LG Distributor Case Study
A loyal customer base can be a valuable asset for any organization. It reduces the need to seek new customers and is positive feedback that the organization’s products and services are meeting the needs of a particular group of people (Rowley and Daces, 1999). Ata very general level, loyalty Is something that consumers may exhibit to brands, services, stores, product categories (e. G. Cigarettes and activities (e.
G. Swimming). Some people use the term customer loyalty as opposed to brand loyalty; this is to emphasize that loyalty is a feature of people, rather than something inherent in brands. Unfortunately, there Is no universally agreed definition (Jacobs and Chestnut, 1978; Dick and Bass, 1994; Oliver, 1999; Gee et al. , 2008).
As competition Intensified during the current economic crisis, many firms are developing or improving their loyalty programs to deter customers detecting to tenet competitors (Ho et al. , 2 consensus is emerging that customer loyalty is vital to service business performance. In particular, a loyal customer base will generate more predictable sales, steady cash flow and an improved profit stream (Asker, 1991 a).
Accordingly, an increasing amount of attention has been placed by researchers on investigation into customer loyalty to a service provider. There are two aims of customer loyalty programs.
One is to increase sales revenues by raising purchase/usage levels, and/or increasing the range of products bought from the supplier. A second aim is more defensive – by building a closer bond between the brand and current customers it is hoped to maintain the current customer base. The popularity of these programs is based on the argument that profits can be increased significantly by achieving either of these aims (Uncles et al. 2003). In parallel with the development in quality, researchers and managers have become interested in strong brand names which has driven impasses to reconsider the importance of established brands (Asker, 1991 b).
The motivation for the increased emphasis on brand names and quality is that they both have a strong effect on customer loyalty (Smith and When Park, 1992). Previous loyalty research has heavily focused on the “satisfaction leads to loyalty’ paradigm Banana et al. , 2011) and they rarely provide a unique questionnaire for assessment of customer loyalty.
The purpose of this paper is twofold: first, definitions of customer loyalty are reviewed. Second, literature on customer loyalty questionnaires is studied ND a comprehensive questionnaire is proposed, which is then used in a case study in MANDARIN, the Distributor of LAG Electronics in Iran. 2 www.
Maceration. Org/bums Business Management and strategy SINS 2157-6068 2011, volt. 2, NO. 1 : E 2. Satisfaction and loyalty Customer satisfaction or dissatisfaction is a well-known and established concept in several sciences. Customer satisfaction cannot be evaluated directly using an objective measure.
If, however, customer satisfaction is treated as an abstract and theoretical phenomenon, it can be measured as a weighted average of multiple indicators. Customer satisfaction is influenced by two factors: expectations and experienced service performance (Shania, 2006). Perceived performance is influenced by the consumers’ perception of service quality, marketing mix, brand name and image of the company. Frequently, a high positive correlation between the constructs of satisfaction and quality and product loyalty is reported. 2. The concept of customer loyalty Customer loyalty has been largely treated by researchers as either repurchase behavior (e.
G. Winner et al. , 1998; Loveland, 1998; Sutherland, 1998) or repurchase behavior combined with an attitudinal component e. G. Dick and Bass, 1994; Andresen and Landlines, 1998; Oliver, 1997; De Router et al. , 1998; Lemming and Mattson, 1998; Griffin, 1995; Price and Arnold, 1999).
Consumer loyalty is considered as an important key to organizational success and profitability (Oliver, 1997; Divert et al. , 2003).
Those consumers that demonstrate the greatest levels AT loyalty toward ten product or service actively tent to repurchase more often, and spend more money. As a result, a great deal of research attention has focused on the identification of effective methods of actively enhancing loyalty, including loyalty programs such as point reward schemes (Lack, 2000). In contrast to these reward schemes, several researchers have argued that “customer loyalty can be increased by encouraging consumers to complain” (Foretell and Wonderful, 1987, p.
44). The evolution of the loyalty concept is illustrated in Figure 1. The concept of loyalty first appeared in the sass. Two separate loyalty concepts evolved. Namely, “brand preference” (Guest, 1955) which was later referred to as attitudinal loyalty and “share of market” (Cunningham, 1956), which was later referred to as behavioral loyalty.
Nearly 30 years after loyalty first appeared in the academic literature, researchers proposed that loyalty may be more complex and that it may comprise both attitudinal and behavioral loyalty.
