Optimizing Customer Loyalty

Published Date: 02 Nov 2017

Brian Ward (2007) used the customer loyalty grid to show how customers’ expectations affect satisfaction, delight and loyalty. He divided the grid into four zones namely; zone of indifference, zone of satisfaction, zone of delight and zone of loyalty.

The first zone which is the Zone of Indifference is Unstated/Expected – this zone comprises of all the customers’ needs and wants that are basic to fulfilling the contract between your organization and them. In this zone, customers expect to be treated with courtesy and respect, and they would probably be puzzled or even insulted if they are asked if this was a need. Therefore if this need is not met, DISSATISFACTION will result. But if this fundamental and apparent need was met, the best one can hope for is INDIFFERENCE.

The second zone which is the Zone of Satisfaction is Stated/Expected – this is the zone where the customers really let you know what is essential to them. Listening patiently to the customers at this stage is very vital as this is an expedient step to customer loyalty. When the needs of the customers are met at this stage, SATISFACTION will result but on the other hand, if the needs of the customer are not met, this will cause DISSATISFACTION. For instance, the customer might expect a volume discount on the purchase which they are making but they know that they have to explicitly ask for this discount which they want. The discount is an expectation since other organizations which the customer has relations with provide this advantage.

The third zone which is the Zone of Delight is Stated/Unexpected – this is the zone where the customers anticipate for goods/services discounts, request for it, but they really do not look forward to you providing such. This is where the occasion to make available goods/services past their hope and subsequently this will culminate into DELIGHT.

The fourth zone which is the Zone of Loyalty is Unstated/Unexpected – this is the zone where your proficiency in any product or service rendered and the customer's lack of proficiency can in point of fact pay off! A LOYAL customer is made through the provision of paybacks more than and exceeding any that the customer is still conscious of. This requires you to be really proactive in suggesting to customers new innovations that they can really benefit from. Many customers will be even willing to pay extra for this.

Innovations are the key factor in getting customers loyalty while reliability is the key factor in giving customers satisfaction. Even if an organization is excellent in innovations but poor in reliability, it will eventually be poor in all of these four zones because all of these four zones are uniformly important. Therefore the maintenance of innovation that matches or even exceeds the customers’ expectation is very fundamental in maintaining customers’ loyalty as this unstated/unexpected innovation will eventually become unstated/expected.

2.2 CUSTOMER LOYALTY

A loyal customer is one who speaks loudly and with fervour about your organization, telling others how you have made a real and positive difference in their lives (Brian Ward, 2007). In other words, customer loyalty could be likened to meeting or even exceeding customers’ expectations. But meeting or exceeding this expectation is not as easy as it seems.

Hayes (2008) asserted that there are several objective measures of customer loyalty:

Number of referrals: Word of mouth

Purchase again

Purchase different products

Increase purchase size

Customer retention/defection rates

Through the referral process, companies can grow through the acquisition of new customers. The idea is that the customer acquisition process relies on existing customers to promote/recommend the company to their friends, who, in turn, become customers. Another way of strengthening the financial growth of a company is through increased purchasing behaviour (e.g., increase amount of purchases, purchase different products/services) of existing customers. Finally, financial growth is dependent on the company’s ability to not lose existing customers at a faster rate than they acquire them.

Customer loyalty is all about attracting the right customer, getting them to patronise you, patronise you more and bring you even more customers. You build customers loyalty by keeping in touch with these customers using the various means of communication. You build customers loyalty by treating your team so well that they treat your customers well inadvertently. You build customers loyalty by showing them that you care and by remembering what they like and don’t like. You build it by rewarding them for choosing you over your competitors.

There is no denying the influence of social media on the way that we as human beings communicate on a daily basis. Not only have we been put in contact with each other like we have never been before, businesses are making the most of social media networks as well. With social media sites like Facebook, companies from every industry are gaining from a new found connection with their customers. Since people are constantly updating their activity streams and current states of being, businesses are also able to update their clients and loyal customers with special discounts, offers, and marketing endeavours. As in the case of the case study, Sheraton Hotels Abuja uses these social media sites like Facebook, Flickr, Foursquare, Twitter and YouTube as you can easily find the Sheraton Hotels Abuja on these sites. This shows how engrossed with the social scene the hotel is, in order to constantly update their customers about their services. 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.

Four different reasons why loyalty should be promoted:

psychological;

economic;

technical/functional;

contractual.

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.

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.

Many brand customers show absolute loyalty to the brand and even dislike competing products. This specific brand 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 their own "Brand-world", where they tightly integrate the use of several products of this brand (Oliver 1997).

