Essay about Customer Loyalty

This paper discusses the various elements of customer loyalty. Past researchers have concluded that with the right set of value elements and investigating what customers truly need, companies retain customers effectively thus ensuring greater customer loyalty. It has been concluded by various researchers that cognitive, affective, conative along motivation contribute immensely to customer loyalty. The terms customer and consumer have been used interchangeably in this paper. This paper’s literature review studies the dynamics of customer satisfaction and emotional attachment and it has been shown that these factors are responsible for ensuring customer loyalty. This paper also investigates the relationship between loyalty programs and customer loyalty and the various methods by which loyalty programs enhance a customer’s loyalty toward the company itself. This paper also investigates the innovation capability of an organization on a company’s reputation and loyalty and also interlinks consumer experience in the whole dynamics. The author of this paper has been through academic literature to write about user-driven customization in–use – phase, its relationship with customer loyalty to the brand, and the emotional attachment to the product.

Introduction and Literature Review

The “holy grail of marketing” has been customer loyalty, customer satisfaction, and customer relationship marketing – these have been regarded as a business question of immense importance (Srivastava and Rai, 2018; Nguyen et al., 2016). It has been observed that products become obsolete before reaching their life expectancy resulting in a shorter product life cycle on the customer side, as well as shorter product life cycles on the company side (Antonia et al., 2017).

A loyalty program can be defined as a structured set of marketing activities that reward and foster loyal customer behavior (Sharp and Sharp, 1997; Gupta et al., 2018). Customers are loyal to a company until they receive a better offer from its rival companies – loyalty programs by themselves cannot be a tool for retaining customers and ensuring their loyalty. It has been agreed by most researchers that customer loyalty in general means that the customer benefits one seller over competitors (Jones et al., 2008), and exhibits a willingness to pay a premium (Chaudhuri and Holbrook, 2001; Sundstrom and Lidholm, 2019). Dick and Basu, (1994) have shown that customer loyalty has two dimensions: behavioral dimension and attitudinal dimension, and most are a mixture of these two types of dimensions.

According to the study carried out by Foroudi et al. (2016) and research by Bhattacharya and Sen (2003), consumers perceive a company as trustworthy and respectful because of three reasons: (1) their experience with the company, (2) its products and services, and (3) the company’s corporate reputation.

Past research has shown that moderately successful loyalty programs have acted as switching barriers between rival companies and these positively influence customer loyalty. This was highlighted in the study by Gupta et al., (2018) and as per research by Evan- Schitzky and Wunderlich (2006); Patterson and Smith (2003). Bolton et al. (2000) have argued that reward programs help consumers and companies alike by shifting the consumers’ attention away from the price and hence, resistance to price-related persuasion from competitors eventually develops.

Some researchers have also argued in the past that loyalty programs do not truly create true loyalty. Recently Forbes declared Apple the most valuable company and it enjoys tremendous customer loyalty, still, Apple has never designed an official loyalty program for its customers (Srivastava and Rai, 2018).

Ngo and O'Cass (2013), concluded the socio-technical system theory of innovation. (1) Technical innovation capability (development of new services, service operations, and technology) and (2) non-technical innovation capability (managerial, market, and marketing) (Ngo & O'Cass, 2013).

Foroudi et al., (2016) researched to study the influence of innovation capability and customer experience on a company’s reputation and loyalty among its customers. Foroudi et al. (2016) stated, “In retail environments, not the individual customer factor, but complex demographics configurations influence the prediction of customer loyalty and reputation; technical innovation capability and non-technical innovation capability modifies the effect of complex demographics on loyalty and reputation; effective customer experience and the intellectual customer experience in a retail setting modifies the effect of complex demographics on loyalty.”

Reading through the literature on customer loyalty, it can be seen that commitment and trust have differential effects on attitudinal and behavioral loyalties (Watson et al., 2015). Wolter et al. (2017) investigate the customer loyalty concept and presents the customer loyalty concept and present the need for customer-company identification for enduring customer loyalty.