This bi-dimensional concept has since been combined and referred to as composite loyalty. The composite definition of loyalty has become the basis for much loyalty research that has since been undertaken (e. G. Bennett, 2001). The composite definition of loyalty considers that loyalty should always comprise favorable attitudes; intentions and repeat-purchase Jacob and Chestnut, 1978).
Anthracite and Poltroon (2011) believe that the combinational method involving both attitudes and behavior is the most robust and appropriate as it captures the two major influences of consumer decision making.
Table 1 categorizes key measures that have been proposed in the loyalty literature as either 3 attitudinal or behavioral. This is by no means an exhaustive summary of loyalty measures. Jacobs and Chestnut’s (1978) review of the loyalty literature revealed over 80 loyalty measures proposed by various researchers. Figure 1. The loyalty construct – 1950-1990 (Roundel-Thiele, 2005) Table 1.
Loyalty measures and their concepts (Roundel-Thiele and McKay, 2001) Attitudinal loyalty Attitude toward the loyal/disc-loyal act (sharp et al. 1997) Brand preference (Guest, 1955) Commitment (Hawker, 1994) or attitude toward the brand measures (Sharp et al. , 1997) Probability of purchase (Dangers and Sharp, 1996; Jacobs and Chestnut, 1978) Behavioral loyalty Market share loyalty (Cunningham, 1956) also referred to as preferential purchase brand allegiance Exclusive purchase Jacob and Chestnut, 1978) Elasticity’s (Sharp et al. , 1997) Price until switching (Pessimism, 1960) The ability of an organization to attract and retain customers is vital to its success (Rampant and Rampant, 2011).
Often, customers are retained for long periods but without a genuine relationship ever being developed.
In addition, Barnes (1997) acknowledges that a customer may not purchase frequently from a firm, even though he or she may feel something of a relationship toward that firm. There may be many other reasons for lack of visitation. Further, this problem of spurious loyalty is not alleviate Day ten alternative approach AT along outtalking components to purchase behavior. Researchers such as Belonged et al. 1997) distinguish loyalty as a psychological outcome and repurchase intentions as a behavioral outcome. A psychologically loyal customer may not intend to purchase from a service provider because their circumstances prevent them (Barnes, 1997).
Kingston (1983) has argued strongly loyalty to be treated as a psychological construct. Further, in an interesting development, Oliver (1999) extends the notion of incorporating repeat purchase with loyalty by suggesting that psychological strategies are needed to achieve ultimate loyalty.
Excluding repeat purchase, four dimensions of loyalty can be distinguished in the services literature. These dimensions are: (1) positive word-of- mouth; (2) a resistance to switch; (3) identifying with the service; and (4) a preference for a particular service provider. 4 Positive word-of-mouth is a common approach to loyalty conceptualization.
Loyal customers become an advocate for the service (Payne, 1993). Four variations of the advocacy concept can be identified: (1) Providing positive word-of-mouth (e. G. Estimate et al. 1996; Andresen and Landlines, 1998); (2) Recommending the service o others (Stump and Thirty, 1991); (3) Encouraging others to use the service (Kingston, 1983; Butternut and Brown, 1997); and (4) Defending the service provider’s virtues has been proposed by Kingston (1983).
Dick and Bass (1994) have developed a framework for customer loyalty that combines both attitudinal and behavioral measures. The authors propose that loyalty is determined by a combination of repeat purchase levels and relative attitude. Relative attitude is determined by attitude strength and attitudinal differentiation.
Figure 2 illustrates the loyalty conditions reposed by Dick and Bass (1994). Loyalty, with its high repeat patronage and high relative attitude, would obviously be the ultimate goal for marketers. Raja (1985) found that firms with large market shares also have larger groups of loyal consumers.
Loyal customers are less motivated to search for alternatives, are more resistant to counter-persuasion from other brands, and are more likely to pass along positive word-of-mouth communication about the service to other consumers (Dick and Bass, 1994).
Repeat Patronage high high Loyalty Relative Attitude Spurious Loyalty low No Loyalty Latent Loyalty low Figure 2. Service loyalty classification scheme Avail and Member, 1997; Dick and Bass, 1994) Latent loyalty exists when a consumer has a strong preference for or attitude toward a company’s brand over its competitors’ brands, but does not exhibit high repeat patronage due to situational or environmental variable.
