Fostering Loyal Fostering Loyal Customer RelationshipsCustomer Relationships

Duarte B. Morais, Ph.D.Duarte B. Morais, Ph.D.

Assistant Prof. of Recreation, Park and Tourism Mgt.Assistant Prof. of Recreation, Park and Tourism Mgt.dmorais@psu.edudmorais@psu.edu

Presentation OutlinePresentation Outline

IntroductionsIntroductions

Why talk about loyaltyWhy talk about loyalty

What is a loyal customerWhat is a loyal customer

How to foster loyal relationshipsHow to foster loyal relationships

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IntroductionsIntroductions1.

www.quintadamata.net

Why talk about LoyaltyWhy talk about Loyalty

• Mature IndustryMature Industry– increasing competitionincreasing competition

• Focus on getting more customersFocus on getting more customers– Market share Vs. Market share Vs. share of customershare of customer

• Competitive advantageCompetitive advantage– PricePrice– Service qualityService quality– Loyal relationshipsLoyal relationships

2.

The bottom lineThe bottom line

• Reduction of 5% of defective customers may result in Reduction of 5% of defective customers may result in 80% increase in profitability 80% increase in profitability (Reichheld & Sasser, 1990)(Reichheld & Sasser, 1990)

• 60% to 80% of lost customers were satisfied 60% to 80% of lost customers were satisfied (King, 1996)(King, 1996)

• 90% of customers who 90% of customers who lovelove a company will repeat but a company will repeat but only 30% of customers who only 30% of customers who likelike the company will the company will repeat repeat (Opinion Research Corp.)(Opinion Research Corp.)

• 20-40% of your customers bring 80% of your profits20-40% of your customers bring 80% of your profits

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What to expect from loyal customersWhat to expect from loyal customers

• Behaviors:Behaviors:– Come back frequentlyCome back frequently– Buy most expensive productsBuy most expensive products– Recommend provider to friendsRecommend provider to friends– Give important suggestionsGive important suggestions

• Emotions:Emotions:– Are attached to the provider/staffAre attached to the provider/staff– Trust the providerTrust the provider– Resist changing despite competitors’ persuasionResist changing despite competitors’ persuasion– Willing to forgive mistakesWilling to forgive mistakes

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What is a Loyal CustomerWhat is a Loyal Customer

• Definition: Definition: customers with a long customers with a long record of record of purchasespurchases from a preferred from a preferred provider caused by their psychological provider caused by their psychological and and emotional bondemotional bond with that provider with that provider

• Are there various types of loyalty?Are there various types of loyalty?

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Types of Loyal CustomersTypes of Loyal Customers

Frequency of PurchasesA

ttac

hm

ent

High loyals Latent loyals

Spurious loyals Low loyals

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-+

+

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Differentiated Strategy to Differentiated Strategy to Loyalty SegmentsLoyalty Segments

““Not all customers were created equal”Not all customers were created equal”

• High loyals – High loyals – most profitable, make them feel like family most profitable, make them feel like family (20% of your customers)(20% of your customers)

• Latent loyals – Latent loyals – find out why they can’t come more often, find out why they can’t come more often, find other ways they can help, don’t discountfind other ways they can help, don’t discount

• Spurious loyals – Spurious loyals – come but don’t care, make them come but don’t care, make them connect with you, make them wish for special treatmentconnect with you, make them wish for special treatment

• Low loyals – Low loyals – don’t get distracted with them, but make sure don’t get distracted with them, but make sure they are satisfied (approx. 40-60% of your customers)they are satisfied (approx. 40-60% of your customers)

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How to foster loyal relationshipsHow to foster loyal relationships

• Current loyalty programsCurrent loyalty programs– Ineffective in creating a bondIneffective in creating a bond– Most are simply frequency programsMost are simply frequency programs– Make people shop around and look for dealsMake people shop around and look for deals– Make customers price sensitiveMake customers price sensitive– Erode profitsErode profits

We can identify loyal customers but we don’t We can identify loyal customers but we don’t know how to generate customer loyaltyknow how to generate customer loyalty

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The Love TriangleThe Love Triangle

Social Network

CustomerProvider

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R.I.M.

B.C

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R.I.M.R.I.M.Resource Investment ModelResource Investment Model

Provider’s investment of

special resources

Customer’s investment of

special resources

Customer’s loyalty to provider

Retribution to the provider

Protect customer’s equity

Loyal relationships facilitate special treatment

Morais, Dorsch, & Backman (2004)Morais, Dorsch, & Backman (2004)

4. RIM

Types of ResourcesTypes of Resources

LoveLove

StatusStatus

InformationInformation

ServicesServices

GoodsGoods

MoneyMoney

4. RIM

Types of InvestmentsTypes of Investments

GiveGive – to your valuable customers – to your valuable customers1.1. Make sure that your special customers receive special treatmentMake sure that your special customers receive special treatment

2.2. Send cards for birthdays rather than just for the holidaysSend cards for birthdays rather than just for the holidays

3.3. Make them feel unique Make them feel unique (use name, compliment them for helping)(use name, compliment them for helping)

4.4. Educate them about front and back stageEducate them about front and back stage

ReceiveReceive – from customers – from customers1.1. Give them opportunities to get to know you (your staff)Give them opportunities to get to know you (your staff)

2.2. Help them become advocates of your company Help them become advocates of your company (merchandize, web)(merchandize, web)

3.3. Seek their opinionSeek their opinion

4.4. Allow them to commit to you with a long term programAllow them to commit to you with a long term program ?

4. RIM

B.C.B.C.Brand CommunitiesBrand Communities

• Definition:Definition: group of individuals united group of individuals united through the consumption of your productsthrough the consumption of your products– Harley-Davidson’s Harley-Davidson’s “HOGs”“HOGs”– Club Med’s Club Med’s “Gracious Members”“Gracious Members”

• CharacteristicsCharacteristics– Communality – help and expect help from othersCommunality – help and expect help from others– Brandfests Brandfests are usedare used to to share historyshare history– Keep consuming to stay connectedKeep consuming to stay connected

4. BC

Building a CommunityBuilding a Community

CommunityCommunity1.1. Use a newsletter to share news about customersUse a newsletter to share news about customers

2.2. Develop an online forum for customers to stay in touchDevelop an online forum for customers to stay in touch

3.3. Organize annual events “by invitation” for VIP customersOrganize annual events “by invitation” for VIP customers

4.4. Facilitate picture / story sharingFacilitate picture / story sharing

5.5. Help customers help each otherHelp customers help each other

6.6. Give a name to the communityGive a name to the community

7.7. ……

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4. BC

Action OutlineAction Outline

1. Select your market segment– Identify most valuable customers (what criteria?)– Identify customers who might become valuable

2. Design a relationship-building service culture– Identify what type of treatment promotes customer loyalty

– Identify what loyal customers want to give to you

– Identify potential for the development of a brand community

3. Implement a loyalty treatment– Design specific communication strategy and message– Train staff to understand the importance and the process– Create opportunities to invest and receive investments– Generate a sense of community among your customers

4. Measure effects of program and redesign– Maintain constant communication with your loyal customers– Monitor costs and results of your program

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The Love TriangleThe Love Triangle

Social Network

CustomerProvider