University of Greenwich

Learnit Institute of Business and Technology

Dar-Es-Salaam

Course: Thematic Independent Study

Topic: Essay 1

Name: Peace Sagatti Munisi

Tutor: Silvanus Mkenganyi

Words: 3919

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THEMATIC INDEPENDENT STUDIES

ESSAY 1

MARKETING

How essential is Customer Loyalty to Organizations?

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STATEMENT OF THE PROBLEM

Does customer loyalty still exist? This paper will discuss how essential customer loyalty still is

to organizations. It will cover the definition of customer loyalty while looking at benefits of

customer loyalty as to how important customer loyalty is to organization. After seeing the

benefits of customer loyalty, factors that influence customer loyalty will be discussed such as the

market mix theory. With new focus on having loyal customers, this essay will look at different

kinds of loyalties that exist in the market but furthermore it will explain as to how organizations

can create customers who are loyal to their products and services. In doing so, different models

of building loyal customers such as the Customer Relationship Management, Customer

Satisfaction, Customer Retention Program and Loyalty Reward Programs will be analyzed.

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MIND MAP

Monogamy

-Polygamy

-Attitudinal

-Behavioral

(Habitual)

Customer Satisfaction

Customer Retention

Loyalty Programs

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Definition

Important of customer Loyalty to businesses

What causes customer loyalty?

Customer Loyalty Types of customer loyalty

Factors that influence customers into being

loyal

How to create loyal customers

Customer Loyalty modelsMarket mix

The four Ps

Product, Price, Place, and Promotion

CRM

Table of ContentsIntroduction 6

Importance of Customer Loyalty to Organizations 7

Types of Customer Loyalty 9

Factors that influences loyalty ………………………..……………………….……………….11

How to create loyal customers …………………………….…………………………………..13

Customer Relationship Management ……………….…………………………………14

Customer Satisfaction …….……………………………………………………………14

Customer Retention Program …………………………………………………………..15

Loyalty Reward Programs..............................……………………………………… …17

Conclusion ………………………………………………………………………………….….19

References………………………………………………………………………………………20

Research Log …………………………………………………………………………………..21

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Introduction

Customer loyalty is defined as a result of consistently positive emotional experiences which are

based on satisfaction and perceived value of a product or service. According to the Business

Dictionary, customer loyalty is the possibility of previous customers to continue buying from a

specific company. Customer Loyalty Institute states that Customer loyalty is “all about attracting

the right customer, getting them to buy, buy often, buy in higher quantities and bring you even

more customers.” Customer Loyalty means different things to different organizations but one

point cross the border, customer loyalty is highly essential for any successful business.

Since customer loyalty is essential for businesses success, the first part of this paper will discuss

the importance of customer loyalty to organizations. The second part of this paper will cover the

different types behind customer loyalty such as behavioral and attitudinal loyalty, monogamous

versus polygamous types of loyalty. The third part of this essay will look on factors that affect

customer loyalty and hereby the market mix is discussed with its 4p’s. The fourth part of this

essay will analyze how organizations can build customer loyalty by discussing various theories

and programs such as the Customer Relationship Management (CRM), customer satisfaction

program, customer retention program and loyalty reward programs.

Customers tend to maximize value; they have expectation of the value of product or service then

act upon them. Thereafter, they compare the actual value to the expected one which tends to

affect their satisfaction and repurchase behavior. Due to this, this study is going to evaluate if

customer loyalty is the direct result of customer satisfaction or peoples buying behavior is a

result of the marketing mix’s four Cs namely; customer needs and wants, cost to the customer,

communication and convenience? Kotler et al, 2008

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Importance of Customer Loyalty to Organisations

In today’s competitive marketing environment, there are very few new customers to be shared by

organizations. Therefore, having customers who are loyal to businesses is of high importance

than acquiring new ones as it increases sales, creates profit and builds the brand . The costs of

making new customers are on the rise thus companies have placed emphasis on retaining

profitable customers by building long-lasting relationship with them (Aaker, 1996). So, why is it

so important for businesses to have customers who are loyal? The benefits of customer loyalty

are hereby discussed.

Why Customer Loyalty is Important?

Figure 1: the diagram shows the importance of customer loyalty in a summary

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Customer buys

product

customer loves

product

customer loves the company

customer needs

another product

customer returns to

the company

Up-sell and cross-sell to loyal customers is much easier

Loyal customers are always familiar with their favorite brand and most of the times are more

than willing to try out new products and explore recommendations. Simply, a loyal customer is

more likely to sample the company’s other products (Mark et al, 2003) .

