The dimensions of Customer Loyalty

NoLoyalty
Pretty straight-forward, this category refers to clients who exhibit no or low levels of
commitment and a low number of re-purchases. Customers of this category are very hard to
switch to truly loyal customers and a businesss revenue potential from this category is
relatively
limited.
Spurious
Loyalty
also called inertia, or phantom loyalty, this category refers to customers with high levels of
repeat patronage despite their low level of commitment to the firm. For example, a woman might
continue to go to a specific hair salon although not particularly pleased, out of habit or
convenience or lack of a better alternative. However, such customers will most likely switch to
an alternative as soon as their main constraint no longer exists.
Latent
Loyalty
when situational factors or social influences have a stronger impact on purchase decision that
relative attitude, customers may buy or use a companys service often despite the fact they are
willing
to
recommend
it
to
others.
True
Loyalty
Combining high levels or both repeat purchase and commitment towards firm, truly loyal
customers will try to overcome obstacles and suffer sacrifices in order to purchase its products or
services. A truly loyal base of customers offers a business the full-extent of benefits associated
with loyalty. As suggested in marketing theory, when it comes to truly loyal customers, small
changes in a products price may only affect the quantity of their purchases but not their actual
choice of brand.
Types of strategies in their quest to maintain customer loyalty
Offensive strategy -- > targets new customers and is concerned with increased market share
Defensive strategy - targets existing customers and seeks to improve and maintain customer
satisfaction and at the same time prevent customers from switching to alternative products from
competitors.

The Wheel of Loyalty

First, build a foundation loyalty the firm needs a solid foundation for creating customer
loyalty that Includes targeting the right portfolio of customer segments, attracting the
right customers, tie ring the service, and delivering high levels of satisfaction.

Second, create loyalty bonds to truly build loyalty, a firm needs to develop close bonds
with its customers. It can either deepen the relationship through cross-selling and
bundling, or add value to the customer through loyalty rewards and higher-level bonds.

Third, reduce churn drivers the firm needs to identify and reduce the factors that result in
churn, the loss of existing customers and the need to replace them with new ones
STRATEGIES FOR DEVELOPING LOYALTY BONDS WITH CUSTOMERS

Having the right portfolio of customer segments, attracting the right customers, tiering
the service, and delivering high levels of satisfaction are solid foundation for creating
customer loyalty as shown in the wheel of loyalty.

However, firms can do more to bond more closely with their customers.

Research shows that, when customers are loyal to a company, they are attracted to visit
the company.

However, once there, it is the loyalty program that will attract them to spend money.
Serving Customers According to Their Tiers

Once the tiers have been established, various elements of service strategy can be adjusted
to the tiers.

For example, the need for customer information varies by tier. With Platinum and Gold
customers, it is desirable to know individually what each customer wants so as to develop
a custom profile of each customer's history, preferences, usage, and expectations.

For Iron customers, on the other hand, segment preferences and perceptions are usually
adequate.

Lead customers may be studied for different purposes altogether, such as to examine
ways that they may be served more efficiently and with less cost.

STRATEGIES FOR REDUCING CUSTOMER DEFECTIONS

1 Address Key Churn Drivers

Reasons for high customer churn rates include better service and offers from competing
companies, poor customer service or other service related issues.

Additionally, companies generally experience a very high churn rate during introductory
offers made to customers.

For example, a wireless phone company may experience high churn as customers seek
the lowest rate.
2 Implement Effective Complaint Handling and Service Recovery Procedures

Effective complaint handling and excellent service recovery are important to keep
unhappy customers from switching providers.

Increase Switching Costs contractual penalties for switching, patients when they are
midst of receiving a treatment from the hospital.

A switching cost can be the search costs, transaction costs, learning costs, loyal
customers discount, customer habit, emotional cost and cognitive effort, coupled with
financial, social and psychological risk on the part of buyer

Relationship Marketing

One of the things of most value to a company is its relationships

with customers, employees, suppliers, distributors, dealers, and retailers.

The companys relationship capital is the sum of the knowledge, experience, and trust a
company has with its customers, employees, suppliers, and distribution partners.

These relationships are often worth more than the physical assets of a company.
Relationships determine the future value of the firm.

Relationship marketing

Its a lifetime value of a customer and converting new customers to advocates

Relationship Marketing and the 4Ps
Product

More products are customized to the customers preferences.

New products are developed and designed cooperatively with suppliers and distributors.

Price

The company will set a price based on the relationship with the customer and the bundle
of features and services ordered by the customer.

In business-to-business marketing, there is more negotiation because products are often

designed for each customer.
Distribution

RM favors more direct marketing to the customer, thus reducing the role of middlemen.

RM favors offering alternatives to customers to choose the way they want to order, pay
for, receive, install, and even repair the product.

Communication

RM favors more individual communication and dialogue with customers.

RM favors more integrated marketing communications to deliver the same promise and
image to the customer.

