Customer Loyalty and How Marketers Can Use It

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Table of Contents

Stage 1: the potential buyer
Stage 2: the new or casual buyer
Stage 3: the buyer
Stage 4: the steady customer
Stage 5: loyal buyer
Customer Brand Buying (CBB)
References

In the ever-growing postindustrial service sector and FSMG market nowadays many influential companies changed their orientations and focus on maintaining their existing customers and improving the quality of their mutual relations. It is proved more expensive to attract and search for new customers than to keep already existing (East et al., 2008). Various techniques are applied to retain existing customers such as price promotion, distribution channels, advertising. Besides this many companies realize different customer loyalty programs in such industries as hotels, banks, airlines, retail fuel, departments stores, supermarkets, etc.

One of the main objectives of these customer loyalty programs – to increase profits by increasing sales revenues on the part of the company’s customers and increasing their loyalty. The importance of customer policies and viable procedures is increasingly rising. As cost-efficiency depends on demand which can be now produced by supply and marketing companies are becoming more and more aware of the importance of customer loyalty programs which increasingly become a widespread norm in the majority of industries including retail fuel, supermarkets, banks, airlines industry, etc. Uncles et al. claims that the main purpose of customer loyalty programs is to increase the company’s profits and guarantee customer’s stable adherence to a given product of the firm (Uncles et al. 2003).

In terms of the company’s profits ensuring the growth of customer loyalty is one of the most crucial sources of a company’s efficiency. As the findings of Reichheld and Sasser show, that even 5% of loyal customers are maintained by the company, its profits are likely to rise by 100 percent. In addition, it should be emphasized that The Customer Loyalty report in 1997 shows that a supermarket’s most loyal and stable customers are more than 1000 times profitable for it than the least loyal. This situation is quite understandable and provides clear evidence for dealing with customer loyalty as one of the primary directions of marketing policies and development.

Consumer loyalty can be defined as the positive attitude of the buyer to this or that product, mark, shop, service, etc. which though is a consequence of significant factors for the buyer, lays more likely in the emotional sphere. It is necessary to understand, that the retail seller cannot affect the degree of loyalty of the consumer to the trademark of the goods.

Notwithstanding the fact that exist one customer loyalty, there are various explanations of its nature postulates by many modern scholars. Several definitions may come in handy for understanding the scope and importance of this problem. For instance, Oliver (1997: 392) defines puts forward an interesting definition in which customer loyalty is “A deeply held commitment to rebuy or patronize a preferred product/service consistently in the future, thereby causing repetitive same-brand or same brand-set purchasing despite situational influences and marketing efforts having the potential to cause switching behavior”.

Some other scholars which oppose strictly behavioral explanation of customer loyalty such as East et al., propose another definition where customer loyalty is ‘The biased (i.e. non-random), behavioral response (i.e. purchase), expressed over time, by some decision-making unit (e.g. household, person), with respect to one or more alternative brands, which is a function of psychological processes (decision-making, evaluation)’. As this definition shows the main emphasis is put on mental and cognitive processes which are the driving force of customer behavior in the market.

However, it should be emphasized that the major importance here plays the quality of the goods in the broad sense of the word, including not only quality as those, but also packing, packaging, advertising, and others. Such loyalty is formed in most cases by the manufacturer and distributors. As if to the loyalty of the buyer in relation to the place of sale, i.e. shop opens then the wide-open space for an activity for the retail dealer. Further, it is a question of consumer loyalty concerning only the enterprises of retail trade (Dowling).

It is a well-known fact that loyalty arises, when in the shop that needs which for the given buyer is the basic is satisfied. And this need can and not be realized. If good oranges are necessary to people, they go on the market and any discounts in a supermarket will not entice. If people need important fast service, they will be loyal to shop where it is not necessary to stand in a queue in the cash department or long to wait for the seller in the dairy (Reichheld).

Consumer loyalty often is often confused with satisfaction. Satisfaction appears when the buyer is happy and does not regret the spent money. They liked the prices in the shop, the goods have appeared of high quality, and the saleswoman smiled. But having received satisfaction from purchase in a shop, the client does not become obligatory loyal or will come in this shop once again. It is possible to tell, that the loyal buyer is always the satisfied buyer, but the satisfied buyer not always is loyal. Though satisfaction of the buyer – the first step on a way to a gain of its loyalty.