Loyal customers are organizations marketing agents

Loyal customers are more motivated to share their positive experience of the product or service

with others. But they are more likely to recommend the business to their friends, families and

acquaintances. Having a love for the brand, they will speak about it hence influence other people

whom they associate with. This type of marketing is known as word-of-mouth which is one of

the most powerful marketing channel. Moreover, loyal customers tend to reinforce their favorite

brand or business in the mind of customers who are not familiar and new to the brand (Griffin,

1995)

Lower costs than acquiring new customers

It is more than obvious that it is very expensive to acquire new customers than serving the ones

businesses have. In order to acquire new customers, businesses have to advertise for the purpose

of attracting attention, they have to give incentives through offering discounts, educate them

about brand and product, and also provide personalized services. But, by focusing on building

your brand through customer loyalty, loyal customers will influence new customers into trying

out your brand reducing the associated cost of acquiring new customers. Loyal customers are

organizations marketing force (Kotler et al, 2008)

Shields businesses from price competition

Loyal customers make communication routes that strengthen the brand image thus making it

difficult for competitors to entice customers and allowing setting higher prices. This also means

that loyal customers are not sensitive to price, even if the price of their product will increase they

will continue purchasing because of brand attachment. A good example is of Apple whose

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customers are loyal to the product rather than the products price. Macbooks laptops are more

expensive in comparison to other brands but still its loyal customers purchase it.

Another benefit of organization having loyal customers is that makes it easy for company to do

their financial projections. With loyal customers whose purchasing trend is predictable, makes it

easier for organizations to forecasts their sales and revenues.

Seeing that customer loyalty is core to businesses success, this paper will examine different types

of loyalty before looking on different relationship management strategies that organizations can

use to make customers loyal to their businesses or brand.

Customer Relationship Groups

High

Profitability

Low

Profitability

Short-term customers Long-term customers

Figure 2: Reinartz and Kumar 2002.

According to Reinartz and Kumar 2002, customers are divided in four loyalty categories.

Butterflies are customers who brings in profit but not loyal. They are more likely to change just

like butterflies. This customer’s needs fit well with what the company offers and thus they

delight in their short time experience as customers before they move to the next. Promotional

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Butterflies

There is a good fit between company’s

offerings and customer’s needs; high

profit potential.

True Friends

Good fit between what the company

offers and their needs; highest profit

potential

Strangers

Little fit between what the company

offers and their needs; lowest profit

potential

Barnacles

Limited fit between that the

company offers and their needs;

they’re low profit potential

advertisements attract them into becoming customers but it’s very hard to turn them into loyal

customers (Reinartz, 2002).

Another category is “True Friends”. These are both loyal to the business and profitable to the

organization. These are truly committed to the business or brand and will buy the products

because they highly regard them. True friends will also offer a good recommendation to others.

Strangers are customers who rarely make purchases with the business. They may purchase

because of location advantage; they may be wandering about and end up at your business.

Changing strangers into true friends is almost impossible.

The last group in our matrix is the barnacles. These are loyal customers who have little

contribution to your revenues. They may come to a coffee shop daily for a cup of coffee but they

do so in order to enjoy the free Wi-Fi internet available.

There are also other studies of customer loyalty that have divided loyal customers into four main

aspects that reveal the degree of their loyalty. This paper will look into Monogamy versus

Polygamy types of loyalty but also behavioral and attitudinal aspects of customer loyalty.

Monogamy Loyalty versus Polygamy Loyalty

We live in a world that advocates more on polygamy loyalty. A consumer may shop for

groceries at Shoprite supermarket, Nakumatt supermarkets and at Shoppers Plaza supermarkets

or shop from all three. This consumer is a loyal customer to all three supermarkets but not a

hundred percent (100%) loyal to either one of them. Keiningham et al (2005) suggests that

loyalty can be defined as probability of a customer to purchase a certain product depending with

the occasion. Henceforth, there are very few customers who are one hundred percent (100%)

loyal. Therefore, in a competitive world, businesses need to make customers as loyal as possible

by maximizing customer’s share of wallet, increase frequency of purchases and overall

profitability.

Behavioral and Attitudinal Loyalty

Behavioral loyalty refers to those customers who are loyal out of habit. The primary reason for

buying are situational factors like, convenience and tendency Thus customers find switching

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from one brand to the next causes them problems therefore they remain with the organization

even though they might not be happy with it. A study from the business school of Connecticut

points out that the majority of loyalty programs advocates that the more you spend with an

organization, the more rewards you earn hence rewarding behavioral loyalty (Kumar et al, 2004).