OPTIMIZING CUSTOMER LOYALTY

Biddu (2012) stated that there are five pointers to optimizing customer loyalty. If an organization is giving their word on a particular service, the fulfilment of that promise will result into enhancement of customer loyalty. Therefore the following are the pointers to optimizing customer loyalty, namely:

Reasons to believe in your promise – first and foremost, don’t make unrealistic promises. The customer expects a lot from a brand before spending the hard earned bucks. A strong reason to believe in what you are offering adds substance to your brand and the customer clearly defines his expectations.

 

The key here is to make a small promise and keeping it rather than making big promises and not going even closer to it when it comes to deliver on the same.

Ideally, this reason is good enough to support the promise of an expected service. This will in turn guide the company through other steps involved in formulating the customer experience where the tangible customer touch-points like design features, advertising campaigns, etc. will be addressed.

Identifying Customer touch-points – There are various stages when the brand and the customer come in contact with each other. The marketplace promise of the brand must be reinforced at every moment of contact.

Analyze the market from where you will get your target audience, how will you sell your product, the way the your customers use the product, your methodology for providing the after-sale customer service, so on and so forth.

The insight and the understanding of your marketing, selling and after-sale-service models will help you to create a touch-point map that will help you defining the customer’s experience of a brand. And when it is worked upon with due care, customer loyalty is bound to follow.

Which touch-points influences customers the most – Remember that all the touch-points are important in the over-all process of retaining the customer-loyalty but all are not on same level. Some play a bigger, superior role in determining the overall customer experience with the brand.

For instance, if you are selling shoes, then the comfort and durability will be more important than the logo design or the package design. All 3 are the touch-points but with the different effect on the overall customer experience.

These touch-points can further be determined through various tools and techniques like market research, knowledge of the institution, etc. The complexity of the product, your business process and the current knowledge will further determine which of the techniques would be more useful in the case of your product.

Put optimal experience on the design – Once you are through with the first three steps, it is important that you express your promise at key touch-points.

Organization and Optimal Experience Alignment – Your people, tools and processes at the front i.e. at main touch-points, should be aligned in a way that they are able to deliver the optimal customer experience with consistency.

Just as behind-the-curtain workforce is equally important as the front-line employees who are in direct contact with the customers for the success of any business, the impact of the technology systems used might be less intuitive but are very crucial in creating the final customer experience.

Just make sure that all your activities at various touch-points and your envisioned customer experience are aligned with each other.

Customer loyalty is all about the overall customer experience with the brand. You enhance the latter and former will automatically be attained. Each and every product yields a customer experience. You just have to ensure that that experience is what your brand has always intended.

Customer Satisfaction

Customer satisfaction has been viewed both as transaction specific satisfaction, which is the post purchase evaluation of the match between expectations and actual performance (Oliver 1977, 1993), and cumulative satisfaction which reflects the overall evaluation based on transactions over time and is the net sum of the customer experience with the seller (Fornell 1992, Anderson, Fornell and Lehmann 1994). Since business marketing generally involves numerous transactions over time or a long complex buying process that seeks to reduce uncertainty about expectations of performance we will use the overall measure of satisfaction as the goal of the firm.

Customer satisfaction emerged from consumer studies that sought to quantify the basic assumption implicate in the marketing concept that satisfied customers are more likely to have a positive attitude towards the product and rebuy it Oliver (1980) conceptualized the process as one in which in time t1 expectations expressed as a multi-attribute attitude model (Fishbien and Ajzen 1975) leads to intention to buy. Purchase leads to negative disconfirmation when the actual experience falls below the expected or positive disconfirmation when the actual experience falls above the expected in period t2 disconfirmation directly influences satisfaction, which in turn modifies attitude leading to a change in behavioural intentions.

Satisfaction is seen to influence both attitude and intention. The expectation, perceived performance disconfirmation, leading to a level of satisfaction has been the main paradigm in the product satisfaction literature.

Anderson, Fornell and Lehmann (1994) state, "Whereas transaction-specific satisfaction may provide specific diagnostic information about a particular product or service encounter, cumulative satisfaction is a more fundamental indicator of the firm’s past, current and future performance. It is cumulative satisfaction that motivates a firm’s investment in customer satisfaction" We share their view not only of the importance of cumulative satisfaction but of the model being applicable to both product and service encounters.

