Customer Loyalty is the measure of success of the supplier in retaining a long term relationship with the customer.
Customer loyalty tends the customer to voluntarily choose a particular product against another for his need. The loyalty may be product specific or it may be company specific.
Learn about:-
1. Introduction to Customer Loyalty 2. Meaning of Customer Loyalty 3. Tips to Build Customer Loyalty 4. Significance 5. Drivers
6. Factors 7. Reasons for Loyalty Promotion. 8. Reasons for Customer Loyalty Breakups 9. Managing Customer Loyalty and Development 10. Activities that Help the Organisation to Retain Customers.
11. Customer Loyalty and Satisfaction 12. Value of Reward Programs 13. How Marketers can Increase Customer Loyalty? 14. Customer Loyalty Programmes in India.
Customer Loyalty: Meaning, Tips, Significance, Drivers, Reasons, Programmes and Other Details
Customer Loyalty – Introduction
Customer Loyalty is the measure of success of the supplier in retaining a long term relationship with the customer. Thus customer loyalty is when a supplier receives the ultimate reward of his efforts in interacting with its customer.
Customer loyalty tends the customer to voluntarily choose a particular product against another for his need. The loyalty may be product specific or it may be company specific. When a loyal customer has repetitive requirement of the same product, such customers may be described as being ‘brand loyal’. On the other hand he may also require different products of the same manufacturer.
That is to say he makes significant purchases direct from the same supplier and that counts as the company specific loyalty. Loyalty also means that customer is sticking to the supplier on certain grounds though he may be having other options also.
It may be possible that the supplier may not have the best product or the customer may be having some problems with the supplier in respect of his supply of the product but the customer likes to ignore other options and prefers to continue with the same supplier as the customer thinks the supplier provides him more value and benefit than others.
Such loyal customers tend to spend more money buy more, buy longer and tell more people about the product or supplier. This type of long-term customer loyalty can only be created by making the customers feel that they are number one priority with the supplier.
Some customers are inherently predictable and loyal, irrespective of the supplier with which they are doing business. They simply prefer long-term relationships with him. Loyal customers are predisposed to stay with one product or supplier, resisting competitive offers and also recommend the supplier to others.
In case the business is done directly the relationship is direct so also the loyalty. But if the selling is through two or more intermediaries then the loyalty has to be measured at different levels. In that case the end customer loyalty is influenced by the loyalty of the intermediate customers. Then the supplier has to focus his loyalty retention plan accordingly and has to judge and analyze the loyalties of the intermediaries.
This process depends on what amount of importance he gives to each of the intermediaries and how much to the ultimate customer. But it is certain that well- managed customer retention programs are sure to give the ultimate customer loyalty.
True, the customers who are targeted by a retention program demonstrate higher loyalty to a business. Therefore such customer retention programs should include regular communication with customers, and provide them opportunities to remain active and choosing to do business with the supplier.
Loyalty is demonstrated by the actions of the customer. But it doesn’t mean that the customer satisfaction level can measure his loyalty. Customer loyalty is not customer satisfaction. Customer satisfaction is the basic entry point for a good business to start with.
A customer can be very satisfied with the deal and still not be loyal. On the other hand a customer may not express satisfaction but wants to remain loyal to the supplier due to some reasons which keeps him benefited from that supplier. For the same degree of satisfaction, the loyalty level may also be different for different suppliers.
On the other hand, loyalty should not be considered as just an attitude. Customer loyalty should have a direct connection to a company’s financial results. The supplier should be able to plan a clear and direct economic benefit of some kind, as the result of the strategies and tactics he employs to increase its customers’ loyalty. Measuring customer loyalty and developing a retention strategy are of great importance to an organization’s success.
Customer Loyalty – Meaning
The term customer loyalty is used to describe the behavior of repeat customers, as well as those that offer good ratings, reviews, or testimonials. Some customers do a particular company a great service by offering favorable word of mouth publicity regarding a product, telling friends and family, thus adding them to the number of loyal customers. However, customer loyalty includes much more. It is a process, a program, or a group of programs geared toward keeping a client happy so he or she will provide more business.
Customer loyalty can be achieved in some cases by offering a quality product with a firm guarantee. Customer loyalty is also achieved through free offers, coupons, low interest rates on financing, high value trade-ins, extended warranties, rebates, and other rewards and incentive programs. The ultimate goal of customer loyalty programs is happy customers who will return to purchase again and persuade others to use that company’s products or services. This equates to profitability, as well as happy stakeholders.
Customer loyalty may be a one-time program or incentive, or an ongoing group of programs to entice consumers. Buy-one-get-one-free programs are very popular, as are purchases that come with rebates or free gifts. Another good incentive for achieving customer loyalty is offering a risk free trial period for a product or service. Also known as brand name loyalty, these types of incentives are meant to ensure that customers will return, not only to buy the same product again and again, but also to try other products or services offered by the company.
Excellent customer service is another key element in gaining customer loyalty. If a client has a problem, the company should do whatever it takes to make things right. If a product is faulty, it should be replaced or the customer’s money should be refunded. This should be standard procedure for any reputable business, but those who wish to develop customer loyalty on a large-scale basis may also go above and beyond the standard. They may offer even more by way of free gifts or discounts to appease the customer.
The term customer loyalty is defined as the behaviour of repeat customers, as well as those that offer good ratings, reviews, or testimonials. The customers can rate the service by offering a good word. It is a process, a programme, or a group of programmes geared toward keeping a guest happy so he or she will provide more business.
According to Iddrisu, A. M., “loyalty is developed over a period of time from a consistent record of meeting, and sometimes even exceeding customer expectations”. Some of the types of customer loyalty programmes can be discounts, free offers, coupons, low interest rates on financing, high value trade-ins, extended warranties, rebates, and other rewards and incentive programmes.