A good example of loyal customers due to behavior, are consumers of Mohammed Enterprises

group of companies branded as Azam. Most of Azam customers are loyal to its products because

of product distribution. Azam products are distributed to all corners of Tanzania and East Africa

hence convenience to consumers. Therefore, many Tanzanians are loyal to Azam brands simply

not only because of satisfaction but because of availability and convenience (Griffin, 2002).

Attitudinal Loyalty

Attitudinal Loyalty is another type of customer loyalty which is different from behavior loyalty.

It is a premium type of loyalty that involves emotional attachment. There are customers who

prefer a particular brand since they have a positive attitude towards the product. They will be

willing to buy the same brand even if it is more costly than other brands of the same product. The

customer who portrays attitudinal loyalty, do not care about price, but rather brand preferences.

The customer in this type of loyalty trusts the brand. A good example of attitudinal customer

loyalty is when a customer trusts a particular brand. For example, a customer might prefer Dettol

hand wash soap. This customer will be willing to spend more money and even go to another

shopping mall far from his home as long as he/she gets Dettol hand washing soap. The attitudinal

behavior does the same with Coca Cola drinkers and Colgate, or Sensodyne tooth paste users.

In marketing, the attitudinal loyalty can be increased and maintained to customers by enhancing

the brand image and maintain the product quality. Cronin and Taylor, suggest that, attitudinal

loyalty can be identified by repurchase intentions or purchasing additional products from the

same brand. It also involves willingness in recommending a particular brand or company to

others (Cronin et al, 1992).

Factors that influences loyalty

With different types of customer loyalty discussed, what are the factors that drive customers into

purchasing and repurchasing? This paper will look into the marketing mix and discuss how it

influences customer loyalty or customer defection.

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The Marketing Mix

It is described as the set of tactical marketing tools that can be controlled. This tool is a blend in

of product, price, place and promotion that the company uses in order to produce the desired

response in the market (Kotler et al, 2008).

The four P’s: the marketing mix

Variety List price Advertising Channels

Quality Discounts Promotions Coverage

Design Allowances Personal selling Assortments

Features Payment period Publicity Locations

Brand name Credit terms Inventory

Packaging Transport

Services

Warranties

Figure 3: Kotler et al, 2008.

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Product Price Promotion Place

Target market

In the marketing mix, there is a product category which covers the product’s variety, quality,

design and its features. It furthermore covers product’s brand name, packaging, services and

warranties. These product features can play a role in influencing a customer into making a

purchasing and further more becoming a loyal customer. Customers look for varieties, need for

options but quality is also very important to customer. Louis Vuitton has for decades carry a

number of loyal customers mainly because of its product’s unique designs and features but also

quality which insures durability.

Price is the cost a customer incurs in order to get the product. Customers in a competitive market

where there are multiple options available, appreciate value for their money. If the money spent

correlates with the product value received then there is a good chance of making such a customer

a loyal one. People are ready to spend high prices for valuable goods or services. Such customers

are like those who will spend lots of cash into buying BMW vehicle instead of TATA because

they are certain of the value of BMW cars. There are also customers who can become loyal

because of low priced products. Thus companies can consider both or focus on one segment.

Promotion covers those activities designed to communicate to targeted customers the merits of

the product or service in order to persuade them into buying. As technology advances so are the

communication channels hence the use of the internet and social medias in promoting products

or services. Companies are spending more on advertising because in communicating its products

to the consumers it’s a step towards making them customers and eventually loyal customers

(Kotler et al, 2008 ch. 3).

Place includes all the company activities that make the product available to customers. Place

insures convenience to customers. A company can have high quality, designed products but if

they are not extensively distributed then it will be very hard for a customer to remain loyal to a

specific brand while there are other brands of the product available in the market. Thus,

companies need to insure that their products or service are of convenience to their customers.

How to create loyal customers?

This paper has established the concept that customer loyalty is very essential to businesses

success. How can businesses create or make customers who are loyal to their brands or

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businesses? There are several theories and programs that organization can use that will be

discussed on the following part beginning with Customer Relationship Management.

Customer Relationship Management

In order to create loyal customers, businesses need to build profitable customer relationships.

This can be done through the Customer Relationship Management model which is a process of

building and maintaining profit based customer relationships through the delivery of superior

customer value and satisfaction. It covers all aspects of acquiring, keeping customers and

growing them. Using CRM, companies can capture information about their customers at every

possible customer contact point. The contact points include service and support calls, sales force

contacts, customer purchases, website visits, satisfaction surveys, credit and payment interactions

and market research studies; simply every contact made between the company and the customer.

Having all these details at hand, CRM integrates the customer information in order to get a 360

degree view of the customer relationship. Through the use of CRM, companies can provide

higher levels of customer service while developing deeper customer relationships hence loyal

customers (Kotler et al, 2008).