According to Gupta et al. (2018), there have been studies in the past that show loyalty programs can have a positive impact on attitudinal loyalty (Noordhoff, Pauwels, and Odekerken-Schroder, 2004; Wirtz, Mattila, and Lwin, 2007) and behavioral loyalty (Meyer- Waarden, 2007; Noordhoffetal et al.,2004). According to the research carried out by Dick and Basu (1994), loyalty programs launched by the company lead to an increasing number of the transaction thus building positive attitudinal shifts towards the brand.

According to Gupta et al. (2018), customers whose loyalty is only to a program may tend to switch to a competitor’s program that offers more attractive benefits. Hence, it becomes imperative for the organization to understand through what processes customers navigate from program loyalty to company loyalty (Gupta et al., 2018)

Srivastava and Rai (2018) say that customer loyalty programs fail to capture the complete spectrum of customer loyalty and loyalty programs by themselves do not acknowledge the fact that there is more to customer loyalty than repurchases and revisits. Customer loyalty is made up of the attitude, behavior, and cognition of a customer – this gets reflected in his or her patronizing the brand even at a premium price (Srivastava and Rai 2018). According to

Srivastava and Rai (2018), it is customer satisfaction and or emotional attachment that together build the truest form of customer loyalty.

Rai and Srivastava (2014b) stated, “Customer loyalty is a psychological character formed by sustained satisfaction of the customer coupled with emotional attachment leading to a state of willingly and consistently being in the relationship characterized by preference, patronage, and premium”. The companies must deliver satisfactory service to their customers and form an emotional bond with them to retain their customers – this creates customer loyalty with a profitable customer lifetime value.

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Breugelmans et al. (2015) have opined that in today’s growing market, the competition has made many firms focus even more on winning new customers and making them come back to entice repurchases as has been stated by Jain and Patel (2016).

In the FMCG sector, a research study was carried out to develop a framework for repositioning customer loyalty. Sundstrom and Lidhom (2019) opined that the FMCG market has serious challenges concerning weak customer loyalty. The FMCG market requires practical output that broadens the view on customer loyalty and a framework that helps FMCG and other companies build strong customer relationships (Sundstrom and Lidhom, 2019). Ritzer (2009) pointed out that co-creation is part of business and production and consumption are essentially interlinked. Prahalad and Ramaswamy, (2002; 2004a) underlined the fact that when customers are treated as co-creators -- they not only help the company financially but they also add to the knowledge management of the company leading to higher efficiency and effectiveness.

As stated by Sundstrom and Lidhom, (2019), “If organizations have a well-functioning HRM- strategy, they can identify specific operations that might be transferred into the customer relationship management (CRM), and develop these insights into actions”. Sundstrom and Lidhom (2019) concluded that employees and customers are two important actors, and companies may be in a profitable position by comparing the metrics between employee loyalty and customer loyalty. Contributions from customers such as feedback on problems that have not yet been identified in the organization are valuable to the organizational profitability and survival and hence, the customers that deliver such information are highly valuable (Hjelm-Lidholm, 2011).

Gupta et al., (2018) opined that:

• Perceived functional value = Product quality / Net monetary cost
• Absence of loyalty program rewards: Net monetary cost = Price
• Presence of loyalty program rewards: Net monetary cost = price – Economic rewards

It was shown by Gupta et al. (2015) that when there is involvement with experience, it leads to better customer-brand relationship satisfaction which influences customer loyalty. It was Kang et al. (2015) who underlined the fact that program loyalty acts as an antecedent to customer loyalty. The benefits associated with a loyalty program include functional/economic benefits, hedonic/experiential benefits, social benefits of a sense of community, and personalized communication from the brand (Gupta et al., 2018). It is not very easy for marketing managers to understand how the customer transits from program loyalty to company loyalty. Gupta et al., (2015) showed that a customer takes three routes when shifting from program loyalty to company loyalty – these are functional value, involvement with experience, and communication effectiveness.

Customization in marketing terms can be defined as the offering of an individual product for the individual customer, customization has moved away from being a trend and now has become an inevitable premise for companies to meet the market demands (Antonia et al., 2017).