Lee (2004) declared that it has been heard of many companies’ claim of how satisfied their customers are with them; they claim to have a satisfaction rating of 95%. However, it is very dangerous to define customer satisfaction simplistically, especially if you work out any customer plans or strategies based on oversimplified figures. Based on our observations, any customer satisfaction measurement should cover the following variables: 

Product; 

Service; 

Relationship; 

Price; 

Convenience; 

Brand/image; and

Total customer experience. 

What Is Customer Satisfaction? 

Sometimes we find that although we've delivered a high level of products and services to our customers, they are not as satisfied as we presume. What's gone wrong? The satisfaction equation is missing one element: customer expectation. It is created by your company and by your competitors, as well. Be aware that the expectation of customers is constantly increasing. 

George Colombo (2003) states "the quality of your customers" experiences is not a direct result of the objective quality of your products and services. Instead, customer satisfaction is more a function of how closely your customers' experiences with your business conform with their expectations. 

We'd like to summarize customer satisfaction as customer experience - customer expectation. The larger the positive gap, the more satisfied your customers are; the larger the negative gap the more dissatisfied your customers are. 

Relationship Between Loyalty And Satisfaction

We've talked about customer loyalty and customer satisfaction. It seems there are correlations between loyalty and satisfaction. A few questions to ask: 

Does "satisfied equal loyal?" 

Does "satisfied lead to loyal?" 

Does "not satisfied lead to not loyal?" 

Obviously, the answer to the first question is no. There are many occasions when you're satisfied but not loyal, especially in highly competitive market environments such as the fast-moving consumer goods market in China right now. The answer to the second question is also no. There are many factors other than satisfaction that lead to loyalty. Same thing for the third question: there are occasions when you're not satisfied but loyal (transactional loyalty in this case), especially the industries with only a few players or monopoly, like the mobile network operators in China. 

So assuming the same degree of satisfaction, why is the loyalty level so different for different industries? It is due to the level of competition in your own industry. With the same degree of customer satisfaction, the loyalty level is different for companies in highly competitive industries when compared to loyalty levels for companies in non-competitive industries. 

Walter et al (2002) affirmed that commitment is as an essential ingredient for successful long-term relationships. Developing a customer's commitment in business relationships does pay off in increased profits, customer retention, willingness to refer and recommend. Relationship marketing literature suggests customer satisfaction and trust as major determinants of commitment. Recently, practitioners and scholars have identified customer value as a pivotal issue in the management of business relationships. Walter et al (2002) theorize:

product quality,

customer product value,

customer trust,

customer relationship value, and

customer commitment

as key variables for successful business relationship management in industrial markets.

Customer Commitment

In relationship marketing literature, commitment has widely been acknowledged to be an integral part of any long-term business relationship (Anderson and Weitz 1992; Gundlach et al 1995, Morgan and Hunt 1994). Most times, it is described as a type of enduring aim to put up with and sustain a long-term affiliation (Anderson and Weitz 1992; Dwyer et al 1987; Moorman et al 1992).

Along with Gundlach et al (1995), commitment can be said to entail three varying scopes: Affective commitment describes a positive mind-set towards the future continuation of the relationship. Instrumental commitment is made known at any time when some type of investment (time, other resources) in the relationship is made. Lastly, the sequential dimension of commitment indicates that the relationship exists over time (Garbarino and Johnson 1999).

Commitment is a function of customer satisfaction. Carroll and Rose (1993) acquire a cost-effective analysis of customer retention noting that all customers do not generate value and suggest that financial institutions should focus retention strategies on the value producing segment.

Reichheld (1996) states, "Customer satisfaction is not a surrogate for customer retention. While it may seem intuitive that increasing customer satisfaction will increase retention and therefore profits, the facts are contrary. Reicheid (1993) suggests that personal relationships between sales persons and customers contribute to customer retention. He states, "employees who deal directly with customers day after day have a powerful effect on customer loyalty". This personal interaction develops social bonds that help hold a relationship together. Mummalanenni and Wilson (1991) found that sale persons who had good personal relationships with buyers were accorded second chances when performance on key items slipped.