The ultimate goal of these is to develop happy customers who will return to purchase again and persuade others to use that company’s products or services. This equates to great cost savings and profitability to the company through the keeping of current customers as against attracting new ones as well as making stakeholders happy. Loyal customers are those who are not easily swayed by price inducement from competitors, and they usually purchase more than those less loyal customers.
The service provider’s ability to maintain its customers’ loyalty and persuade them to recommend its services to potential customers, is customer loyalty.
There are six points that measure customer loyalty:
i. Share information
ii. Say positive things
iii. Recommend friend
iv. Continue purchasing
v. Purchase additional service
vi. Test new service
Customer retention programmes give encouragement to customers to remain active and ensuring that they choose their brand as the exclusive brand. It is a strategy that creates rewards to profit customers and the firms. With loyalty customers, companies can maximise their profit because loyal customers are willing to purchase more frequently, spend money on trying new products or services, recommend products and services to others, and give companies sincere suggestions.
Customer Loyalty – 10 Main Tips to Build Customer Loyalty
The key to a successful business is a steady customer base. After all, successful businesses typically see 80 percent of their business come from 20 percent of their customers. Too many businesses neglect this loyal customer base in pursuit of new customers. However, since the cost to attract new customers is significantly more than to maintain your relationship with existing ones, your efforts toward building customer loyalty will certainly payoff.
Here are ten ways to build customer loyalty:
1. Communicate – Whether it is an email newsletter, monthly flier, a reminder card for a tune up, or a holiday greeting card, reach out to your steady customers.
2. Customer Service – Go the extra distance and meet customer needs. Train the staff to do the same. Customers remember being treated well.
3. Employee Loyalty – Loyalty works from the top down. If you are loyal to your employees, they will feel positively about their jobs and pass that loyalty along to your customers.
4. Employee Training – Train employees in the manner that you want them to interact with customers. Empower employees to make decisions that benefit the customer.
5. Customer Incentives – Give customers a reason to return to your business. For instance, because children outgrow shoes quickly, the owner of a children’s shoe store might offer a card that makes the tenth pair of shoes half price. Likewise, a dentist may give a free cleaning to anyone who has seen him regularly for five years.
6. Product Awareness – Know what your steady patrons purchase and keep these items in stock. Add other products and/or services that accompany or compliment the products that your regular customers buy regularly. And make sure that your staff understands everything they can about your products.
7. Reliability – If you say a purchase will arrive on Wednesday, deliver it on Wednesday. Be reliable. If something goes wrong, let customers know immediately and compensate them for their inconvenience.
8. Be Flexible – Try to solve customer problems or complaints to the best of your ability. Excuses – such as “That’s our policy” – will lose more customers than setting the store on fire. Read our 60-Second Guide to Managing Upset Customers for more information.
9. People over Technology – The harder it is for a customer to speak to a human being when he or she has a problem, the less likely it is that you will see that customer again.
10. Know Their Names – Remember the theme song to the television show Cheers? Get to know the names of regular customers or at least recognize their faces.
Customer Loyalty – Significance for the Growth of Organisation
Customer loyalty is very essential for the growth of an organisation because loyal customers:
1. Purchase products and services again and again over time.
2. Increase the volume of their purchases and buy beyond traditional purchases, across product-lines.
3. The company’s sales are increased through word of mouth.
4. Become immune to the pull of the competition.
5. If something goes wrong, the customer gives the benefit of doubt to the company.
Customer Loyalty – 5 Important Drivers
It is very important for an organization to identify the factors and facets which drive customer loyalty. These factors help the organization to manage customer loyalty in a better and efficient way.
Following are the drivers of customer loyalty:
1. Attitude:
A customer to bear on his loyalty can have following types of attitude:
a. Emotional and sentimental – Some customers stick to a particular supplier due to the emotional and sentimental attachments with that supplier. This attachment may be due to the physical location of the supplier, product pattern provided by the supplier that exactly suits customer or may be due to the esteemed assistance and services provided by him. This type of bonding enhances customer loyalty and it is very difficult to break this bonding under any circumstances.
b. Rational Type – Such type of customer makes purchase decision rationally. Before making any purchase they evaluate the suppliers and assess the profitability criteria.
c. Entrepreneur Type – These types of customers have a habit to try new options. Their decision to choose supplier is normally irrational and can change their loyalty to other suppliers even if they are satisfied with existing customers. It’s difficult for the supplier to retain or manage these types of customers as ho situation could bind them.
2. Product and Services:
Following are the important aspects of product and services that could substantially help in retaining loyalty of customers:
a. Differentiated Products and Services – Differentiation in products and services help the organization to reduce competition in market and have substantial influence on customers’ mindset.
b. Multiple Products for the same customer – By manufacturing multiple products for the same customer enhances the relationship with customer which increases loyalty. If the customer is loyal towards any one brand then there are good chances to retain his loyalty for whole range of brands.
c. High Service Component – The products having a high service component captures more customer loyalty. This is because the customer does not want to experiment with other products provided by different supplier. Hence they become loyal to the existing customer due to the provision of high service components.
3. Technology:
The technological aspects of product manufactured by the supplier plays a vital role in customer loyalty. The more products are technologically sound, more is the loyalty.
4. Human Resources:
Organizational human resource plays a vital role in marketing segments where customer comes in direct contact. In some consumer sectors like household and automobiles, the customer gets a chance to evaluate capability of organizational human assets. If the customer evaluates these human assets as useful and is influenced by the aspects then he develops a positive feeling against the supplier who possess these enhanced human assets.
5. Supplier’s Culture:
Supplier’s culture is most important driver of customer loyalty. In consumer sector this culture means quality and in core sector it can be related to technology. For example, in US ‘Friedrich’ has ranked with good quality, enhanced design and user friendly features which have created brand loyalty. In Indian the supplier of almost all the dairy product called ‘Amul’ has pursued customer loyalty because of their overall culture.