Customer Satisfaction

Under the Customer Relationship Management theory, there is Customer Satisfaction theory

which is essential for building customer loyalty. Customer Satisfaction is described as a measure

of how supplies products or services met the customer’s expectation. Most companies go out of

their way to keep their customers satisfied as studies have shown that when there are higher

levels of customer satisfaction, loyal customers are created. When customers are satisfied and

delighted, they are more than likely to repurchase and further more they will evangelize others

by telling others of their good experiences with the brand or business. A company can increase

its customer’s satisfaction by lowering its prices or by increasing its services while ensuring the

making of profit. Customers experience various levels of satisfaction based on the expectation. If

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the product falls short of one’s expectation then the customer is dissatisfied but if the

performance exceeds expectations, then the customer is highly satisfied.

Model of two levels of satisfaction and Perceived Service Quality

Figure 4: Bitner and Hubbert, 1994

This model answers the question as to how to customers form their expectation? Expectations are

formed based on the customer’s past encounter, friends and associates opinions, marketers’

information and promises. If the service received was poor then the overall service satisfaction

will be low hence negative perception of the quality of service or product. In order to track

customer satisfaction, companies should conduct surveys often, create a complaint and

suggestion system and do a hunt-down for lost customers. When there are many lost customers,

it’s an indicator that the company is not satisfying its customers. So, companies should ensure

that its customers are satisfied with their products in order to make them loyal hence profitable

(Kotler et al, 2008).

Another theory that companies can use to create or make for making their customers loyal is

through;

Customer Retention

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Overall

Service

Satisfaction

Service

Encounter

Satisfaction

Perceived

Service

Quality

Many companies have realized that losing a customer means losing the entire stream of

purchases that a customer would have made over a lifetime of loyalty. Successful retention of

customers starts with the first contact businesses make with the customer and continue

throughout the relationship period. Thus, working to retain and cultivate customers makes a good

marketing sense. A company’s ability to attract and retain new customers is related to its product

or services, but also it is strongly related to its services to the existing customers and its

reputation within and across the market. Customer retention in turn provides the business with a

good reputation and goodwill in the competitive market. It also creates a healthy competition

with the competitors. The retention of the customer record is the best proof regarding the quality

of the products and the services provided. Customer retention paves the way for more research

and development to happen in the company’s products and services. Through retention, the

business hears the voice of its existing and potential customers and adopts a system that offers

the best customer satisfaction products and services in the market. If a business is able to add

new customers and retain them then it’s a good indicator for the business and its associates.

By creating loyal customers and increasing retention by just 5%, can increase profit by 75%.

Most dissatisfied customer will spread a bad report to at least nine people who are supposedly

the company’s potential customers.

Economic benefits of retaining customers

Economic Benefits

Savings on customer’s acquisition or replacement cost

Guarantees of base profits as existing customers are likely to have a minimum spending

period

Growth in per customer revenue as, over a period of time, existing customers are likely to

earn more customers, have more varied needs and spend more.

A reduction on relative operating costs as the firm can spread the cost over many more

customers and over a longer period of time.

Free of charge referrals of new customers from existing customers, which would

otherwise be costly in terms of commissions or introductory fees.

Price premiums as existing customers do not usually wait for promotion or price reduction

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before deciding to purchase.

Figure 5: Kotler et al 2008.

Loyalty Rewards Programs

Most companies offer loyalty reward programs in order to retain their clients, acquire new

customers, and also in order to increase sales with their products. There are several customer

Loyalty Reward programs. In this paper, we will discuss only few Loyalty reward programs

which are widely used by many companies Worldwide. These loyalty reward programs are

Purely point based loyalty program, Pure Lifestyle program and Tier based affinity loyal reward

program.

Purely point based loyalty program

This customer loyalty reward program is based on customer expenditure to the products or

services provided by the service provider. In this type of program, a customer generates and

accumulates more points as he/she spends more money to the product or service. The

accumulated points may be redeemed by a provision of a free service or a free product provided

by the company or the service provider. There are several advantages linked to this program such

as it is a very flexible program which can easily be used to encourage customers. Another

advantage is majority of the customers may receive points creating more tangible value.

Pure Lifestyle Programs

This is a special loyalty reward program that focuses on segmenting customers according to their

lifestyle which involves age group, wealthy class, and other lifestyle groups.

The main aim of this reward program is find a niche that is more inclining to use their

product/service and put more effort on that group. This may lead the company into creating

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products that cater the needs of that particular group and make them more loyal to the

company/brand.