There is one more danger on a way to consumer loyalty. It is so-called false loyalty. Its complexity consists that such behavior of the buyer frequently is accepted by sellers as a display of loyalty – the buyer visits the shop and makes purchases. It is possible to allocate some reasons why the buyer “does not leave”, but this remains indifferent to shop: there Is no good alternative. When the shop is the unique shop of the given specificity in area, will buy in it (but only until there will be something the best). There Is no essential difference between shops, therefore there is no reason to change a habit. Desire to avoid deceit or other negative factors. From purchases in other shops keeps fear of purchase of the poor-quality goods or probability of bad service (” and suddenly there they will deceive? me “).

It is important to remember that for real true loyalty to develop the customer should have strong and stable attitudinal commitments to a given brand of company (Day 1969).

Customer loyalty can also be created by customers themselves who seek to form a stable relationship with a given brand or company. This commitment and relationship will be strong there where the customers’ choice depends on the needs of their households, communities, and attitudes formed by local culture.

The example of false loyalty may be explained by the following example. The shop is so-so, but it is possible to buy everything. Many buyers prefer to shop where it is possible to buy both products, and household chemical goods, even under higher prices, than to bypass little shops. The shop offers the best financial conditions for purchase. Memory discounts and other special offers can draw attention to shop, but loyal the buyer from it does not become. So, what such loyalty? Loyalty – from the English word loyal (true, betrayed) is, first of all, the positive attitude of the buyer to shop. Loyalty is an emotion of the client who comes to this shop, despite the presence of others, financial more favorable offers in the market. Its basic difference also consists in it from satisfaction – loyalty is completely not rational estimation of the shop, and consequence certain, often unconsciously perceived, factors. In fact, when the buyer is loyal, it can forgive both higher prices and separate errors in service.

The loyal buyer – what positively concerns to shop. And its opinion ” shop is pleasant ” often has the generalized character. Ask them ” why? “, And the majority cannot give an intelligible answer. For example, I often visit the shop “flowers” located ten minutes from my house. In spite of the fact that there are two more shops, much more closely. The first shop not only is pleasant to me, but I even have caught myself on an idea, that why that I consider as the duty to come there. It was necessary to analyze a situation, and I have come to the conclusion, that I go to this shop with the idea ” it is necessary to support old women ” which sellers-advisers are. But also, one of them can always give intelligible advice on what to do with the withered begonia. And it is in spite of the fact that the second represents the real shrew who smokes directly in a trading hall. (can be it is necessary to enter one more term ” the compelled loyalty “, which is based on not realized psychological factors which force to visit this shop?)

That is, the loyal buyer:

will always forgive separate errors in the form of time repair or a single instance of bad mood at the seller. This can be explained by the discipline which is often called the psychology of business. As Dowling and Uncles claim loyal customers are less sensitive and prone to reacting to negative information on a certain brand which is often provided by its rivals (1997). ;
actively recommend a shop to another and results in a shop of the friends and relatives. This claim is for instance supported by Bowen and Chen (2001)who state that many loyal customers may play the role of part-time workers as they act as important sources of information for other possible customers. As the abovementioned research proves the majority of home sales in the United States originate from positive recommendations and referrals. It should be remembered though that the efficiency of informing other customers depends also on product categories when for instance changing fashions would not be recommended instead for stable car repair and insurance.
it is poorly sensitive to the reduction of prices at competitors and to their other actions on stimulation of selling(Dowling).

The positive emotions do not always force to come back to shop. For example, in the shop, you have unexpectedly pleased, but there is it very far from your house. If it is the shop of clothes or gifts, I, undoubtedly, shall arrive at it once again. If it is a question of the goods of daily demand, I shall go that in the neighborhood. But the most important, that in both cases, I shall tell about this shop friend, and it is already one of the characteristics of the loyal buyer.

According to the model of revealed behavior developed by some notable scholars, the customer may be considered loyal to a certain brand not because of some abstract psychological attitudes producing some stable mode of consumption but because of their satisfactory experience with a given brand, shop, or company. If they buy a certain product on a permanent basis this may form stable commitment and habit to a given product however without forming conscious commitment and choice. Some customers may keep buying certain brands since it would be time-consuming for them and not worth searching for some new alternative of consumption.

This type of consumption is ineffective for the company in terms of consumer loyalty since when a certain brand of a company is not available for example, a consumer will not hesitate to buy another brand instead of wasting his/her time for searching a specific brand in other shops and markets. In this respect Uncles, et al. (1994) point to the existence of three different modes of loyalty. The first one is monogamous meaning perfect loyalty to a given product or company, polygamous meaning permanent loyalty to several or more brands but not others, and promiscuous, which means the absence of loyalty as such.