In core sector the image of the supplier is the biggest driver of loyalty. This image could add a status symbol for most of the customers. ‘Mercedes’ automobiles and ‘RayBan’ sun-glasses are example of this. The customers uses these products only for maintaining or enhancing their lifestyle and always be loyal to them.
Customer Loyalty – 7 Important Factors Influencing Customer Loyalty
The cost of achieving customer loyalty is greatly offset by the advantages it brings along with it such as greater level of customer satisfaction, increased revenues, favourable word-of-mouth publicity, reduced switching behavior and better competitive edge. It is clear that customer loyalty is meant to be nurtured and preserved. According to Peter Clark, co-editor of The Wise Marketer and co-author of The Loyalty Guide report series, customer loyalty is generally influenced with the six factors.
They are:
Factor # 1. Core Product/Service:
Most of the high-performance companies are characterized with a solid base of loyal customers won by value-added products and services. These companies achieved the loyalty of their customers by clearly defining their target segments, understanding their customers and tailoring the offer around their needs and preferences. Instead of wasting their resources in designing ordinary loyalty programs with superficial results, these companies chose to concentrate upon the customer expectations and deliver competitive core offering that builds trust and loyalty.
i. Place:
The location and premises of the company often play a significant role in determining customer loyalty. The location-related specifications and functionality of the premises should be kept in mind while deciding upon the place of service delivery.
ii. Service:
The quality of customer service is always an important business issue irrespective of the type of core offering. Even the most price-sensitive customers, whose loyalty is determined by the favourability of company’s pricing strategy, get influenced by good customer service. However, a company does not target for the loyalty of such customers as they will defect at the price cuts offered by the competitors. To build actual loyalty, a company needs to take care of the service accompanying its core offering as it makes a noticeable difference to the level of customer loyalty.
iii. The Offer:
Customers are now more aware about the products and services available into the market. They are also more vocal about their specific demands and particular about their preferences. To win their loyalty, a company must met their expectations without failure.
Factor # 2. Satisfaction:
Besides retention, customer satisfaction is also an essential step in the customer loyalty hierarchy.
Often, companies take good satisfaction ratings as an indicator of loyalty which is not entirely right. It is true that a company with a low customer satisfaction level can never claim to have loyal customers, but even good satisfaction level cannot guarantee repurchase and recommendations from the customers. Automobile manufacturing companies are good example in this context as many of them boast of high customer satisfaction but only a few actually see customers returning to them.
The point is that customer satisfaction should never be confused with customer loyalty as both represent different mindsets and behavioural implications. Customer satisfaction is definitely instrumental for achieving customer loyalty but it does not necessarily result in customer loyalty.
Factor # 3. Degree of Elasticity:
Degree of elasticity denotes the level of involvement or indifference towards a particular buying decision. It basically works in two ways— customers as well as company. The importance of a purchasing decision decides the amount of attention and information seeking behavior.
Factor # 4. Involvement:
A customer’s decision to stay with a business is largely affected by the monetary as well as search and time costs he has incurred in acquiring the product or service. When a purchasing decision is highly important to a customer, he is likely to invest greater time and money in deciding upon a particular company and he is also more likely to stick with his decision.
Usually, products which involve high monetary risk with long-term implications or personal preferences demand more attention and involvement. These categories can earn customers’ loyalty with nominal efforts as the nature of products brings along the loyalty intentions with them.
Ambivalence – The customer’s level of ambivalence also plays a significant role in deciding the elasticity of a purchasing decision. Commoditised products have lesser points for consideration as differentiation is low and the customer does not have to balance the advantages and disadvantages of choosing a particular product. Therefore, it is difficult to cultivate loyalty in the case of these products.
Factor # 5. Demographics:
Jan Hofmeyr and Butch Rice (1980) proposed The Conversion Model to help users to segment customers on the basis of their commitment with a brand as well as segment non-users according to openness to switching to the brand. They also suggested that less educated customers are more likely to stay with a particular company due to affordability and accessibility issues in comparison to more affluent and better educated customers. According to their findings, younger customers tend to be less committed to brands than older customers.
Factor # 6. The Market:
The market dynamics also play a key role in the development of loyalty.
The factors most closely involved are:
i. Opportunity to Switch:
The switching behaviour gets affected by the industry characteristics. If an industry offers large number of options and lower switching cost, switching is likely to happen. Switching behaviour can be controlled only by developing a relationship which involves investing time and efforts.
With products growing more similar and customers becoming more particular about their choices, differentiation is the need of the hour. Successfully creating the points of differentiation and managing the switching behaviour can lead to customer loyalty.
ii. Inertia Loyalty:
Often, customers decide to stay with a company on the grounds of convenience, familiarity, habit or simply a resistance towards change. Inertia is opposite to switching but it does not ensure loyalty as a customer who just repeats purchasing for shallow reasons and does not hold a favourable attitude towards the company cannot be relied upon in long term.
Factor # 7. Share of Wallet:
With increasingly intensifying competition and swelling market saturation, it has become hard for companies to maintain their profitability. The portion of customer’s total spending has become a significant indicator of a company’s profits. Increasing share of customer’s expenditure with a company is easier and more profitable in comparison to attracting a new customer altogether. It is always more beneficial to have loyal customers who may allocate 100% of their spending with the same company.
Customer Loyalty – 4 Main Reasons for Loyalty Promotion
Customer loyalty is the fact that people choose to use a particular shop or buy one particular product, rather than use other shops or buy products made by other companies. Customers exhibit customer loyalty when they consistently purchase a certain product or brand over an extended period of time.
As an example, many customers stick to a certain travel operator due to the positive experiences they have had with their products and services.
Customer loyalty is the key objective of customer relationship management and describes the loyalty which is established between a customer and companies, persons, products or brands. The individual market segments should be targeted in terms of developing customer loyalty.
