Marketing Concept: Consumer Loyalty essay
Consumer loyalty is a feature of subjectively-positive approving consumer attitudes to a company, its brands, products and services, personnel, and other aspects, expressed through commitment. Under a loyal customer, marketers understand a person who makes regular repeat purchases, consumes a wide variety of company’s products, attracts other buyers, and does not respond to competitors’ offers. In general, consumer loyalty to a company largely determines the success of business and its assessment in the eyes of competitors and partners, as well as provides a strong foundation for stable sales. Further, we will focus on the essence of this marketing concept by studying both theoretical understanding and practical applications of loyalty mechanisms.
Basically, loyalty is expressed in the fact that a consumer gives preference to company’s goods or services for a considerably long period of time (usually, over 1 year), almost without asking for similar solutions from company’s major competitors. In this case, the concept of loyalty behavior includes the following categories (Reichheld & Teal, 2001, p. 41): 1) action factors (purchase); 2) intention (subsequent actions; the probability of repeat purchases); 3) recommendations (the probability of recommendations of other people); 4) sensitivity (insensitivity to the actions of competitors); and 5) inertia (willingness to find other new options). The key force pushing a customer from stage 1 to subsequent stages is a positive experience after acquiring a product. For example, if a consumer is fully satisfied with the quality of a product of a particular company and service by company’s personnel, next time, with the rest factors stable, he/she is highly likely to make the same consumer choice in favor of this brand (further, we won’t consider the basic preconditions of loyalty, assuming that a company is competitive enough to provide them). Besides, this favorable attitude will also be transferred to all the new products of the company. Furthermore, the strategy of strengthening customer loyalty is justified through the recent research results showing that the attraction of one new customer costs 5-10 times more than retaining an existing one (Reichheld & Teal, 2001, p. 137), while a satisfied customer typically informs an average of 3 friends about a successful purchase, and an unsatisfied client shares one’s annoyance with about 10 friends (Reichheld & Teal, 2001, p. 151).
From the standpoint of company’s financial success, consumer loyalty leads to the following results (basing on Reichheld & Teal, 2001; Dooley, 2011; and Velázquez et al., 2011):
1) consumers become less sensitive to price, which means that a product (or service) can be charged at a higher price without the risk of losing the part of the turnover;
2) the cost of sales to existing customers is lower than sales to the new ones. As a result, company’s profitability may grow up, even though the price is pulled down. In this case, a client can be offered a range of additional services (products) on the basis of cross-selling, thereby increasing the turnover of the company. Indeed, as Hallberg (1995) states, approximately 80% of their incomes companies receive from 20% of their customers, whereas the increase in the share of regular customers by only 5% results in the profit increase by 50% or even more (Reichheld & Teal, 2001, p. 213).
That is why, today more and more companies come to the idea of creating and implementing measures aimed at strengthening customer loyalty, primarily by means of personalized sales. For this purpose, companies provide the opportunities leaving feedback through which their consumers articulate their complaints or questions about the quality of a product/service, as well as introduce special programs to encourage consumption such as various seasonal discounts, gift certificates, birthday presents and sales on national holidays. Another effective approach is the development accumulative cards or club memberships for consumers.
The latter method allows companies to not only attract new customers, but also greatly improve the quality of interaction with regular partners. One of the world’s first programs of this kind was the AAdvantage developed by American Airlines, which guaranteed passengers a substantial discount on next ticket after accumulating a certain number of miles. Today, similar programs are widely adopted in key airline services, as well as in hotel and restaurant chains. In a subconscious fear to lose alluring opportunities, consumers vigorously collect their loyalty points. As a result, Hilton clients rarely switch for Marriott (Velázquez et al., 2011). Studies have shown that loyalty programs using some type of bonus cards result in a decrease in consumer turnover by 30%, and an increase in the volume of business by 10%, while holding only 5% of the total number of customers over time lead to 25-85% increase in profit obtained from them (Reichheld & Teal, 2001, p. 183-87). At the same time, as Velázquez et al. (2011, p. 70) rightfully claim, bonus programs may be easily copied and therefore cannot provide a decisive competitive advantage.
According to Garth Hallberg (1995), differentiated marketing strategy should also involve highly profitable direct communication and feedback based on efficient database systems. For instance, such large companies as Procter & Gamble and Kraft Foods have already collected databases numbering more than 40 million records of individual households (Rungie et al., 2013, p. 1672), and the effectiveness of this strategy is proved experimentally. In particular, studies show a significant increase in the positive image of the brand and the volume of its purchases by those customers who have participated in direct communication programs on increasing loyalty. A typical program aimed at potentially high-profit consumers leads to an increase in sales inside this group by nearly 25% (Dean, 2007, p. 165). It is also important to mark that a substantial increase in company’s fame, image and frequency of purchases in the case of direct communication with consumers had a long-term effect. In many studies (Reichheld & Teal, 2001; Dean, 2007; Rungie et al., 2013), changes were recorded even 2-3 months after the program implementation, while about 80% of the U.S. television audience cannot remember a particular advertisement they have seen the day before.
On the other hand, in their long-term perspective, bonus cards turn to be unprofitable, and direct communication is often annoying. In this regard, one of the most vivid examples of an effective strategy is Apple, Inc., known for its most loyal customers. Despite several considerable declines, Apple has managed to achieve unprecedented loyalty by competently playing on “tribal instincts”. This amazing loyalty was surely built of many factors including advanced design, original products and technologies, user experience, creative marketing, etc. However, there is also an unexpected element, which, according to Roger Dooley (2011), played one of the key roles: the creation of an enemy to compete with. In its marketing fights with Samsung, Apple has been persistently building the social image of Apple users, which would differ dramatically from the rest of consumers. The result of using basic social archetypes was the emergence of Apple cult. Similar contradistinction strategy also used to be applied by such competitors as Nike and Adidas, IBM and Microsoft.
Here, basing on Rungie et al. (2013) and Dooley (2011), a current trend should be stressed again: contemporary consumers react positively primarily on companies offering ideas “beyond known”, i.e. new technologies and bold features. Other non-material forms of consumer loyalty strengthening may involve company’s transparent policies, clear corporate social responsibility policy, green and eco-saving innovations, newly discovered ways to connect on media, possibilities of the uniqueness of samples or their full compliance to individual specific requirement, as well as their multifunctionality. For instance, the Sportline Company has recently invented an interactive bottle equipped with a display. The smart vessel not only dispenses liquid, but also tells the time of the next portion, and demonstrates current indicators to monitor the level of water need in the body. The Life cycle of such products might be short, but the loyalty accompanying will be high proportionally. Attracted by markets gamification, consumers are often ready to follow their idols to the end.
In sum, a loyal customer is always valuable in financial terms: he/she regularly buys company’s products, attracts new customers, requires much less attention, is already familiar with the company’s range of products and offerings, as well as more resistant to price fluctuations and is prone to overpay a little rather than buy unfamiliar goods. Therefore, the crucial task for any company consists in consumer retention, the inadmissibility of consumer’s departure to company’s competitor. In this regard, consumer devotion should be rewarded with an excellent service, personal attention, personalized discounts, bonuses, and gifts, in a row with relevant policies on constructing consumer’s social image, and considering personal feedbacks, interests and tastes in developing new product lines.
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