In the retail sector it is possible to allocate five groups of buyers:

The Potential buyer – the person who does not see the need for visiting the given shop or visits the shop of the competitor. It is early to speak about loyalty.
The new or casual buyer – has come into shop simply so, to try. Or for any reason could not reach the habitual shop.
The buyer – buys in the given shop often enough, but actively considers also other shops. They can appear to display false loyalty or satisfaction with the goods and process of purchase.
The Steady customer – buys in the given shop more often since it is satisfied by the goods and process of purchase. The adherent – that is the loyal buyer, its definition sees above(Reichheld).

It is not news if the shop sells expensive and stylish menswear its basic target audience are men with a high level of incomes, interested persons beautifully and expensively to put on. But we in clause shall lean on the consumer groups listed above since they are universal for any goods. Here again, there are complexities. How to define the group which for shop represents the greatest interest? It is good, that simply the buyer became constants, but in fact, and buyer who has casually run in the shop of the competitor can make a solid profit.

The output from such an inconvenient situation seems to be possible. It is enough to recognize, that consumer loyalty size is not absolute, but relative. In fact, we also have defined it from the point of view of emotional, instead of rational factors. Loyalty is necessary to consider rather how the buyer perceived shop yesterday and as perceives today. In between these two perceivings equal-signs or cost less, it is possible to speak safely about the display by the buyer of greater loyalty concerning the considered shop.

Taking into consideration such an approach of a group of buyers represent stages of loyalty. Hence, there are different levels of loyalty, and planning of the program of loyalty will consider each group of buyers. If the buyer passes from lower level to higher, the shop wins this fight.

So, the object of the efforts is found. These are five groups of buyers which representatives can be tomorrow more loyal, than today. The Overall aim is clear and has been formulated above: to make so that today the buyer has shown more loyalty (read: has bought more and recommended a thicket), than yesterday, and tomorrow it is more, than today. And methods of work with each group, undoubtedly, will differ.

Stage 1: the potential buyer

That in the future to develop loyalty at such buyers, it is necessary (only) to force to make them the first trial purchase. On a way to loyalty, we are helped by informing and enticing advertising of shop, the action on stimulation of purchases with places of sales, and also advertising of the concrete goods which is given by the manufacturer. A greater role effective registrations of a show-window of the shop, and also the simple announcement of sale or other material benefits which will be received by the buyer, dared to take the first step can play. Non-standard methods of public relations, for example, work with hearings or “adjustment radio” are good.

They especially promote the attraction of buyers in small shops in the neighborhood. During opening the new shop “Products” the special command of old women distributed the information on what is it the remarkable and cheap goods, in the savings bank, on mail and even in other shops(Dowling).

It is much more difficult to force the customers of the competitor to prefer a new shop to habitual. In fact, people reluctantly change their habits, especially if the process of their purchasing as a whole arranges. We should be ready to offer such buyers certain goods and services which are not present at the competitor. And already at this stage, it is impossible to forget about the main thing. The loyal client needs to be grown up and kept.

The most complex is to grow up and track, that it was not flattered on offers of competitors. With this purpose, the detailed database which allows “the nobility of the buyer to face” in the marketing sense of this word has been got. All the history of purchases before us, together with wishes which are stated by the buyer, communicating with the seller. We try to raise constantly the quality of service and, certainly, hard to advance the client that it will want to buy, offering it wide scale of a choice! (Reichheld)

Stage 2: the new or casual buyer

The Program “on a step closer to loyalty” will sound as follows: “How to make so that to the buyer it was pleasant, and they wanted to come once again”. The shops should try to involve originality, beauty, and effectiveness, and we see off convenience of purchasing and competence of the personnel. That is on a way of fulfillment of purchase there should be no barriers, all should have to that the buyer would want to return.

A simple example. Observe the buyers of shop IKEA. They are very different – on age, income, tastes, and inquiries. Their desire is to make the house cozier, convenient, and beautiful. And an unwillingness to waste time on tiresome search of the necessary bedside table. Therefore the shop is organized so, that there (conveniently and clearly; rather cheaply (and separate subjects are absolutely cheap); all can be bought in one place and in addition to receive a weight of ready ideas on registration of the apartment.

What for to go round five furniture stores when here it is possible to buy not just furniture, and the ready decision for a bedroom or a nursery. And always it is possible to return, buy in addition the necessary thing and to be assured, that it will approach on color and design.