Four different reasons for loyalty should be promoted:
1. Psychological;
2. Economic;
3. Technical/functional;
4. Contractual.
1. Psychological – Customers might also develop a sense of loyalty to a certain person working for a company. People can build up a good relationship with a bank advisor they have known for several years and who has always fulfilled their expectations. The fact that people develop a sense of loyalty can be described as a psychological reason to stick to a specific product.
2. Economic – In business-to-business markets, it might also be possible that customer loyalty results from the fact that switching to another company would lead to the company facing economic disadvantages. In this case, loyalty is based on economic grounds.
3. Technical/Functional – Furthermore, it might be possible that a company adjusted and adapted its technical procedures to a particular supplier and a change would cause immense technical problems, thus, technical or functional reasons are the grounds for customer loyalty.
4. Contractual – A contractual reason for loyalty exists if a customer is bound to the company for a certain period of time due to a contractual agreement and for legal reasons. Loyalty is an old-fashioned word traditionally used to describe fidelity and enthusiastic devotion to a country, a cause or an individual. It has also been used in a business context, to describe a customer’s willingness to continue patronizing a firm over the long term, preferably on an exclusive basis and recommending the firm’s products to friends and associates.
Customer Loyalty – 7 Important Reasons Responsible for Loyalty Breakups
When customers end up his relationship with suppliers, he breaks the loyalty with him.
Following are the reasons which are responsible for loyalty break ups:
1. Customer Dis-Satisfaction:
Customer dissatisfaction is the primary reason that results in breaking up the continued loyalty with the supplier. Most of the unsatisfied customers try to find more prominent alternatives which results in their migration. In most of the cases the customer does not even complain about the dissatisfaction and simply divert their way to other supplier.
2. Tough Competition and New Options Availability:
Vivid competition also acts as a breaker of loyalty as it gives customers new options which are exposed in the market and are sometimes better than before. These new options results in enhancing expectations of customers which leads to accelerating break ups in relationship between supplier and customers. This happens because the existing customer’s supplier is unable to fulfill their demands in an appropriate manner.
3. Enhanced Product Features and Advance Technology:
Due to the abrupt change in market conditions, inheritance of advanced technology in all ranges of products and service is inevitable. If the supplier is unable to follow the process of continuously updating technological related aspects of products and services he may lose customers as they divert in search of technological sound products and services. Apart from the advanced technology, if the customers get enhanced and user friendly product features then it acts like additional incentives for them to migrate.
4. Customer Expectation:
Expectations of customers can go way beyond expectations of supplier which results in breaking loyalty. If supplier is not able to meet customers’ expectations then obviously customers would look for better alternatives. These expectations can be related to cost, quality, product service, efficiency, durability or any other aspect.
Many a times these expectations could be unrealistic or unreasonable due to the market scenario or some external business pressure. Under this kind of situation it is becomes very difficult for an organizations to meet all the expectations which result in sudden divert by breaking loyalty bond. Any supplier which comes close to these unrealistic and unreasonable expectations of customers could retain him easily.
5. Customer Attitude:
Customer attitude plays a vital role in breaking up the loyalty with existing supplier. This is because some customers have a habit to try new options and change business tactics. Even if they are fully satisfied with the existing supplier they would attempt a change for the sake of getting new and better option or because of any change in business rules and tactics.
These types of customers are experimental in nature and try to be innovative and creative by taking high business risks. These customers are supposed to be least loyal because they less likely to be attached with any sort of bond with single supplier. To retain these types of customers is a pain for all the suppliers and they generally try to change their attitude by inheriting some business tactics in their marketing strategies.
6. Product Services:
Providing products with low or bad service components will S result in ending up loyalty with customers. Customers not only use the products but also demands valuable and spontaneous service. Hence apart from manufacturing good and sound products it is very important for the supplier to provide enhanced service components along with the product which will act as a roadblock for customer to divert.
7. Market Recession:
Some unrealistic situation in global market which affects the allover economy of a country could also be a reason in ending up loyalty bond with customers. Under this situation called ‘recession’, intense cash flow problem is seen. This leads customers to cut-off expenses incurred in business and may lead to divert to other suppliers in search of low cost but reliable products and services.
Customers who decide to stay with the company gradually move on the customer loyalty ladder. Various stages of relationships between customer and the company involve stay of the customer with the company as a regular customer and subsequent advocating among society members about the company and its products.
The movement from suspect to the ambassador takes time and involves a systematic process. This process is termed as “Customer Loyalty Ladder.”
Customer Loyalty – Managing Customer Loyalty and Development
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. However, that focus is not how you build customer loyalty.
The customer loyalty can be built through the following ways:
i) Keeping touch with customers using email marketing, thank you cards and more.
ii) Treating your team well so they treat your customers well.
iii) Showing that you care and remembering what they like and don’t like.
iv) Build it by rewarding them for choosing over competitors.
v) Build it by truly giving a damn about them and figuring out how to make them more success, happy and joyful.
Customer loyalty is when a supplier receives the ultimate reward of his efforts in interacting with its customer. Customer loyalty tends the customer to voluntarily choose a particular product against another for his need. The loyalty may be product specific or it may be company specific.
When a loyal customer has repetitive requirement of the same product, such customers may be described as being ‘brand loyal’. On the other hand he may also require different products of the same manufacturer. That is to say he makes significant purchases direct from the same supplier and that counts as the company specific loyalty.
Loyalty also means that customer is sticking to the supplier on certain grounds though he may be having other options also. It may be possible that the supplier may not have the best product or the customer may be having some problems with the supplier in respect of his supply of the product but the customer likes to ignore other options and prefers to continue with the same supplier as the customer thinks the supplier provides him more value and benefit than others.
Such loyal customers tend to spend more money buy more, buy longer and tell more people about the product or supplier. This type of long-term customer loyalty can only be created by making the customers feel that they are number one priority with the supplier.
