Brand Loyalty

1-1 Brand loyalty as behavior(3/3)  undivided loyalty—the behavior of a customer who always selects the same brand  occasional switcher—usually selects the same brand over time but may want a change of pace now and then, or may face an out-of stock situation  switched loyalty—a customer who has experienced a change of heart, or a change of brand  divided loyalty—a customer who is loyal to more than one brand  indifference—the customer who sees no distinctions between brands or who could care less which brand is purchased  A strict behavioral definition of loyalty does not attempt to understand why the behavior is occurring, nor does it distinguish between loyal behavior and behavioral inertia  Exhibit 5.2: Loyalty versus Inertia

1-2 Customer loyalty as an attitude  attitudinal approach to customer loyalty—takes the view that loyalty involves much more than repeat purchase behavior and must also include a favorable preference or commitment that has been expressed over time  inertial loyalty—also called spurious loyalty, indicates that behavior appears to be “bogus” because there is no strong attitudinal influence  latent loyalty—customers have strong attitudes but repeat purchase is low

1-3 Relationship commitment  Relationship commitment—a desire to keep a valued relationship that endures over time  Exhibit 5.3: Transactional/Relational Continuum

II. Factor that affect customer loyalty  Some fundamental components that are expected to affect customer loyalty  Exhibit 5.4: What Affects Customer Loyalty?

II. Factor that affect customer loyalty 2-1 Customer satisfaction 2-2 Emotional bonding 2-3 Trust 2-4 Choice reduction and habit 2-5 History with the company

2-1 Customer satisfaction  customer satisfaction—influenced not only by the overall performance of a brand, company, or experience, but also by how well the actual performance meets or exceeds expectations  Exhibit 5.5: Confirmation/Disconfirmation of Expectations Determines Disatisfaction/Satisfaction/Delight  delightful surprises—situations where customers receive fulfillment that exceeds the satisfaction of unexpected needs or wants  zone of tolerance—a range where expectations (and satisfaction) vary from what customer’s hope to receive and what is minimally acceptable to unacceptable performance

2-2 Emotional bonding  brand affect—an affinity with the brand or an attachment to an organization, which means the customer likes the organization which can be an instantaneous response

2-3 Trust  trust—one party has confidence that he or she can rely on the other exchange partner; or, the willingness of the customer to rely on the organization or brand to perform its stated function which reduces uncerstainty/risk and is viewed as a carefully thought out process

2-4 Choice reduction and habit  choice reduction—a natural tendency to reduce choices to a manageable set that may be three or fewer options for many people  habitual choices—based on an accumulation of experiences over time that result in positive or rewarding outcomes  switching cost—the costs associated with change to the unfamiliar, the untried, or the new which may include time, money, or personal risk  perceived risk—customer uncertainty about the consequences of making a purchase which may include performance or social risks

2-5 History with the company  intergenerational influences—within- family transmission of information, beliefs, and resources from one generation to the next

III. Attitudinal and behavioral components of loyalty 3-1 Loyalty as one-to-one relationships 3-2 Factors that may lessen customer loyalty

3-1 Loyalty as one-to-one relationships  multi-faceted loyalty—emphasizes that loyalty is more than a repetition of a behavior where customers can exhibit loyalty to price, the brand, the company, other customers, or to a place to name a few potential options  Exhibit 5.6: Loyalty and Organizational Options  Exhibit 5.7: Loyalty and CRM System Guidelines  recognition—implies a personal greeting that is based on knowledge of the past history of interactions  cultivation—implies meaningful interactions between the organization and the customer, similar to the courtship phase prior to marriage  development—implies that customers have a clear image for the organization and all of its services or brands which defines the relationship or the strength of the tie with customers

3-2 Factors that may lessen customer loyalty Competitive parity Variety-seeking behavior Low involvement Low share of voice

3-2-1 Competitive parity  High competitive parity—the offerings of different organizations are not differentiated and if customers perceive that brands are identical, perceived risk is low and there is a greater tendency for brand switching

3-2-2 Variety-seeking behavior  high variety seeking behavior—occurs when people become bored and have a need for a new experience because of declining benefits associated with repeat patronage or because they feel energized by the prospect of having a new experience

3-2-3 Low involvement  low involvement—a low level of personal relevance or perceived importance of a product or service for the customer which can lead to higher levels of deal proneness and price sensitivity

3-2-4 Low share of voice  low share of voice—a brand’s, store’s, or organization’s relative promotional expenditures; where problems occur with insufficient share of voice to provide a clear picture of the organization to the target base