According to Uncles et al. (2003), when dealing with the context of CRM, factors such as customer loyalty programs or the availability of products with an exclusive supplier are variables.

Gronoldt et al. (2000) concluded that due to increasing digitalization, engagement of customers through Social Media supports the dialogue between companies and customers, and this engagement helps to discover individual needs and wishes.

In the study, Fels et al. (2017) developed the hypothesis that customized products increase satisfaction and thus increase loyalty by inducing repurchasing behavior. However, it was found that customization in the use – phase does not lead to a longer usage time (Fels et al., 2017). According to Kwon et al. (2012), customers assess the effort to self–customize a product as a burden. Customers, who strongly customize their products, are savvy technology users and it can be concluded that such customers are eager to (1) repurchase a new product rather quickly, and (2) are also not reluctant to try a new brand/product (Fels et al., 2017).

The right combinations of value in a company’s product offerings result in stronger customer loyalty and a greater consumer willingness to try a particular brand leading to sustained revenue growth (Almquist et al., 2016). According to Almquist et al. (2016), there are 30 elements of value -- fundamental attributes in their most essential and discrete forms and they fall into four categories: functional, emotional, life-changing, and social impact. Companies should strive to establish a discipline around improving the values in three areas: new–product development, pricing, and customer segmentation.

Companies that work on emotional elements tend to have a higher Net Promoter Score than companies that focus only on functional elements (Almquist et al., 2016). According to the analysis carried out by Almquist et al. (2016), across all the industries perceived quality of product offerings has the greatest effect on advocacy by customers and thus directly affecting customer loyalty. Almquist et al. (2016) working with Bain and Company concluded that what consumers in products vary by industry and they identified the top five elements that strongly influence customer loyalty for 10 types of businesses.

Conclusion and Further Research

Customer loyalty and its relationship with various elements have been discussed in the literature review. Further research can be carried out in the Indian subcontinent to study the dynamics of loyalty programs and customer loyalty by conducting a longitudinal study and accounting for factors like loyalty program differentiation, market share, and product substitutability within the same category (Gupta et al., 2018). Further research can take into consideration user-driven customization and its effect on loyalty programs – such loyalty-based programs can be further studied to assess how customers move from program loyalty to company loyalty in the scenario of user-driven customization.

A study can be conducted in the Indian subcontinent to understand the customization possibilities in the use – phase about the length of the usage time and more importantly its effect on customer loyalty (Fels et al., 2017).

References

1. Gupta, S., Gupta, T., and Shainesh, G. (2018). Navigating from program loyalty to company loyalty. ScienceDirect. https://doi.org/10.1016/j.iimb.2018.01.009
2. Srivastava, M., and Rai, A. (2018). Mechanics of engendering customer loyalty: A conceptual framework. ScienceDirect. https://doi.org/10.1016/j.iimb.2018.05.002
3. Foroudi, P., Jin, Z. Gupta, S., Melewar, T.C., and Foroudi, M. (2016). Influence of innovation capability and customer experience on reputation and loyalty. Journal of Business Research. http://dx.doi.org/10.1016/j.jbusres.2016.04.047
4. Sundstrom, M., and Hjelm – Lidholm, S. (2019). Re-positioning customer loyalty in a fast-moving consumer goods market. Australasian Marketing Journal. https://doi.org/10.1016/j.ausmj.2019.09.004
5. Fels, A., Falk, B., and Schmitt, R. (2017). User-driven customization and customer loyalty: A survey. Procedia 27th CIRP Design 2017. http://creativecommons.org/licenses/by-nc-nd/4.0/
6. Almquist, E., Senior, J., Bloch, N. (2016). The Elements of Value: Measuring—and delivering — what consumers want. September 2016 Harvard Business Review. https://digitalmarketing.temple.edu/wp-content/uploads/sites/236/2018/09/Session-5- Elements-of-Value.pdf
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8. Dick, A.S., and Basu, K. (1994). Customer loyalty: Toward an integrated conceptual framework. Journal of the Academy of Marketing Science https://www.academia.edu/5464947/Customer_Loyalty_Toward_an_Integrated_Conceptual_ Framework