Some customers are inherently predictable and loyal, irrespective of the supplier with which they are doing business. They simply prefer long-term relationships with him. Loyal customers are predisposed to stay with one product or supplier, resisting competitive offers and also recommend the supplier to others.
In case the business is done directly the relationship is direct so also the loyalty. But if the selling is through two or more intermediaries then the loyalty has to be measured at different levels. In that case the end customer loyalty is influenced by the loyalty of the intermediate customers.
Then the supplier has to focus his loyalty retention plan accordingly and has to judge and analyze the loyalties of the intermediaries. This process depends on what amount of importance he gives to each of the intermediaries and how much to the ultimate customer. But it is certain that well-managed customer retention programs are sure to give the ultimate customer loyalty.
True, the customers who are targeted by a retention program demonstrate higher loyalty to a business. Therefore such customer retention programs should include regular communication with customers, and provide them opportunities to remain active and choosing to do business with the supplier.
Loyalty is demonstrated by the actions of the customer. But it doesn’t mean that the customer satisfaction level can measure his loyalty. Customer loyalty is not customer satisfaction. Customer satisfaction is the basic entry point for a good business to start with. A customer can be very satisfied with the deal and still not be loyal.
On the other hand a customer may not express satisfaction but wants to remain loyal to the supplier due to some reasons which keeps him benefited from that supplier. For the same degree of satisfaction, the loyalty level may also be different for different suppliers.
On the other hand, loyalty should not be considered as just an attitude. Customer loyalty should have a direct connection to a company’s financial results. The supplier should be able to plan a clear and direct economic benefit of some kind, as the result of the strategies and tactics he employs to increase its customers’ loyalty. Measuring customer loyalty and developing a retention strategy are of great importance to an organization’s success.
Customer Loyalty – Activities that Help the Organisation to Retain Customers
Organisations can be profitable when they go for long-term relationships with customers. The challenge with future CRM is about developing good customer strategies. It is only through the CRM that the efficiency of a company could be increased to serve the customers better.
The major activities which could help the organisation to retain with the customers have been listed below:
1. Focus:
For a successful CRM, one has to know and concentrate on the strategic objectives of the business. Right focus is crucial for growth of a company as the company needs to have an idea of the strategy so as to -form an effective CRM system.
The knowledge of aims does not get restricted to the top management but is something that should be communicated to the workers at lower level also. This is because it is the floor level people who have a direct contact with the consumers. A Lack of this focus could result in the failure of CRM.
2. Commitment:
The development of an effective CRM program and its implementation does not finish the task for the top management. CRM alone cannot be left to the staff. Thus the top management should have constant commitment in managing the CRM strategy.
It is true that the CRM, is directly related to the growth rate. Lack of commitment could also lead to the failure of CRM.
3. Proper Training:
It is true that the implementation strategy for the CRM is generally formed by the top management. The acceptance of the same however also has to be present among the employees. If the employee are not comfortable with it or do not know how to operate and maintain the system, then the effort of implementing this valuable CRM systems goes waste.
For the same the management has to make sure that they train their employees for the CRM strategy. This could be opposed by the employees as they will already have a set process of working. Inculcating CRM in the process would bring in resistance. This is so because the CRM would interfere in their day to day work and may even increase their work load initially. Thus the employees need to be convinced about the CRM strategy of the company.
4. Right CRM:
Many a CRM software are available in the market, but it is crucial for the company to select the right one for their company. Some factors which would be crucial in deciding the type of CRM would be the size of the company, objectives of implementing CRM, employees EFFECINCY, compatibility to present systems etc.
Customer Loyalty and Satisfaction
Most of the organizations have murkiness in considering customer loyalty and satisfaction. They feel that both are same and a satisfied customer is always loyal to them. But this is not true as the customer can be delightfully satisfied but he may be or may not be loyal. This is because satisfaction an emotional and slushy feeling over the job done. But loyalty is related to the action taken by the customer future.
There can be following two combinations of aspect when satisfaction and loyalty are treated together:
1. Satisfied but Disloyal Customers:
A customer can be fully satisfied but may not be loyal due to following reasons:
a) Entrepreneur Customer – These types of customers like to experiment a lot and hence try to create various options for them to get more benefits. So even if they are satisfied they diverge to other options available in the market.
b) Pressure from Competitors – Due to the pressure in market the customer tends to follow the competitors path and divert from the existing supplier to remain sustain in the global marketplace.
c) Outdated Suppliers – The customer may be satisfied with the existing customers but sometimes feel that the product and services he is using are outdated in market. Due to the changing technology there is always a need to update the technical aspects and product features even if the old products and services are satisfactory. Focusing on these facts the customers normally go to other suppliers for his new requirements.
2. Unsatisfied but Loyal Customers:
The other abnormal situation is when the customer is loyal but is unsatisfied.
The reasons for this are following:
a) Lack of Available Options:
There can lack of options available for customers. This situation arises when the existing supplier is having a monopoly in a particular segment of products or when all other competitors are worse than the existing supplier. The customer feel trapped in this type of situation and is forced to be loyal to the supplier but at the end of the day he will be an unsatisfied customer.
b) Improved Supplier:
In another situation the suppliers may take the customers in confidence by convincing them to provide improved products and services in the coming future. This is an important tactic that supplier implement in their marketing strategy to become customer centric and to have customers stick to them and be loyal.
To remain in a healthy relationship the customers also remain loyal but have a feeling of dissatisfaction beneath. But finally if the supplier continuously supply degraded products and services the customer could easily divert from them in search of better prospects.
c) Customer Inertia:
There are some customers who afraid to change the supplier. Even if they have bad experience with the supplier, they continue to have business with them. This may be due to the emotional and business attachments or bonding of customers with those particular suppliers.