RM sets up extranets with large customers to facilitate information exchange, joint

planning, ordering, and payments.
Examples of relationship marketing programs

Airlines - frequent flyer schemes, through which passengers build entitlements for
upgrades, preferential rates and services.

Loyalty cards - offered by supermarkets and departmental stores, to reward customers

commitment and loyalty.

Corporate credit cards - offered by car rental companies and international chains of
hotels.

Customer loyalty clubs - set up and managed by a wide array of organizations, in

consumer and other marketing areas.]

Partnership agreements with suppliers.

Competitive advantage

Competitive advantage is reflected in the value that a company creates for its customers.

This advantage may be given by a lower price than the one applied by its competitors for
similar products / services, or providing unique benefits that compensate for any increase
in price
According to Porter, Competitive advantage cannot be understood by looking at a firm
as a whole. It stems from the many discrete activities a firm performs in designing,
producing, marketing, delivering and supporting its product. Each of these activities can
contribute to a firms relative cost position and create a basis for differentiation.
Value chain

Value chain analysis is Porters technique for understanding an organizations ability to

add value through its activities, and their internal and external linkages, and allows
managers to identify where value is currently added in the system and where there is
potential to create further value in the future by reconfiguration and improved
coordination of activities.

Value Chain - (more effective) sharing of information within and between organisations
in the chain contributes to better decision making and resource allocation, and when a
chain acts in partnership to develop systems and products defined fundamentally by
consumer preferences, they become much more difficult for competitors to imitate
(Fearne, 2009)
Primary Activities

The primary value activities represent the sequence of bringing materials into the
business, converting them into final products, shipping out the final products, marketing
them and servicing them, apart from support activities such as procurement, technology
development, human resource management and firm infrastructure, that are required for
supporting the primary activities.

Primary activities are the actual activities of product development, its sale and the after
sale service.
Primary value activities

Inbound Logistics: it involves supplier relationships and refers to all the

processes/activities involved in receiving, storing and distributing the raw materials,
inputs, components, and parts used in the production process;

Operations: are the processes/activities of manufacturing, assembly, packaging,

maintenance of the equipment, and testing of inputs to produce the final product;

Outbound Logistics: it relates to storage, processing orders, transport, and distributions of

the product to the final consumer;

Marketing and Sales: Marketing must make sure that the product is targeted towards the
correct customer group. The marketing mix is used to establish an effective strategy; any
competitive advantage is clearly communicated to the target group by the use of the
promotional mix. It involves activities like advertising, promotions, sales force
organisation, segmentations, selecting distribution channels, pricing, and managing
customer relationships (for either current or potential ones).

Through brand positioning and advertising, the marketing function can increase the value
that customer perceive to be contained in a firms product.

Marketing can also discover new needs of consumers and communicate it back to the
R&D which can then design products that better match those needs.

Service: All those activities associated with maintaining product performance after the
product has been sold. It involves processes/activities that enhance the value of the
product in terms of installation, training, maintenance, repair, warranty, and after sales
services

Support Activities
Supporting activities intend to support the primary activities by providing material resources,
human ones, technology at the level of the society.
Support Activities, which whilst they are not directly involved in production, may increase
effectiveness or efficiency (e.g. human resource management). It is rare for a business to
undertake all primary and support activities.

The support activities are handled in certain specialized departments.

Procurement: This is what the organization does to get the resources it needs to operate. This
includes finding vendors and negotiating best prices..
Technology development: These activities relate to managing and processing information, as

well as protecting a company's knowledge base. Minimizing information technology costs,

staying current with technological advances, and maintaining technical excellence are sources of
value creation
Human resource management: This is how well a company recruits, hires, trains, motivates,
rewards, and retains its workers. People are a significant source of value, so businesses can
create a clear advantage with good HR practices.
Firm infrastructure: These are a company's support systems, and the functions that allow it to
maintain daily operations.
Accounting, legal, administrative, and general management are examples of necessary
infrastructure that businesses can use to their advantage.

Primary activities examples

Inbound logistics. Starbucks inbound logistics involve company agents choosing coffee
beans producers mainly in African continent, communication the standards related to the
quality of coffee beans, establishing strategic relationships with suppliers and organising
the supply-chain management.

Operations. Starbucks operations are conducted in more than 50 countries in two ways:
direct operation of the stores by the company and licensing. Currently there are 8870
company-operated stores globally, whereas 8139 stores operate on the basis of license
(Starbucks Company Profile, online, 2011).

Outbound logistics. The outbound logistics for Starbucks has traditionally involved
selling its products through its stores without any intermediates. However, starting from
recent a range of Starbucks products such as 3-in-1 coffees in sachets are being sold
through a set of leading supermarkets.

Marketing and Sales. Starbucks does not heavily invest in marketing relying instead on
the word-of-mouth achieved through the high quality of products and high level of
customer services. However, occasional marketing activities initiated by the company
involve sampling of new products that are usually conducted within areas nearby the
stores.

