Definition of customer loyalty

Customer loyalty can be said to have occurred if people choose to use a particular shop or buy one particular product, rather than use other shops or buy products made by other companies. 

Customers exhibit customer loyalty when they consistently purchase a certain product or brand over an extended period of time. As an example, many customers stick to a certain travel operator due to the positive experiences they have had with their products and services.

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Customer loyalty is the key objective of customer relationship management and describes the loyalty which is established between a customer and companies, persons, products or brands. The individual market segments should be targeted in terms of developing customer loyalty.

Four different reasons for loyalty should be promoted:

  • psychological;
  • economic;
  • technical/functional;
  • contractual.

Example

Psychological
Customers might also develop a sense of loyalty to a certain person working for a company.  People can build up a good relationship with a bank advisor they have known for several years and who has always fulfilled their expectations.  The fact that people develop a sense of loyalty can be described as a psychological reason to stick to a specific product.

Economic
In business-to-business markets, it might also be possible that customer loyalty results from the fact that switching to another company would lead to the company facing economic disadvantages. In this case, loyalty is based on economic grounds.

Technical/ functional

Furthermore, it might be possible that a company adjusted and adapted its technical procedures to a particular supplier and a change would cause immense technical problems, thus, technical or functional reasons are the grounds for customer loyalty.

Contractual
A contractual reason for loyalty exists if a customer is bound to the company for a certain period of time due to a contractual agreement and for legal reasons. [1]

Loyalty is an old-fashioned word traditionally used to describe fidelity and enthusiastic devotion to a country, a cause, or an individual. It has also been used in a business context, to describe a customer’s willingness to continue patronising a firm over the long term, preferably on an exclusive basis, and recommending the firm’s products to friends and associates (Lovelock and Wirtz 2011).

Customer loyalty is widely seen as a key determinant of a firm’s profitability.

We can differentiate between behavioural and attitudinal loyalty, also referred to as share-of-wallet and share-of-heart respectively.  Behavioural loyalty refers to customers buying exclusively or mostly only one brand, whereas attitudinal loyalty is all about having an emotional attachment to a brand, liking it more than others, and even loving it. These two types of loyalty are independent, for example, one can give a 100 percent share-of-wallet to a bus company that passes one’s home to work, but would still be deeply unhappy with that organisation’s service and be ready to switch as soon as a viable alternative is on offer.

True loyalty requires both share-of-wallet and share-of-heart so that customers continue buying even when situational factors may make a repeat purchase difficult, such as stock outage or alternative providers trying to persuade customers to switch using promotional offers.

However, attitudinal loyalty in itself is not a guarantee of profitability and firms need to be efficient in translating these attitudes and loyalty intentions into actual loyalty behaviours. 

This includes:

  • increased share-of-wallet such as encouraging a customer to buy more from a brand, and less from its competitors which results in selling more units to a customer;
  • up-selling to higher level products, meaning selling more expensive, higher value products, which results in the higher revenue from the customer for a constant number of products sold;
  • cross-selling of products the customers currently does not buy, this means in addition to the products a customer already buys, a company sells different products to that customer;
  • referrals such as customer gives positive word-of-mouth and recommendations to buy the firm’s products to friends and associates that lead to sales.

Example
Many Apple customers show absolute loyalty to Apple and even dislike competing products. Apple fans identify with its trendy brand and love its integrated and smart solutions, sleek design and excellent product quality. These customers seem to increasingly live in an “Apple-world”, where they tightly integrate the use of several Apple products such as their MacBook, iPod, iPhone and iPad).  They frequently download and buy software, apps, songs and ebooks from Apple’s Store and iTunes.

These customers have a deeply held commitment to re-buy and re-patronise Apple products and services consistently in the future, against all odds and at all costs despite strong marketing efforts of competitors (adapted from a definition of customer loyalty from Oliver 1997). [2]

References
Lovelock, Christopher and Wirtz, Jochen (2011), Services Marketing: People, Technology, Strategy, Upper Saddle River, New Jersey: Prentice Hall.

Oliver, Richard L. (1997), Satisfaction: A Behavioural Perspective on the Consumer, New York: McGraw Hill.

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