Useful side of consumer loyalty

From traditional perspective market share is the most important determinant of companies’ profit. Many companies have been involved in mergers and takeovers so that they can obtain economies of scale. In this way, they can reduce cost and increase profit (Hill & Alexander, 2000). However, there are also some companies to be exceptions. According to Hill and Alexander (2000), some companies who do not have the largest market share are more profitable than those with a bigger share. The reason of this is that they found customer loyalty is more profitable than market share. As mentioned above, satisfaction and loyalty are two stages in the customer’s response to the company offerings (Torres-Moraga et al., 2008). Furthermore, satisfaction is found to be a necessary antecedent of customer loyalty (Zeithaml et al., 1996). First, customer satisfaction makes customer have a higher likelihood of repeating purchase; second, recommend others to try the source of satisfaction; third, become less receptive to the competitors’ offerings(Torres-Moraga et al., 2008). There is a lot of literature that states that satisfaction and loyalty are strongly related and this relationship between satisfaction and loyalty can be interchangeable. On the other hand, others claim it to be unidirectional (Torres-Moraga et al., 2008). In this thesis, the second idea will be adopted to build the theoretical framework. From the companies’ perspective, implementing customer loyalty strategy is helpful for companies’ profit. It is claimed that 5% increase in customer retention leads to an increase of profits by 25% to 95% (Sä llberg, 2004). Customer loyalty strategy can help companies to save money on a variety of costs (Sä llberg, 2004), for instance:

· Costs of advertising to attract new customers;

· Costs of personal selling effort to new prospects;

· Costs of setting up new accounts for new customers;

· Costs of explaining business procedures to new clients;

· Costs of inefficient behavior during the customers’ learning process.

Moreover, in Nykamp’s (2001) book, he mentions that customers’ loyalty strategy has other advantages. The first is that companies will have customers on their side. The second is that successfully managing customers different is the key to success in modern business. Besides that, in Duffy’s (2003) article, he also mentions that a customer loyalty strategy can save money for companies. Furthermore, there are five more benefits of customer loyalty strategy to be mentioned in his article (Duffy, 2003).

· The first is “referrals”. It means that customers who become familiar with a brand will not hesitate to recommend the brand to friends and neighbors.
The second is “complain rather than defect”. It means that loyal customer will view the brand as theirs. When there are problems, thus they will contact with the company to make sure problems will be solved, but not defect.

· The third is “Channel migration”. It means loyal customers are more willing to purchase a brand through multiple channels, for example, the internet. Doing this can increase their total consumption and reduce the cost of doing business with them.

· The fourth is “Unaided awareness”. It means that loyal customers are much more likely to have a brand top of mind. It also helps with “referrals” and it helps bring other customers to the brand.

· The fifth is “greater awareness of brand assets”. It means that loyal customers tend to be more aware of some of the auxiliary benefits a brand offers. Greater awareness of customer has impact on retaining customer loyalty. These customers tended to stay with the brand longer because they felt they received better value For instance, a retailer found that loyal customers were more familiar with their free delivery service. This familiarity led to greater sales as a result of taking advantage of the free delivery.