There could be many others reason for this like, the customers’ feel reluctant to face the complexity of the process of changing their way to other suppliers and prominently when they already have a long term relationship with their suppliers. Under this situation the customer tries to ignore the feelings of being unsatisfied and remain loyal to them.
Customer Loyalty Programs – Value of Reward Programs
Loyalty is a customer’s sustained commitment to the firm, demonstrated by repeat purchase/positive word of mouth. Loyalty programs, designed to retain customers/improve loyalty, are central to many CRM systems. All loyalty programs have a similar structure- Customers earn rewards by purchasing products/services. Some programs are simple; others — airlines, credit cards, hotels — drive loyalty through complex, multi-tiered incentives.
Value of Rewards Programs – Customers:
Design Considerations:
i. Rate of Earning:
Should reward earnings be equal, or accelerated? Should customers earn the same points for each dollar spent or more points per dollar as they near the program goal?
ii. Aspirational Value:
Two rewards can have the same cash value, but different psychological value — groceries versus vacation travel. Consumers engage in mental accounting by placing funds/resources in different mental accounts.
iii. Cash or Cash Value:
Rewards should offer real economic value. Some programs pay cash; airline frequent-flier programs provide free travel. Relatedly, should products/services be limited to firm offerings, or embrace many different providers?
iv. Deterministic or Probabilistic Rewards:
Deterministic- Customers accumulate points, then collect rewards. Probabilistic- Customers win large rewards, or nothing.
v. Ease of Collecting:
Should be straightforward to redeem rewards. Airlines face criticism for blocking rewards on some flights/routes.
vi. Time to Earn:
Many consumers engage in hyperbolic discounting — the tendency to increasingly choose a smaller-sooner reward, versus a larger- later reward. Hence- Should the program have smaller rewards earned frequently, or larger, delayed rewards? Airlines, AmEx alleviate the problem by providing data/motivational messages on progress toward the reward.
vii. Hard versus Soft Rewards:
Hard Rewards- Denominated in dollars and cents, points. Soft Rewards- Toll-free information numbers, premium restaurant seating, hotel/airline upgrades.
viii. Program Entry Rewards:
Should entry to the program be free? A fee may discourage entry, but encourage commitment — Amazon Prime.
Customer Loyalty – How Marketers can Increase Customer Loyalty?
The manner in which a customer can be loyal to a firm and the way marketers can increase their loyalty can be divided into the following:
1. The Foundations of Customer Loyalty
2. Creating Bonds with Customers
3. Managing and Curtailing Drivers of Customer Defections
1. The Foundations of Customer Loyalty:
The foundation for true loyalty lies in customer satisfaction.
(a) A Delighted Happy Customer- A customer who is fully satisfied with the service offered by the organisation and the kind of customer who will talk about their experience to their friends and basically be an unpaid salesperson.
(b) A Satisfied Customer- When the experience is not better or worse but is equal to their experience, this does not seem to enter the customer’s memory for any long period of time.
(c) A Dissatisfied Customer- When the experience of what you get as a customer is less than the expectations, causing frustration, annoyance or impatience. Many organisations are actually safe from extinction and possible ruin because they have such low expectations within their customers that their experience, whilst falling below many other standards, managed to escape dissatisfaction.
Customer loyalty divides the satisfaction loyalty relationship into three main zones:
(a) The zone of defection is at low satisfaction levels. Customers will switch unless switching costs are high or there are no viable or convenient alternatives. Extremely dissatisfied customers provide an abundance of negative word of mouth for the service provider.
(b) The zone of indifference is at intermediate satisfaction levels. Here, customers are willing to switch if they find a better alternative.
(c) The zone of affection is at very high satisfaction levels, and customers here can have such high attitudinal loyalty that they do not look for alternative service providers. Customers who praise the firm in public and refer others to the firm are described as “apostles.”
Dissatisfaction drives customers away and is a key factor in switching behaviour whereas highly satisfied or even delighted customers are more likely to become loyal apostles of a firm, consolidate their buying with one supplier, and spread positive word of mouth in contrast.
The customers’ expectations should be built with a buffer of at least 50% into all time deadlines.
2. Managing and Curtailing Drivers of Customer Defections:
So far, drivers of loyalty and strategies to the customers are more closely to the firm. An alternative approach is to understand drivers of customer defections, or churn, and work on eliminating or reducing those drivers.
For example, in the mobile phone industry, players regularly conduct “churn diagnostics” the analysis of data warehouse information on churned and declining customers, exit interviews (call center staff often have a short set of questions they ask when a customer cancels an account, to gain a better understanding of why customers defect), and in-depth interviews of former customers by a third-party research agency, which typically yield a more detailed understanding of churn drivers.
3. Creating Bonds with Customers:
A solid foundation for creating customer loyalty are having the right portfolio of customer segments, attracting the right customers, and delivering high levels of satisfaction. However, there is more that firms can do to “bond” more closely with their customers. At the same time, service marketers should be working to identify and eliminate the factors that result in “churn,” or the loss of existing customers and the need to replace them with new ones.
(a) Reward-Based Bonds:
Within any competitive product category, managers recognise that few customers consistently buy only one brand, especially if service delivery involves a discrete transaction rather than being continuous. In many instances, consumers are loyal to several brands while spurning others—sometimes described as “polygamous loyalty”. In such instances, the main goal becomes one of strengthening the customer’s preference for one brand over others.
(b) Deepening the Relationship:
To tie customers more closely to the firm, deepening the relationship via bundling and / or cross-selling is an effective strategy. For example, banks like to sell as many financial products into an account or household as possible. Once a family has its current account, credit card, savings account, safe- deposit box, car loan, mortgage, and so on, with the same bank, the relationship is so deep that switching becomes a major exercise and is unlikely unless, of course, the customer is extremely dissatisfied with the bank.