Well (recollecting an example with the flower shop) if at a trading hall there is a certain emotional component which at once draws attention and influences the buyer so, that its positive emotion will be transferred by an aura on all shop. For example, there is at you in staff a saleswoman who smiles so, what even the buyer gloomiest and dissatisfied with life will feel king in an environment of the retinue betrayed and admiring by it. At this stage, there can be useful competently developed discount programs to support emotion with the rational factor. Due to the discount, it is impossible to make buyers loyal, but it is possible to involve them in the shop for repeated purchase.

The owner of a discount card is not necessarily a loyal client. Nevertheless, the program of formation of loyalty often includes the discount program. Discount cards are one of the opportunities to involve the buyer and to transform visiting shops into a habit. To entice such a client is much more complex(Dowling).

Discount cards attract repeated purchases, but the owner of a card is yet a constant client, and the candidate for this is so much attractive to any shop, group. To especially far it up to the loyal client though the loyal client just not necessarily has discount cards. The basic question is the one whom discount cards to give out – to all successively or that who makes purchases for the desirable sum for us and makes for us profit. I – for the second variant to encourage it is necessary those to whom our goods and our publicities-entertaining is interesting. Hence, and draws of prizes, for example, need to be spent not among all successively, and among the owners of discount cards, encouraging them to additional purchases.

Stage 3: the buyer

At this stage, it is possible to start to speak about loyalty: “How to make so that from visiting to visiting the buyer there was all happier and bought all more and more”. Having come in shop, the buyer gives you of money in exchange for the goods of the appropriate quality satisfying certain utilitarian need. It is not enough of it – the buyer should receive additional value from purchase. The Buyer should receive more, than expects – assortment, hardly more, than it is necessary; conditions of purchase, it is hardly more attractive, than expected; work of the personnel, is hardly more hospitable, than should provide shop of your level.

Additional value can be created by:

Unexpected material surprises.
pleasant things in work of the personnel. At purchase of a dress in a small boutique it has appeared, that the customer does not have enough money. The owner without a share of doubt has sold a dress more cheaply, with a smile having noticed ” not to spoil mood because of such trifle “.
Elementary periodic attention. It is pleasant to majority of buyers to receive the congratulations happy birthday or New year.
rograms of encouragement of purchases which allow
- to save on discounts or to earn points depending on the sum of purchase
- to take part in gamblings (lotteries) by a principle ” lost is not present “.
- to do something or even to communicate to other people, for example, in club of fans of a healthy feed.
constant improvement of quality of service. Skill to support the client to look at shop its eyes, to resolve in its advantage a non-standard situation, closely to listen and patiently to serve. Have patience and learn to pay compliments sincerely. Always it is possible to find something good in the person and at dialogue to emphasize it is then both purchase more, and the buyer is happy.

Stage 4: the steady customer

He/she is not yet loyal, but can become those. The purpose in this case – “to understand the reason of constancy to transfer him/her in group of loyal buyers “. Programs of encouragement of purchases which create additional value, remain significant. And on the foreground there is a gradual personification of attitudes – an individual approach to the buyer when we work not with declared, and with its latent needs.

Today the situation is those, that all over again you come on this market and win the part, then you should to develop and be constantly interesting that this part to keep. Have slowed down movement – beside a neon the enterprising competitor already shines.

If we humanize computers and cars also the shop always has the person and soul and forces us to test emotions. Concurrence of the expected and received emotions from visiting shop conducts to sympathy. A repeating sympathy – attachment and trust. I want products – I expect fast service, a choice, service, parking, that music slightly + KINDLINESS of the personnel. The most difficult – to learn the personnel to love the buyer, i.e. to love first of all the work. All your marketing efforts can be broken about elementary rudeness of the dissatisfied cleaner! Loyalty – the most interpersonal concept.

To the person it is pleasant, when it know by sight, greet, remember its birthday, congratulate on holidays. To it also it is pleasant, when it can be thrown by pair words with the seller, express the special opinion, complain of neighbors, brag of achievements of the son, hear words of sympathy or a compliment. Then process of purchase turns rather social process, process of dialogue. And during dialogue we learn the buyer better that in further to improve quality of service proceeding from its latent needs (Dowling).

