- Business and Employment
Understanding the categories of customer loyalty – a key to profitability
Consider the following statements:
“There’s a lot of pubs in Bradleytown, but McLoyal’s is the only one that serves X draught beer. It smells and the food is terrible, but I always find I end up there after a tough day at work”
“I just paid for my 6th consecutive month subscription at MUSCLEX. Nothing special and the instructors are no real experts, but it does the job and it’s only 5 minutes away”.
“I’m a true fan of Felici’s when it comes to Italian, what great food and impeccable service! I’d say it’s my favorite restaurant in the whole world. If only it wasn’t closed on Sunday’s, I’d be there every week!
If you were the manager of the above businesses, which of the above customers could you consider loyal? Tip: 7 out of 10 managers mistake all three for loyal customers.
Correct answer: None of the above customers are loyal.
In more than six decades of marketing theory “brand loyalty” has been given over fifty different definitions, and despite the fact that the benefits of loyalty are well and widely acknowledged, up to a few years ago there didn’t seem to be any agreement on what ‘’loyalty’’ actually is.
What previous academics seemed to ignore and what most modern executives fail to understand is that customer loyalty cannot be described as a one-dimensional construct and that there is more to customer loyalty than just ‘’repeat purchase’’.
It is of critical importance to any business to realise that not every customer repetitively buying a product or service is necessarily ‘’truly loyal’’, in fact, if a customer is retained for reasons other than true loyalty, the effect on a company’s long term profitability may actually be negative.
There are three dimensions of customer loyalty, all three of which need to be evident in a single customer in order for him to be considered as “truly loyal” towards a business.
The dimensions of Customer Loyalty:
This slightly confusing behavioural element concerns a necessary distinction between the action of repeat purchase from the intention that does not necessarily lead to re-purchase. A truly loyal customer exhibits an actual behaviour of repetitive purchase and not simply an intention to do so.
According to marketing theory, apart from repetitive purchase, true customer loyalty is accompanied by a favourable attitude towards a product or service. A truly loyal customer will not be limited to re-purchase behaviour but exhibit strong preference and a relative commitment.
Even if both behavioural and attitudinal dimensions are present, it is argued that a customer cannot be considered loyal unless he does not continue or intend to purchase again in the future, making it obvious that a temporal element also needs to be considered to identify truly loyal customers
Categories of Loyalty
Exploring a relationship that combines behavioural and attitudinal elements, customers may be divided into four categories according to a) the strength of the attitude they show towards the product / service and b) the frequency of their purchase.
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 business’s revenue potential from this category is relatively limited.
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.
On the other hand, there is much potential for a business to turn inertia into true loyalty, although it is important to understand that exit barriers such as loyalty schemes or discounts are not the solution. In order for a company to convert inertia into latent or truly loyal customers, there must be an increase in the product’s perceived added value against competitors.
When situational factors or social influences have a stronger impact on purchase decision that relative attitude, customers may buy or use a company’s service often despite the fact they are willing to recommend it to others.
Most likely situational factors include affordability, narrow distribution channels, inconvenient store location or hours and lack of continuous availability. A company that can successfully recognise and develop ways to remove these barriers, will most definitely benefit from larger levels or repeat patronage.
Combining high levels or both repeat purchase and commitment towards a 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 product’s price may only affect the quantity of their purchases but not their actual choice of brand. Need more be said?
More On Customer Loyalty:
The article above is based o number of studies and publications, including a research by the author (N. GERONIKOLAS) carried out for the University of Strathclyde, titled "SERVICE QUALITY IN SUMMER RESORT HOTELS: A STUDY OF THE DIMENSIONS AND THEIR EFFECT ON CUSTOMER LOYALTY" (2004).
Other sources include:
Dick and Basu (1994) “Customer Loyalty: Toward an integrated conceptual framework”
Sasser, Earl W. Jr. and Jones, Thomas O., (1995) Why Satisfied Customer Defect Harvard Business Review, November-December 1995, pp. 88-99
Schlendrich, Udo A. (2001) A model of customer loyalty: an empirical investigation of the relationship between value, satisfaction and commitment Unpublished Thesis, Strathclyde University
Gounaris, S. and Stathakopoulos, V. (2004) “Antecedents and consequences of brand loyalty: An empirical study“, Journal of Brand Management, London: Apr 2004.Vol.11, Iss. 4; pg. 283, 24 pgs