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Customer Loyalty Research

Can customer loyalty programs really build loyalty?

Written by K. Cecilia, M. Ladan & R. Maiju

Paper category

Bachelor Thesis

Subject

Business Administration>General

Year

2007

Abstract

Bachelor Thesis: Customer Loyalty Program Blomqvist and others. (2000) interprets the concept of loyalty programs as a formal association of customers who meet specific standards set by the company. Customers make some effort to obtain membership, and in return, they will receive benefits that only apply to loyalty program members. Johnson (1998) describes a loyalty program as any marketing program that increases the lifetime value of existing customers through long-term interactive relationships. Five elements can usually be detected in a loyalty program, namely database, registration process, rewards, value-added or soft benefits, and customer recognition. Generally speaking, the definition of customer loyalty has three things in common. First, they identify a group of customers that form goals and program membership. Secondly, members should get rewards or benefits through the plan. Third, they emphasize the interaction between marketers and members. Butscher (1998) added that some clubs are assigned to establish emotional relationships, while others are content to establish long-term and profitable relationships without dimensional requirements. 2.2.1 The goal of customer loyalty programs The goal of introducing loyalty programs in the 1970s was to build stronger relationships between suppliers/retailers and their customers. This concept is driven by the vision of creating "better" customers and distinguishing the organization from competitors in the market (Håkansson, 1982). The basic assumption is that the cost of repurchasing existing customers is lower than the cost of recruiting new customers (Dowling and Uncles, 1997). Companies usually have common expectations for the results of loyalty programs, which are related to profit maximization. Dowling and Uncles (1997, p.4) divide the expected results into three parts: I. Maintain sales, profit margins and profits (defensive results to protect existing customer base) II. Increase existing customer loyalty and Potential value (an offensive result that provides incremental growth in sales, profit margins and profits) III. Inducing existing customers to make cross-product purchases (defensive or offensive) The above results usually refer to a specific target market , That is, heavy buyers, or profitable customers. This is because it is believed that a small number of customers generate most of the sales. The “80/20 rule” states that approximately 80% of revenue comes from only 20% of customers (Dowling and Uncles, 2002). 2.2.2 Types of loyalty programs There are many different types of customer loyalty programs, which usually adapt to and depend on the nature of the company's business. However, most loyalty programs can be divided into two categories. In the first one, the program aims to provide higher value, such as additional services or faster services. The second type of customer loyalty program is based on price discounts, bonuses, rebates and special offers. In both cases, the goal is to keep the customer in the company, but the approach is different. Few loyalty programs fall into one category entirely. Instead, they are usually a mixture of the two types. One of the disadvantages of relying solely on monetary benefits is that the company may succeed in attracting new customers, but cannot obtain a sustainable advantage (Blomqvist et al., 2000). 2.3 Customer loyalty To put it simply, from the perspective of Czepiel (1990), customer loyalty is a concept that describes the final result of the relationship between a company and its customers. In order to gain loyalty, companies can provide incentives to increase the value of customers and in this way build buying loyalty among them (Blomqvist et al., 2000). From this perspective, a loyal customer will cooperate with the company for a long time to meet his/her needs or part of the needs (Blomqvist et al., 2000). Customer loyalty is a more complicated concept than this. Through the screening theory, the author chose to focus on three different theories: the three drivers of retention (Gus-tavfsson, Johansson, and Roos, 2005), relative attitudes and behavioral relationships (Dick and Basu, 1994), and customer loyalty. Conceptualization (Dowling et al., 2003). 2.3.1 The three drivers of retention According to Gustavfsson et al. (2005), the complexity of customer loyalty can be explained by focusing on three prominent retention drivers: overall customer satisfaction, emotional commitment, and calculated commitment. Customer satisfaction is the overall evaluation of the company's performance over a period of time. It usually comes from product and service quality and price. As expected, positive overall satisfaction has a great impact on customer loyalty. Historically, marketing scholars have identified promises as the desire to maintain relationships. However, promises can come from emotional or computational reasons. Emotional commitment is an emotional factor created by customers and retailers through repeated use of products or services, and leads to a higher level of trust. Read Less