Commitment is the degree to which a partner is committed to the continuance of the relationship. It reflects a long term expectation that the relationship will continue. Retention of a customer requires the customer to be committed to the relationship. We believe that commitment is a business marketing relationship goes beyond satisfaction. It is possible to be dissatisfied with aspects of tie relationship but to continue to buy because there is no alternative supplier with an adequate alternative product

Product Value

At the heart of any business transaction is the ability of the seller to deliver a product or service that is of value to the buyer. Anderson and Narus (1999) link the bundle of benefits a firm provides to the price of this bundle to create a measure of value. Business market buyers must acquire products or services that meet the expectations of the organization. A supplier's failure to perform leads to replacement of the supplier given a better supplier is available. On a general level, value can be regarded as "a trade-off of the salient give and get components" (Zeithaml 1988). Marketing researchers have discussed customer value as a new perspective in the search for excellence in business (Parasuraman 1997; Flint, Woodruff and Fisher 1997; Anderson and Narus 1998). Summing up these contributions, we can say that understanding business markets implies applying and understanding the value concept. Customer value has become an important concept for re-focusing business activities on customer needs and perceptions. Anderson and Narus (1998) state "value in business markets is the worth in monetary terms of the technical, economic, service, and social benefits a customer company receives in exchange for the price it pays for a market offering". We believe that customers’ valuation of the price paid for a product, regarding cost-performance ratio, operating and cost efficiency, provide a strong surrogate for a product value measure because it captures the "benefit" and the "sacrifice" portion of the value equation. We define customer product value as the trade-off between perceived benefits and sacrifices by a customer, regarding his evaluation of the salient ‘give’ an ‘get’ components of a supplier’s product.

Product Quality

Product quality has been defined as the perceived superiority in a product as compared with competing alternatives forms the customer's perspective (Zeithaml 1988). Quality is one of the crucial starting points where the customers’ intentions to purchase and repurchase a product or service reflects the quality level of the performance of the product or service. The quality literature draws on the aspects customization and reliability to best describe the product quality construct (Sethi, 2000). Customers focus on how a product fulfills their heterogeneous needs and the degree to which the supplier’s offering is reliable and free from deficiencies (Fornell, Johnson, Anderson, Cha, and Bryant 1996). In industrial markets, we define product quality as the customer’s evaluation of a supplier’s product reliability, functionality and customization.

SOCIAL BONDS

Trust

Trust or distrust has always been a part of business relationships. Trust has been measured and described a number of ways ranging Corn a personality variable, (Rotter, 1967) to related to relative power between the partners (Young and Wilkinson, 1989). We have taken a sociological view that is expressed by Lewis and Weigert (1985) as, "trust is conceptualized as a reciprocal orientation and interpretive assumption that is shared, has the relationship as the object and is symbolized through intentional action". Trust is related to a partner’s perceptions of the other partner’s abilities, knowledge, expertise, motives and intentions. It colours the actions that partners will take in the relationship.

Quality of the Interaction

This variable measures the degree of the social interaction which may range from being a close personal friend to a distant business relationship. Mummalaneni and Wilson (1991) in a study controlling for the degree of structural bonding they found that there was little difference in social bonding between individuals who saw their partner as a business friend or a close personal friend. However, there was a difference in the positive actions a person would take to support a business friend versus the action she/he would take to support individuals who were perceived to be more distant and formal business acquaintance. Both buyer and seller would take some risk to support fiends. Personal friendship and positive social interaction supports trust and helps to maintain commitment to relationships.

STRUCTURAL BONDS

Product/Service Performance

This is the heart of the exchange relationship as the product or service must perform well for the relationship to continue. Customers cannot be retained if their h does not provide equal or greater value than the competitors. Performance can be measured as customer satisfaction or as the perception of performance.

Goal Compatibility

Goal compatibility is the degree to which the partners share goals that can only be accomplished through their continuing relationship. If there are no shared goals it is easy for either partner to defect from the relationship when a more am-active opportunity appears. Many shared goals tend to hold the relationship together as the partners perceive the need for the other for them to achieve their goal.

Peer Pressure

Peer pressure represents the social pressure that may be place on person by their peers to maintain the relationship even if it is not meeting the individual’s needs because it may be meeting the peer’s needs. Business-to-business relationships tend to involve multiple individuals who may experience different levels of satisfaction with the relationship partner and peer pressure tends to influence changes in the relationship. Peer pressure can have a positive or a negative impact on the relationship.

2.3 SERVICES QUALITY

The importance of relationship management is increasingly being recognized. Kotler (1992) wrote that companies must move from short-term transaction-oriented goals to long-term relationship-building goals (Jackson, 1994). Through delivering more responsive and customized services to customers, CRM increases customer satisfaction and this, in turn, improves customer loyalty. Ndubisi (2003) argued that the only real sustainable business growth strategy is through autoplastic symbiotic relationship with customers, which enables a business to understand their needs more clearly and to create and deliver superior value. Keltner (1995) found that German hotels, in contrast to American hotels, managed to maintain a stable market position during the 1980s and early 1990s because of relationship oriented hotel strategies.