Most companies use market strategies that provide different rewards to different groups.

MIC telecom, with a branded name Tigo, is a good example of how a Pure Lifestyle reward

program works in Tanzania, and worldwide at large. Tigo provides a special data bundle for

students. This student bundle is created to cater the needs of data services to the students with

affordable price to students since they are perceived as not reach enough to afford higher costs.

As a result, many students in Tanzania have become more loyal to Tigo and hence purchase

more data from Tigo.

Tier Based Affinity Loyal Reward Programs

Tier based affinity loyal reward program is another type of reward program which is somehow

similar to point based. However, this type of reward program involves the upgrading of customer

loyalty level through different ways, such as continuing patronage to the company, more

accumulated points, or sometimes paying a membership fee. This type of program attracts

customers to remain loyal to the company, however is also has one common weakness.

This drawback is more common to customers with lower points. Most of these customers always

feel that they won’t be able to reach the required level of being rewarded; hence they end up

giving up.

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Conclusion

The intention of this essay was to show how essential customer loyalty is to businesses and

companies in a highly competitive era where each business fights for maximizing their market

share. Though loyalty is highly crucial, not all customers are 100% loyal to brands or businesses.

Several types of customer loyalties were discussed such as monogamous versus a polygamous

type of loyalty; whereby one depicts 100% loyalty while the other presents partial loyalty.

Customer loyalty plays a big role in businesses marketing strategies thus this paper established

the importance of customer loyalty to businesses such increasing their sales hence revenues

which is a number one goal for organizations. Through customer loyalty, organizations enjoy the

benefit of having a marketing force through satisfied loyal customers hence spreading the good

will of the company.

In order for the organizations to create and maintain loyal customers, they need to look at

different program such as Customer Relationship Management, Customer Retention program

and Loyalty Reward Programs.

These programs might assist organization to create loyal customers though it may take more than

that in such a highly competitive market. In the next essay, a deeper look at the customer loyalty

programs and their effectiveness will be looked upon.

REFERENCES

Cronin, J & Steven, AT 1996, “Measuring Service Quality: A reexamination and extension”,

Journal of Marketing, volume 56, July, pp. 55-68.

Griffin, Jill 1995, Customer Loyalty: How to earn it, How to keep it ,The Free Press, New York.

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Kotler, P, Armstrong, G, Wong, V, Saunders, J 2008, Principles of Marketing, Pearson

Education Limited, England.

Kumar, V & Denish Shah 2004, “Building and sustaining profitable customer loyalty for the

21st century,” Journal of Retailing, Volume 80, Issue 4, pp.317-329, Elsevier Inc., New York

University, New York.

Mark D. Uncles, Grahame R. Dowling, Kathy Hammond, (2003) "Customer loyalty and

customer loyalty programs", Journal of Consumer Marketing, Vol. 20 Iss: 4, pp.294 – 316.

Oliver, RL. 1999, “Whence Consumer Loyalty?” Journal of Marketing, 63 (Special Issue), 33-

44.

Reichheld, Frederick F. 1993, “Loyalty Based Management”, Harvard Business Review, 71

(March – April), 64-73.

Reinartz, W & Kumar, V 2002, “The Mismanagement of Customer Loyalty,” Harvard Business

Review, July, Vol. 80, Issue 7.

Zeithaml, VA & Mary Jo, B 1996, Services Marketing. McGraw-Hill, New York.

Database Time Spent Search Terms Results(# of records)

Evaluation of material (how/

what will contribute to your essay or support your argument?)

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Book 48 Hours Marketing,

Strategic

Marketing,

Relationship

Marketing,

Product and

branding

strategy

Found main

concepts to

assist establish

my essay;

gathered several

models from the

book

Emerald Insight 22 hours Customer

loyalty

Over 7 articles Various

information on

customer

loyalty,

importance and

concepts behind

it

Book 10 hours Customer

Loyalty: How to

earn it, how to

keep it?

The information

showed

important

customer loyalty

is and how to

build it.

Book 6 hours Principles of

Marketing

Provided ideas

on marketing

segments

Journals 20 hours Concepts behind

customer loyalty

7 journals Different

theories behind

types of loyalty

Book 8 hours Loyalty based

management

How can

companies build

and maintain

loyalty

21

MyILibrary 4 hours Consumer

Marketing

2 articles Provided

insights on how

consumers make

their decisions

Book 3 hours The

Mismanagement

of Customer

Loyalty

Reasons for

customer

defection and

churning

Google 17 hours Loyalty theories,

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99+ articles Various

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provided more

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Mintel Oxygen 7 hours Building

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Google (images) 3 hours Customer

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