portfolio_2023_Martin_M

How to achieve customer loyalty?
Marketing specialists, economists, and academics have been trying to define and predict
consumers’ behavior from the last century until today. In the 50s it was already described
that loyal customers are the main source to do advertising in a market as a way of wordof-mouth
publicity (Brown, G.H. 1952), which can be seen as accurate for that time, but
regarding the following research papers and studies presented in this project, it seems the
ways to achieve loyal customers are based on various internal and external factors (Rayruen,
Miller, 2007) from both sides.
Definitions
Because customer loyalty has been studied for decades, there are several definitions on
what exactly this phenomena means. Sallberg (2004) in her publication collected six different
definitions on customer loyalty to show how this phenomena were defined in the 90s:
Source
Definition
Customer Satisfaction
As it was mentioned before, customer satisfaction plays a significant role in customer loyalty
because it seems loyalty is evolving from satisfaction which is influenced by the perceived
quality and perceived value as it is presented below.
Stages to achieve customer loyalty
Customer satisfaction is defined by Kotler (2010) as a consumer’s feeling of pleasure/disappointment
resulting from comparing a product’s perceived performance in relation to its
expectations. In online marketing, the term satisfaction refers to the customer’s judgment
of their internet experience as compared to their experience with traditional offline service
providers or retail stores (Tan & Tung, 2009). Therefore it is important for online service
providers to understand their customers’ perceptions of them because the reflection of
satisfaction and pleasure defines the level of customer satisfaction towards the given online
service provider. Arora (2013)’s model shows a relation as well between actual and expected
satisfaction outcomes:
Definitions of customer loyalty
According to Sallberg’s (2004) findings, the six definitions above share the factor of purchasing,
meaning that customer loyalty is related with the act of purchasing. As it is presented
above, some factors like “attraction to a brand”, “repeat patronage”, “purchase frequency”
and “continuity” are all connected and play a significant role in customer loyalty.
In another study, Oliver (1999) defined loyalty as a deeply held commitment to re-buy or
re-patronise a preferred product or service in the future. Inamullah (2012) defined customer
loyalty as the willingness of a consumer to purchase the same product or service, and keep
the same profitable relationship with a particular company.
Customer loyalty?
It seems a common agreement on the importance and key role of customer loyalty in current
market situations (Lin, Wang 2006) but It still seems difficult to understand the key
psychological factors that make a customer loyal towards a company product or service
(Chen, Hu 2010). It has been argued that once a company understands its customers’
mindset then they can make a long lasting profitable relationship, which can automatically
make them loyal (Inamullah 2012). However, the measurement of loyalty is still the most
effective if we can observe a given company’s customer and its buying behavior towards
the firm product or service and how it gives preference and also suggests to others in their
environment (Kim, Yoon, 2004). In their research, Bagram and Kahn (2012) tried to find
the key role of consumer behavior and consumer attitude towards customer loyalty. They
concluded that Perceived Value (PV), Perceived Quality (PQ) are the main key factors to
achieve customer loyalty.
• Perceived Quality (PQ) - Perceived quality is one of the critical elements in consumer
decision-making. Optimally, they compare the quality that company “A” offers against its
competitors regarding the price of a given product or service (Jin and Yong, 2005). Zeithaml
(1988a) argues that perceived quality is not necessarily the actual quality of brands or
products but the consumer’s judgement about a product’s or service’s overall excellence.
This judgement is usually based on intrinsic and extrinsic informal cues which in his other
research had defined by Zeithaml (1988b): The intrinsic cues are related to the product’s
physical characteristics such as its appearance, performance, features, reliability, conformance,
durability and serviceability. While the extrinsic cues are price, brand name, brand
image, company reputation, manufacturer’s image, retail store image and the country of origin.
So these quality informational cues collectively play a significant role that influence and
creates customer satisfaction, which leads to customer loyalty later on (Bagram & Kahn).
• Perceived Value (PV) - Similarly to Yee (2011), the term “value” is referred to in this project
as a judgement of preference by consumers. According to Zeithaml (1988b), perceived
value is the customer’s overall assessment of a product or service based on its perception
of what is given and what is received. Stonewall (1992) defined value as a collective of
product features, quality terms, service, delivery and price. But he noted that consumers will
consider something valuable by their own terms. Yee (2011) determines value as the function
of overall quality and price of a company’s products or services compared to its competitors.
Bagram and Kahn (2012) argues that consumer satisfaction is only achievable if
company “A”’s customers bear fewer costs and get more benefits from a product or service.
