Loyalty

Loyalty in a business context describes a customer’s willingness to continue buying from a firm over the long term and recommending the firm’s products to friends and associates. Customer loyalty does not just refer to customer behavior. It also includes preference, liking, and future intentions.

Why Are Customers Loyal?

Customers are not automatically loyal to any one firm. Rather, we need to give our customers a reason to combine their buying with only us and then staying with us. We need to create value for them to become and remain loyal. Just ask yourself: What service companies are you loyal to? And why are you loyal to these firms? Research has shown that relationships can create value for individual consumers through such factors as inspiring greater confidence, offering social benefits, and providing special treatment.

THE WHEEL OF LOYALTY/ Building customer loyaltyBuilding customer loyalty is difficult. Just try and think of all the service firms you yourself are loyal to. You are likely to only come up with very few examples. This shows that, although firms spend huge amounts of money and effort on building loyalty, they often are not successful in building true customer loyalty. We use the Wheel of Loyalty shown in Figure 12.6 as an organizing framework for thinking of how to build customer loyalty. It is made up of three sequential strategies.

First, the firm needs a solid foundation for creating customer loyalty that includes targeting the right portfolio of customer segments, attracting the right customers, tiering the service, and delivering high levels of satisfaction.

Second, to truly build loyalty, a firm needs to develop close bonds with its customers. It can either deepen the relationship through cross-selling and bundling, or add value to the customer through loyalty rewards and higher-level bonds.

Third, the firm needs to identify and reduce the factors that result in “churn”, the loss of existing customers and the need to replace them with new ones.