For instance, a consumer may have a strong attitude about a particular Italian restaurant, but may not frequently visit that restaurant because of a desire for variety in meals or a lack of discretionary income that limits the amount of times that he/she can eat out at a restaurant. Spurious loyalty occurs when a consumer frequently purchases a brand, but sees no significant differences among brands.
This could occur if there were no alternatives In a category or if choice is made strictly on past experiences and habits.
Finally, no loyalty exists in a category when consumers see few differences between alternative brands and there are low repeat purchases. Brand switching is common and choice among brands is usually made based on some situational factor, such as the brand that is on sale or that is noticed in an end-of-aisle display. This classification system an be useful to marketers as they try to build or retain loyalty. Once marketers of services have identified the type of loyalty most associated with their brand, strategies can be implemented that are appropriate for building loyalty under conditions that exist for that service.
. Relationship between customer loyalty and customer satisfaction Customer loyalty expresses an intended behavior towards the service or the company. This includes the likelihood of future renewal of service contracts or the probability of a change in patronage. Customers may be loyal due to high switching barriers or due to lack of real alternatives. If real alternatives exist or switching barriers are low, management discovers the organization’s inability to satisfy its customers via two feedback mechanisms: exit and voice.
Exit implies that the customer stops buying the agent’s services while voice is customer complaints expressing their dissatisfaction directly to the agent. Customers’ exit or change of patronage will have an impact on the long-term revenue of the agent. Effects caused from changes in the retention rate are exponential (not linear) with regard to effects on long-term revenue. Even a marginal reduction/increase in retention rate has significant effects on future revenue (Andresen, 1995).
Customers may also be loyal because they are satisfied and thus want to continue the relationship.
History has proved that most barriers to exit are limited with regard to durability; companies tend to consider customer satisfaction as the only viable strategy to keep existing customers. Several authors have found a positive correlation between customer satisfaction and loyalty (Anderson and Sullivan, 1993; Foretell, 1992). Foretell (1992) examined 27 different businesses and found strong correlations between satisfaction and loyalty.
Foretell further found that loyal customers are not necessarily satisfied, but satisfied customers tend to be loyal customers. Highly satisfied customers are much more loyal than satisfied customers and any drop in total satisfaction results in a major drop in loyalty. Xerox conducted a study for satisfaction using a five-point scale from 5 (highly satisfied) to 1 (highly dissatisfied). The relationship between the scores and actual loyalty differed greatly. Customers giving Xerox five were six times more likely to repurchase Xerox equipment than those giving four (Richened, 1996).
This relationship is illustrated in Figure 3. During the past decades both marketing academics and practitioners have been intrigued by the relationship between satisfaction and loyalty (Dick and Bass, 1994; Foretell et al.
, 1996; Hallowed, 1996). Most of these studies, however, have concentrated on products (brands) and to a somewhat lesser extent on services or channel intermediaries. Surprisingly, research on the relationship between store satisfaction and store loyalty has remained limited, actual number as well as in scope.
Yet, in the present environment of increased competition with rapid market entry of new store concepts and formats, the managerial challenge of increasing store loyalty also presents the research challenge of a more in-depth understanding and an empirical estimation of this important type of consumer behavior. There is some evidence that store loyalty may be (positively) related to store image (Osama, 1993). A key aspect is the proactive nature of advocacy.
According to McCarty (1995), while a satisfied customer is merely a passive recipient of service, the loyal customer feels a positive connection to the service provider.
Loyal customers become active ambassadors for the business. Loyalty Highly Somewhat Dissatisfied Dissatisfied Natural Somewhat Satisfied Highly Satisfied Satisfaction Figure 3. The relationship between customer satisfaction and loyalty (Tepees, 1999) 4. How to assess customer loyalty Literature review shows that there exist a few surveys as an approach to assess customer loyalty, comparing with the majority of resources, which focus on loyalty models and frameworks. Table 2 represents a summary of what is extracted from the literature.
It is important to note that some of the items are selected from long questionnaires, in which other issues, such as satisfaction, image, etc. Were also included. As it is shown, some authors have classified the questions in different categories, depending on different types of loyalty. Considering the questions addressed in Table 2, it seems that different researchers use different sets of questions for their customer loyalty surveys and there is no general agreement on the use of questions.