Which means there are two ways to approach consumer satisfaction: Either reducing costs,
or increasing benefits. They defined four types of benefits (product benefit, service benefit,
personnel benefit and image benefit) and four types of costs (monetary cost, psyche cost,
time cost and energy cost) which they prioritized product benefit as the more important but
also stated that importance is based on a product’s or service’s own nature and the target
segment, so it is advised for companies to decide by themselves which factor is more important
for their customers (Oliver, Swan, 1989).
The findings of Bagram & Kahn (2012) also show that customer satisfaction has more
contribution for customer loyalty than customer retention, which allows me to conclude that
customer satisfaction plays a significantly bigger role in terms of loyalty if a company pays
more attention to the value (the balance of costs and benefits which favours the customer)
and the quality (intrinsic/extrinsic informal cues) they propose for their customers. In
another study, Kotler (1994) stated the significant concept that the key to customer retention
is customer satisfaction. Therefore, the customer satisfaction phenomena need to be
researched to see what factors influencing the Perceived Quality and Value by customers
which eventually would lead to customer loyalty.
Actual and expected satisfaction outcomes
Regarding the statement above, to be able to potentially reach loyalty, an online service
provider should not only provide the same experience as its customer would expect it in a
“traditional offline” platform, but the firm should even exceed those expectations to reach
customer loyalty. Frederick (2000) also considered the importance of the relationship between
satisfaction and loyalty and found it applicable for e-commerce businesses. Another
aspect of why customer satisfaction is important for (e-commerce) companies, as Rust and
Zahorik (1993) stated, is that greater satisfaction among customers would increase the
intent to repurchase while decreasing the perceived need to switch online service providers,
thereby increasing customer repurchase and ultimately enhancing profitability of the
organization, while a high level of satisfaction provides the customer with repeated positive
reinforcement that would create commitment and loyalty.
Trust
Building up trust in customers is said to be a critical success factor for businesses (Bryant
et al., 2002). Studies have shown that the customer’s trust towards the service provider
correlates with the amount of satisfaction they gain from the transaction (Razzaque et al.,
2003). In physical shops, it is easier for the business to gain trust because the direct contact
and the first-hand experience of the product or service provides the customer with a sense
of security. In e-commerce, on the contrary, the lack of trust is supposedly the main obstacle
since missing out on personal interaction with the service provider affects the confidence of
the potential buyer in following through with the online exchange. (Rexha et al., 2003) There
are more aspects in online purchases that would induce distrust in the customer, such as
not knowing if the acquired item has the expected quality that was stated on the website or
if the business delivers on time, moreover they have to trust the business with their sensitive
personal data, such as delivery address and credit card number, in order to complete the
transaction. Therefore, looking into ways of building up a so-called e-trust is very important
for online businesses. The three principal components of trust were identified by Kim et
al. (Lee et al., 2007), which are ability, benevolence and integrity. Showing up these three
aspects can be a passport to the highly appreciated customer trust, which eventually contributes
to both loyalty and commitment. (Pratminingsih, 2013)
Commitment
(Morris & Swait, 2008) define commitment as a desire to continually invest in a relationship
by willingness. Some researchers (Garbarino & Johnson, 1999), (Heidt 201014) stated that
commitment - as the most important attitudinal measure - is a significant indicator of loyalty.
The reason for that is commitment often indicates either an emotional or psychological
attachment towards a specific brand or a product. Commitment between customer and a
firm - regardless if it is an e-commerce or offline company (Fullerton 2005) - is important
to maintain a healthy business relationship, because if it lacks, the relationship would not
sustain and eventually debase the satisfaction between involved parties (Garbarino & Johnson,
1999). In the study, Pratminingsih (2013) determined a customer’s orientation toward
a relationship is based on both emotional bond (affective aspect) and on the conviction that
remaining in the relationship (cognitive aspect). So commitment acts as antecedents of
repeated repurchase behaviour (Luarn & Lin, 2003) which, as previously stated, helps to increase
customer satisfaction. And Fullerton (2005) stated that e-commitment has an impact
on e-loyalty. Therefore, it allows me to conclude that the dynamics of commitment operates
the same way online and as well offline if the cognitive and affective aspects are optimal.
Trust with
sensitive
information
Trust with personal
information
Interest and preference
over other options
Baseline relevance and trust
that needs can be met
Hierarchy of trust - The five levels of commitment
Willingness to commit to an
ongoing relationship
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