The service quality literature shares many of the same constructs as the satisfaction literature (Parasuraman, Zeithaml and Berry 1988; Boulding, Kalra, Staelin and Zeithaml 1993). The service quality notion of cumulative perceptions of multiple transactions is often used as the measure for satisfaction

2.4 CUSTOMER EXPECTATION AND PERCEIVED QUALITY OF SERVICES

At the beginning, many customers and prospective customers do not know what to expect and they cannot tell you as you are expected to know since they view you as the professional in that field and their knowledge with regards to that field is inadequate in comparison to yours.

The expectations that a brand is instilling in the customer’s heart needs to be taken care of or else you lose up on the brand value. For instance, a beverage manufacturer is launching a drink with a promise that it is a ‘refreshing drink for all’. Here the question will pop up from the consumer’s mind that ‘what makes it a refreshing drink?’ Secondly, why the customer should believe that it will be refreshing? These questions are important and need to be answered.

Increasing occupancy rates and revenue by improving customer experience is the aim of modern hotel businesses. To achieve these results, hotel managers need to have a deep knowledge of customers’ needs, behaviour, preferences and expectations and be aware of the ways in which the services delivered create value for the customers and then stimulate their retention and loyalty.

Generally speaking, the five needs of customers are:-

a. Service

b. Price

c. Quality

d. Action and

e. Appreciation.

A good CRM program will allow a business to acquire customers, service the customer, increase the value of the customer to the company, retain good customers, and determine which customers can be retained or given a higher level of service.

HOTEL INDUSTRY DEFINITION

Abbey (1999) proposes that the hotel industry is primarily a service sector with emphasis given on the role played by relationship marketing. You are nothing without our customers understanding that your organization exists for no other reasons than to meet customer needs and expectations. It is imperative to develop proactive methods for understanding what customers like and dislike. If you believe otherwise, just look behind you at the long queue of competitors lined up and waiting for the opportunities to prove you wrong.

CRM is a business strategy to select and manage the most valuable customer relationships. CRM requires a customer-centric business philosophy and culture to support effective marketing, sales and service processes. CRM applications can enable effective customer relationship management, provided that an enterprise has the right leadership, strategy and culture. (Anton, 2005).

In a hotel, each customer relationship has value and should be managed effectively. There is an opportunity for repurchase and recommendation from each past customer. The administration of the information about this past guest and the effective integration of the information into frontline guest services programs is the challenge of CRM implementation.

Tactically, where does CRM start? The recommended implementation of customer relationship management typically looks like this (Hart et al, 2002): Statistically valid customer satisfaction measurement: From the very top of the organization, there should be a commitment to CRM including customer satisfaction, employee satisfaction and a desire to have one voice to the customer.

IMPORTANCE OF CUSTOMERS

There exists a wide-spread mistaken notion that CRM is some kind of a manifestation of technology only. Another interesting thing is that even those who have implemented highly technological installations for their CRM initiatives, quite often can be seen to have forgotten the basis of this modern concept, i.e., making profitable relationships with their customers. This significant part is left to the technology alone (Schneider and Bowen, 1999). Such a situation arises mainly because of the inability or reluctance of the management to accept the importance of customers and serving them to keep them satisfied and happy, which otherwise may result in low sales and hence low profits. "One widely accepted marketing rule-of-thumb claims that the average, unhappy customer tells eight other potential customers about his negative experience." (Lemon, et al, 2002).

According to Berry (1983), Customers to a business are those people or enterprises which are benefited by the use of a service or product offered by that particular business, certainly for something in return, generally a price. When a customer pays a price, he expects some specific thing with a specific quality and features. If his expectation exceeds what he has been given, it leads to an unsatisfied customer. If the offer exceeds his expectations for a stipulated price, it leads to a highly satisfied customer and he is said to be enjoying customer delight.

2.5 CONCLUSION

Although Customer Relationship Management is not used universally, its application is widespread and growing in popularity. Customer Relationship Management is currently used in the private sector as it emphasizes and helps to resolve some of the problems and concerns inherent in the Nigerian hospitality industry. In considering the growing application of Customer Relationship Management in the public and private sectors, caution needs to be taken as the principles of Customer Relationship Management do not really go well with democratic notions which are associated with the unity and equality of citizens. Research on the private sector use of Customer Relationship Management has so far shown that it is fraught with pitfalls and it is in the light of this that this research seeks to pinpoint the gaps in the Customer Relationship Management in the Nigerian Hotel Industry and subsequently proffer solution(s) to the identified gaps.