Service. Providing superior level of customer services is one of the Starbucks main
objectives and it is driven from the mission statement of the company. Accordingly, the
company staffs are encouraged to go to great lengths in order to ensure the high level of
customer satisfaction

Support activities example

Infrastructure. Starbucks infrastructure includes a range of general support activities such

as management, planning, finance, accounting, legal support and government relations
that are required to support the work of the entire value-chain (Hitt et al, 2009, p.87).

Human Resource Management. The workforce is duly perceived to be the most valuable
resource by Starbucks. Accordingly, a wide range of training and development programs
are available for them and they are motivated by both, tangible and intangible incentives.
Specifically, in UK Starbucks staff is entitled to free drinks during the shift.

Technology development. Starbucks relies on technology for cost-saving purposes, as

well as, ensuring the consistency of the quality of products and offering a high level of
customer experience in general. For instance, with the introduction of computerised
coffee roasters the consistent taste of Starbucks coffee was ensured and this has
contributed to the level of customer retention for the company.

Procurement. This involves purchasing items that are needed for the production of final
products or offering services. For Starbucks it would be coffee beans and raw food items,
as well as fixed assets such as buildings, machinery etc.

GAP 1:
Gap between consumer expectation and management perception: This gap arises when the
management or service provider does not correctly perceive what the customer wants or needs.
For instance hotel administrators may think guests want better food or in-house restaurant
facilities, but guests may be more concerned with the responsiveness of the staff or the
cleanliness of their rooms.
Gap 2
Gap between management perception and service quality specification: This is when the
management or service provider might correctly perceive what the customer wants, but may not
set a performance standard. An example here would be that hospital administrators may tell the
nurse to respond to a request fast', but may not specify how fast'.

GAP 3:
Gap between service quality specification and service delivery: This gap may arise in situations
pertaining to the service personnel. It could happen due to poor training, incapability or
unwillingness to meet the set service standard. An example would be when a doctor's office has
very specific standards of hygiene communicated but the hired staff may have been poorly
trained on the need to follow these strict protocols.
GAP 4:
Gap between service delivery and external communication: Consumer expectations are highly
influenced by statements made by company representatives and advertisements. The gap arises
when these assumed expectations are not fulfilled at the time of delivery of the service. For
example a hospital printed on its brochure may have clean and furnished rooms but in reality, it
may be poorly maintained in this case the patient's expectations are not met.

GAP 5:
Gap between expected service and experienced service: This gap arises when the consumer
misinterprets the service quality. The physician may keep visiting the patient to show and ensure
care, but the patient may interpret this as an indication that something is really wrong.

The importance of value chain

Quality service is critical to corporate success in todays increasingly competitive environment
(McFarlane and Britt, 2007). Delivering high quality service is closely related to profits, cost
savings, and market share
Product quality and innovation have become especially important to producers and consumers in
the 21st century where competition and the need for change have forced both parties to search
for new means and ways to create value and to satisfy needs and wants using limited resources.
This entails using available and emerging technology and new methods and ideas to satisfy an
increasingly sophisticated and smarter customer-base and survive in both the marketplace and
market space characterizing the global economy. Examples of companies that are doing
exceptionally well in terms of the quality element of the SQIP value components include Ben &
Jerrys and Harley-Davidson (Weinstein, 2012). While this is the case, these companies are not
unique in delivering exceptional quality. The automobile industry market leaders and followers
have seen some exceptional increase in product quality over the last decade, and some notable
companies that have improved quality significantly include Hyundai, Lexus, Kia, among others.
Thus, in order to become market leaders or drivers rather than market followers or market
driven, competitor companies need to deliver above and beyond consumer expectations on all
four elements of the SQIP model.
Consumers are very class conscious in our materialistic society where influential others shape
our attitudes toward various brands and our purchasing choices and decisions (Solomon, 2004).
Therefore, organizational image matters, as well as the type of image-impact that consumption of
a particular good or service will have on customers. Value is created when a product or service
represents high quality in the eyes of consumers and their peers and onlookers.
Customers perceive value based on how they feel about a company and its products and how
other consumers feel about the same.
Price is the fourth and an equally important element of customer value as service, quality, and
image. It is through price that customers and producers or providers of goods and services
express the presence of the other three elements in the SQIP model. As Weinstein (2012) notes,
tradeoffs exist among the S-Q-I-P elements and companies cannot expect to be market leaders or
absolutely superior in all areas. The best they should strive to do therefore is to offer an effective
and efficient combination of these that define the value they create and deliver to their
customers. Some companies have mastered offering great prices to customers and make it their
mission (value proposition) to do so. Examples include Wal-Mart and Brands-Mart. Other
companies compete on the price factor of the SQIP model as a competitive differentiation
customer value strategy for example, Home Depot and Lowes. However, Weinstein (2012)
reminds these companies and entrepreneurs that customer value is a much richer concept and
entails far more than just a fair price.