Customer Loyalty and Their Needs From Business

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Executive Summary

The success of an organizations lies on its ability to meet its objectives, with satisfaction of the value of key stakeholders being the central agenda. Basically, customers’ satisfaction is at the focal point of the organizations; thus it is always important to understand their divergent needs and establish marketing policies that aimed at satisfying such customers. Indeed, attracting, retaining and enhancing relationship with the customers is an integral function of marketing. Basically, understanding customers and their needs will require endeavoring customer satisfaction and operation efficiency, both of which can be achieved through effective and efficient customer service. An organization’s objective of gaining a competitive advantage will normally be measured by customer loyalty, a product of quality products and service.

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Customer loyalty ladder model is usually an important toll that marketers use in enhancing their relationship with customers; indeed, focusing on the customers needs enhances their patronage, reinforcing the bond and raising the switching costs. The result of this is usually the enhancement of customer lifetime value which is normally measured by their purchasing behavior and brand-switching patterns. Moreover, the value of the customers is enhanced by establishing sound customer retention strategies that incorporate economic, social and structural bonding. Indeed, customer lifetime value entails creating a long term relationship with the customers, more so by understanding and treating customers based on their different needs.

Introduction

Marketing continue to play a critical role in today’s business environment, whereby maximizing shareholders value is an increasingly important goal. Philip Kotler defines marketing to be “a human activity directed at satisfying needs and wants through exchange process” (Kotler, Cited in; Ries and Trout, 2005, p. 2). E. Jerome McCarthy sees marketing as “the performance of those activities which seek to accomplish an organization’s objectives by anticipating customer or client needs and directing a flow of need-satisfying goods and services from producer to customer or client” (Ries and Trout, 2005, p. 2). But it is the definition of Howard (1973) that captures the concept of marketing by incorporating the needs of the consumers and says that marketing is the process of: “identifying customer needs; conceptualizing those needs in terms of an organization’s capacity to produce; communicating that conceptualization to the appropriate laws of power in the organization; conceptualizing the consequent output in terms of the customer needs earlier identified and lastly; communicating that conceptualization to the customer” (Ries and Trout 2005, p. 3).

The essence of marketing needs to focus on how firms attract, retain and enhance their relationships with customers (Capon 2008, p. 5). Indeed, the success in these efforts has been widely seen as leading to the improvement of the shareholders’ value and long-run prosperity for the business. The principle that has lived with marketing is that, ‘customer is always right’ and therefore, marketing for long time has acknowledged consumer sovereignty. Marketing has been regarded by many firms as a philosophy whereby operation has tended to embrace the external orientation. Such firms have focused their attention and resources outside the organization, for example, with intention to acquire, retain and enhance customer relationships but at the same time taking careful account of the competitors in the field and the broader environment in which they are operating (Capon, 2008).

Relationship marketing

Marketing approach has been changing as response to the dynamics of the operational environment. A relationship-focused definition of marketing sees the purpose of marketing as being of; “to establish, maintain, enhance and commercialize customer relationships so that the objectives of the parties involved are met” (Payne et al, 1998). The key elements of this type of approach is that: emphasis is put on the relationships rather than the transactions, between suppliers and customers; relationship marketing approach focuses on maximizing the lifetime value of desirable customers and customer segments; relationship marketing strategies are concerned with the development and enhancement of relationships with a number of key ‘markets’ specifically with building substantial external relationships with customers, suppliers, referral sources, influence markets and recruitment markets and therefore relationship marketing brings together the elements of quality, customer service and marketing (Payne et al, 1998, p. 4). The customer function has become the focus of manufacturing and service organizations’ efforts for the achievement of superior performance and the customer service needs to be designed, performed and communicated with two main goals that are; customer satisfaction and operational efficiency (Kitchen and Proctor, 2001).

Customer satisfaction

Satisfaction has largely developed to be a function of perceived performance and expectations and different factors have been identified to influence customers’ expectations. These factors may include; customers’ past buying experience, customers friends’ opinions and the marketers’ information (Kitchen and Proctor, 2001). Organizations that have discovered and worked ways out to satisfy customers needs effectively have built and sustained a competitive advantage in the market place and this has helped them to create a trusted customer loyalty.