Incentives that offer rewards based on the frequency or value of purchase or combination of both represent a basic level of customer bonds. Reward-based bonds can be financial or non-financial. Financial bonds are built when loyal customers are rewarded with incentives that have a financial value, such as discounts on purchases and loyalty-program rewards, such as frequent flier miles or the cash-back programmes provided by some credit card issuers, based on the level of spending charged by card members.
Non-financial rewards provide customers with benefits or value that cannot be translated directly into monetary terms.
Important intangible rewards may take the form of special recognition and appreciation. Customers tend to value the extra attention given to their needs, as well as the implicit service guarantee offered by higher-tier memberships, including efforts to meet special requests.
One objective of reward-based bonds is to motivate customers to consolidate their purchases with one provider or at least make it the preferred provider. Tiered loyalty programmes often provide direct incentives for customers to achieve the next higher level of membership.
However, regard-based loyalty programmes are relatively easy for other suppliers to copy and rarely provide a sustained competitive advantage. By contrast, the higher-level bonds that we discuss next tend to be more sustainable.
Creation of Customer Bonds through Membership Relationships and Loyalty Programs:
As a marketing strategy, many businesses seek ways to develop formal, ongoing “membership” relations with customers. Hotels, for instance, have developed “frequent-guest programmes” offering priority reservations, upgraded rooms, and other rewards for frequent guests.
Many nonprofit organisations, such as museums, create membership programmes in order to reinforce the links with their most active supporters, offering them such extra benefits as private showings and meetings with curators or artists as a reward for annual donations.
The marketing task here is to determine how to build sales and revenues (or, in the case of nonprofits, donations) through such “memberships,” while avoiding the risk of freezing out a large volume of desirable casual business. A number of other service businesses have sought to copy the airline industry with loyalty programmes of their own.
Hotels, car rental firms, telephone companies, retailers, and even credit card issuers have been among those that seek to identify and reward their best customers. Although some provide their own rewards—such as free merchandise, class of vehicle upgrades, or free hotel rooms in vacation resorts—many firms denominate their awards in miles that can be credited to a selected frequent flyer programmed.
In short, air miles have become a form of promotional currency in the service sector. In large companies with substantial customer bases, transactions can still be transformed into relationships by implementing loyalty-reward programmes, which require customers to apply for membership cards with which transactions can be captured and customers’ preferences communicated to the front line.
Account management programmes may be added to the loyalty programme by offering a special telephone number to call for assistance or even naming a designated account representative. Long-term contracts between suppliers and their customers take the nature of relationships to a higher level, transforming them into partnerships and strategic alliances.
Of course, rewards alone will not suffice to retain a firm’s most desirable customers. If customers are dissatisfied with the quality of service they receive or believe that they can obtain better value from a less expensive service they may quickly become disloyal.
No service company that has instituted an awards programme for frequent users can ever afford to lose sight of its broader goals of offering high service quality and good value relative to the price and other costs incurred by customers. One of the risks associated with emphasising relationships with high-value customers is that a firm may allow service to other customers to deteriorate.
(c) Social Bonds:
Have you ever noticed how your favourite hairdresser addresses you by name when you go for a haircut or asks why you haven’t been in for a long time and hopes everything went well when you were away on a long business trip? Social bonds are typically based on personal relationships between providers and customers.
Alternatively, they may reflect pride or satisfaction in holding membership in an organisation. Although social bonds are more difficult to build than financial bonds and may require considerable time to achieve, they are, for that same reason, also more difficult for other suppliers to replicate for that same customer.
A firm that has created social bonds with its customers has a better chance of retaining them for the long term.
Common Churn Drivers:
To understand why customers’ defect, many surveys have been carried out. The answers may vary by customers and organisation, but the surveys can highlight similar trends and reasons-
1. Price:
Price may attract new customers but looking at the larger picture, it may be a minor issue when looking at loyalty and customer retention.
2. Physical Factors:
Physical factors such as location, invention are also ranked low. Marketing and competitor activity and a relationship with a competitor are about 15 per cent. The competitor product’s advantages can often account for the further 10 to 15 per cent.
3. Customer Sophistication:
Customers want more and they are always very clear about that. With the dramatic change in housing, education, travel etc. has changed the way the service is selected these days.
4. Complexity:
Buying even the simplest product or service can be a very complex decision-making process. These days there are so many brands, products and companies that it makes it difficult to isolate the buying motivations and criteria.
5. Costs:
Cost has significant role to play in understanding the economic trends and changes of recent years. The economic downturn of the early nineties gave both the business customer and personal consumer a sharp jab in the ribs to remind them that markets can indeed go down as well as up.
The experience and the lingering memory of it has made us all the more aware of cost, the value of managing cost, and the importance of getting greater value for money when purchasing and choosing suppliers.
6. Competition:
Competition has increased dramatically in the last ten years, around the world. Factors such as globalisation, advanced manufacturing technology, etc., has led to business becoming faster, of higher quality and quick to innovate and more price-competitive.
7. Indifference:
One of the most common and significant reasons for customer switching and disloyalty is the indifference and inattention of the business – from the customer’s point of view, the lack of any reason to stay. Most surveys highlight poor service as a more common reason for switching suppliers than price advantage. This can also be supported by the general observations of marketing specialists, who detect the following changes in consumer and business purchasing behaviour.
If we look in more detail at what is meant by ‘indifference’, both through the research statistics and our own experience, it becomes clear that there are many critical aspects behind any customer defection, including-
i. Too little contact
ii. Too little individual attention
iii. Poor quality attention-especially when problems are encountered
iv. Generally poor service levels and standards
Customer Loyalty – Customer Loyalty Programmes in India (With Examples)
According to Yuping Liu (2007), Loyalty program is a program that helps customers in collecting free rewards in the event of repeat purchases with a company. Loyalty programs can be used to address a variety of issues such as tackling the competitive forces, increasing profits through enhanced product usage and cross-selling as well as building long-term relationships with the customer. However, the core objective of every loyalty program is to strengthen customer loyalty towards the firm and its products and services.