Stage 5: loyal buyer

Loyalty is a concept complex. Certainly, to define it theoretically is easier, than in practice to win the buyer. Many factors need to be considered and thought over. The main thing, that loyalty is similar to love. The loyal client is such remarkable client by whom it is necessary to love, care and cherish very much, in fact the gain of new clients costs in some times more dearly, than deduction old. But the meek love in a life is a moral stress, and in trade – material. Certainly, the buyer should be loved. Loyal buyers require constant additional charging the good relation, that is in mutual love. The overall objective – “to not disappoint”. The loyal buyer with understanding will concern, for example, to that on Saturday about shop is complex to park. But if with a parking at you constant problems have begun, be going to say goodbye to the buyer. Loyalty is complex for winning and easily to lose.

All business and companies should remember that the cost of attracting new customer is much more higher than the cost of keeping existing ones. So, those who are engaged in business activities should remember that there exists several types of loyalty patterns which should be kept in mind to elaborate and realize effective marketing strategies guaranteeing the stableness of loyalty.

In modern concepts of customer behavior and loyalty normally several basic types of customer orientations are analyzed.

Customer Brand Acceptance (CBA). This form of customer behavior is characterized by polygamous brand loyalty (see above) as they do not adhere to a given brand but instead choose the set of different brands. This is the most wide-spread pattern in competitive markets with repeat-purchase such as for instance FSMG markets. In this case customer’s buying decisions are based on availability, accessibility and even attractiveness of a certain brand during purchasing process and use experience.

Certainly, the choice between alternatives will depend considerably on marketing and promotion activities but final conclusions will be made with respect to satisfaction with a product’s quality. The strategies with respect to this category of customers are as follows: increasing the size of brand and delivering product to the area of various target customers and groups by means of increasing promotion and distribution channels. Besides this it is needed to create proper relations with intermediaries to increase the shelf spaces and reduce stock problem; using active advertising strategies aimed at increasing brand awareness and popularity.

Customer Brand Commitment. This category of customers are loyal to different categories of products but mostly luxury products, expensive cosmetics, education and wide variety of services. Among the factors that are described as major in forming stable relationship between a brand and a customer are personal attitudes, social norms and different values, therefore a company should pay a particular attention to these issues.

One of the most effective strategies in this situation may be concentrating on a specific target group of customers which are expected to create the largest portion of company’s profits. This can be implement by decreasing distribution channels and spending more funds better support of relationship between brand and its customers.

Customer Brand Buying (CBB)

Such customers have extremely low brand loyalty. Their choice to buy a given brand may depend on situation and is often changeable. If a product of another company is cheaper they would not hesitate to buy it. In order to attract or retain this category of customers it is important for a given company to offer price discount or various sales promotion. Besides this it may prove helpful to expand distribution channels and networks, realize loyalty programs (Malley 1998). If all these circumstances and situations are taken into account there would exist a genuine opportunity to increase brand and company’s efficiency.

To sum it up, customer loyalty is one of the most important parameters of marketing strategies and company’s efficiency. For a firm to be effective in their realization it is crucial to analyze different customer positions, orientation and attitudes and to elaborate corresponding set of practices and procedures.

References

Bowen, J.T. and Chen, S. (2001) ‘The relationship between customer loyalty and customer satisfaction’, International Journal of Contemporary Hospitality Management, Vol. 13, No. 5, pp. 213-217.

Day, G.S., (1969) ‘A two-dimensional concept of brand loyalty’, Journal of Advertising Research, Vol. 9, No. 3, pp. 29-35.

Dowling, G.R. and Uncles, M.D. (1997) ‘Do Customer Loyalty Programs Really Work?’, Sloan Management Review, Vol. 38, pp. 71-82.

Ehrenberg Andrew S.C. , Uncles Mark D., Goodhard Gerald J., Understanding brand performance measures: using Dirichlet benchmarks.

Byron Sharp, Anne Sharp, Loyalty programs and their impact on repeat-purchase loyalty patterns.

Shugan Steven M. Editorial Brand Loyalty Programs: Are They Shams?

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Chip R, John R Patterson, Customer Loyalty Guaranteed: Create, Lead, and Sustain Remarkable Customer Service Bell.

Oliver, R.L. (1997) Satisfaction: a behavioral perspective on the consumer, New York: McGraw Hill.

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Timothy L. Keiningham, Terry G. Vavra, Loyalty Myths: Hyped Strategies That Will Put You Out of Business and Proven Tactics That Really Work.

Uncles, M.D., Dowling, G.R. and Hammond, K. (2003) ‘Customer loyalty and customer loyalty programs’, Journal of Consumer Marketing, Vol. 20, No. 4, pp. 294-316.

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