To cope up with the heightening competition in the C-segment, Maruti Udyog brought a loyalty program which was probably first in the passenger car industry. Under this program, a cash discount up to ‘ 25,000, plus a free insurance worth ‘19,000, was being offered to the existing customers of Maruti in exchange of their old car with new Maruti Esteem. The discounts offered by the dealers have not been included in the offer. Although loyalty programs have paved the way in Indian business world, yet loyalty industry in India is still in nascent stage.
The following are the examples of some successful loyalty programs run in India:
1. Pantaloons’ green card program offers its green card holder customers, exclusive shopping days to get hold on latest merchandise as well as special discounts on every purchase. These customers also get benefited by a host of other privileges like exclusive billing counters, extended exchange periods and complimentary drops for alteration.
2. i-mint is India’s largest coalition loyalty program with multiple partnerships with India’s leading brands-Airtel (Telecom), HPCL (petroleum), ICICI Bank, Indian (Airlines), Lifestyle (Retail) and MakeMyTrip(dot)com (Travel).
3. Bharat Petroleum (BPCL)’s PetroBonus is one of the largest fuel card programs in India. It also has variants for fleets and convenience store customers.
4. Indian Oil Corporation (IOC) has a Fleet Card Program Xtrapower and a loyalty program Xtrarewards for retail customers.
5. Shopper’s Stop (a major retail brand) has one of the country’s oldest and probably the most popular loyalty programs-First Citizen.
6. The Taj group of hotels also has a program and a co-branded credit card with Citibank and Diners Club.
7. All major banks and credit cards offer customer loyalty programs. Co-branded credit cards are also present; for example, Citibank offers credit cards which are co-branded with Shopper’s Stop/IOC/Jet Airways.
8. All major airlines (such as Jet Airways, Kingfisher Airlines, Indian, etc.) have frequent flyer programs to reward people for being loyal to them.
Customer Loyalty in Indian Insurance Industry:
Customer loyalty has emerged as a significant differentiator in the light of risen competition and increased customers’ expectations across various service industries. It is believed to be a road leading to ultimate profitability and business growth as well as a vital source of competitive advantage to the service organisation.
Customers’ level of awareness has increased manifold and their expectations have reached new heights. Technology has also played its role in formation of expectations as the new age tech-friendly customers have better access to information which they use for comparison among all the available options. Consequently, the nature of demands has also changed as customers now want superior standards of services.
Realising these market developments, the insurance companies have also shifted gears and the earlier product-oriented approach transformed into customer centricity where customer satisfaction and loyalty are considered the focal points for survival and growth. Companies have so far realised that ensuring an efficient and prompt service delivery is one of the few key steps that can help in retaining a customer and get him recommend the company to others as well.
Insurance finds its roots in the history of India as it has been mentioned in Manusmrithi, Dharmasastra and Arthashastra. These ancient manuscripts talk about pooling of resources that could be redistributed when catastrophes such as fire, floods, epidemics and famine appear. This can be considered as a pioneer of today’s concept of insurance.
Insurance can be traced back in the primeval Indian history as it provides proofs of marine trade loans and carriers’ contracts. The development of insurance in India took place at its own pace and imbibed features from insurance of other countries as well. The Indian insurance bears huge impact of insurance practices prevailing in England. India witnessed the arrival of life insurance business in the year 1818 when Oriental Life Insurance Company was established in Calcutta.
This company failed later in the year 1834. Another company that ventured into life insurance business in 1829 was Madras Equitable that commenced its operations in the Madras Presidency. In the year 1870, British Insurance Act was enacted. Three more life insurance companies, i.e. Bombay Mutual (1971), Oriental (1874) and Empire of India (1897) took off in the Bombay Residency. Though Indian life insurance was taking shape in this period, the real market was mostly dominated by foreign insurance companies such as Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance.
The circle had completed with Indian insurance getting reopened for private sector in the early 1990s. Based upon the recommendations of the Malhotra Committee report, Insurance Regulatory and Development Authority (IRDA) was constituted in April 2000 as an autonomous body responsible for regulation and development of Indian insurance industry.
Its key objectives were:
i. To promote healthy competition in the insurance market.
ii. To ensure greater customer satisfaction through availability of a wide range of options and lower rates of premium.
iii. To secure the financial soundness of the Indian insurance market.
According to IRDA (2011), presently 24 general insurance companies including the ECGC and Agriculture Insurance Corporation of India and 23 life insurance companies are operating in the country. The official website of IRDA reports that the Indian insurance sector has enormous potential and is growing with a growth rate of 15- 20% and along with the banking sector, it contributes around 7% to the country’s GDP.
According to the McKinsey & Company’s report on Indian insurance industry (2011), the industry registered a decline of 13% in APE (32% for the private sector) from September 2010 to March 2011. The global research conducted by McKinsey across 60 countries which account for 99% of world’s premiums concluded that the Indian life insurance industry’s GWP can be predicted to grow at 13-14% between 2010 and 2015.
With this rate, the industry will obtain a total GWP of approximately US$110 billion by 2015. India is expected to contribute 10% of total global premium growth during the abovementioned period achieving a double-digit growth rate.
It is reported that the post-liberalisation Indian insurance industry has witnessed a speedy growth rate which is evident from the fact that the total premium has increased at a CAGR of 25% amounting to $67 billion in the year 2010. The Indian life insurance industry has been ranked 9th largest market in the list of life insurance markets across the world.
Although it accounts for 88% of total life and general insurance premiums, yet insurance penetration reached to merely 5.2% in the year 2010 which is much lower in comparison to insurance density in other Asian countries such as South Korea, Taiwan, Japan, etc. Here, insurance penetration is measured as the ratio of premium underwritten to GDP.