Providing effective and efficient customer services has been viewed to be the key instrument into instilling a strong customer relationship for the organization. A lot of resource is being invested into improving the quality of services that organizations are providing to their clients which in turn is leading to customer satisfaction. Shipley, 1991 (cited in Kitchen and Proctor, 2001, p.72) identifies the following forms of customer services that usually help to build strong buyer-seller relationships: the technical support, where the seller usually offers after-sale service or training to the customer’s personnel; providing expertise to the customer; resource support where sellers extend credit facilities, give low interest loans and also cooperate with the customer in promoting the products/services in an attempt to reduce the financial burden for the customer; improving service levels by providing reliable service and fast delivery and setting computerized reorder systems; and risk reduction by offering free demonstrations, product and delivery guarantees and product trials. In addition, Payne 1993 (cited in Kitchen and Proctor, 2001, p.72) identifies the key elements to customer service to be: pre-transaction elements such as processes supporting service objectives, technical support and back up; transaction elements such as demonstrations and convenience of acquisition; post-transaction elements such as complaints handling, service recovery programmes and service blueprinting to correct problems.

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Many organizations recognize that after-sale service and customer care are key means for remaining competitive and they are essentially vital in ensuring long-term credibility of an organization through the quality of routine installation, maintenance and repair services. As the competition continue to intensify in the market, companies are convinced that the only form of long-term differentiation between suppliers is the quality of services provided and the standard of customer care (Kitchen and Proctor, 2001).

Loyalty ladder model

Organizations need to function with customers and their continued patronage for survival, growth and prosperity. Therefore, marketers in many instances focus and pay attention on addressing the wants and needs of target markets and then pursue these groups in an effort to gain their patronage and after any transaction, marketers seek to establish long-term relationships with their target audiences (Fortenberry and Fortenberry, 2009). Customer loyalty is more than having customers make repeat purchases, and being satisfied with their experiences and products or services they purchased. Customer loyalty means that customers are committed to purchasing products and services from a specific organization and will resist attempt to attract their patronage; they establish a bond with the organization which is normally based on more than a positive feeling about the organization (Berndt and Brink, 2004).

The concept of the relationship ladder is where customers can be moved from one level of loyalty to the next and the task of relationship marketing strategy should be the one of bringing customers as high up the ladder as possible since greater benefits accrue to the company at each level of loyalty. The products have finite life span which is characterized by distinct stages namely; prospect, customer, client, supporter, advocate and partner. This model is normally used in marketing planning to make predictions of future demand, profit expectations and changes in the competitive environment. Most business relationships develop over time hence business relationships follow distinct phases (Little and Marandi, 2003, p. 68). The prospect phase is where the customer makes a single trial purchase and the customer does not commit to a particular supplier. The developing phase on the other hand requires conscious effort on the part of the supplier in understanding the customer.

The supplier needs to invest time and resources in better understanding the needs of a specific buyer and developing skills, products or processes to satisfy those needs. The established phase demands less of both parties and again it offers higher rewards. It is characterized by lower costs, assisted by open communication and mutual problem solving (Little and Marandi, 2003). Therefore the model can be summarized as the one that sees the company success as bestowed on using customer-level information and interaction to create long-term, profitable, one-to-one customer relationships (Little and Marandi, 2003).

Customer retention strategies

Berry and Parasuraman 1991 (cited in Swartz and Lacobucci, 2000) developed a framework for understanding categories of retention strategies. The framework identifies three levels at which retention marketing occurs which include: level one – the customer is linked to the firm through various financial or other incentives as price discounts for volume purchased, discounts in exit if the customers refrain from switching funds in the first several years of a relationship. The aim of this to lock in the customers for a period of time and the economic incentives are meant to make the customer a “hostage” of the firm at this level (Swartz and Lacobucci, 2000). At level two; a longer-term relationship is developed through stronger social bonds. Customers are recognized and viewed as individuals, their names are known, friendship bonds develops with the individual personnel in the service and customers are generally treated as people with special status. At this level simple things like, staying in touch with the customer on regular basis, providing personal touches such as cards and small gifts on special occasions, sharing personal information and developing rapport at a personal level all enhance the likelihood of client retention (Swartz and Lacobucci, 2000). Level three involves developing structural bonds as well as economic and social bonds; structural bonds include customized services which may include, giving valued clients a special access phone number for booking (Swartz and Lacobucci, 2000).

Customer lifetime value (CLV)

This can be defined as “the combination of purchase frequency, average value of purchases and brand-switching patterns over the entire span of a customer’s relationship with the company” (Pride, Hughes and Kapoor, 2008, p.415). Managing customer relationships requires one to identify the patterns of buying behavior and also use the information to focus on the most promising and profitable customers (Pride, Hughes and Kapoor, 2008). Companies need to be sensitive to the customer needs and the desires and make efforts to establish communication that in turn builds customer’s trust and loyalty. Sometimes it becomes profitable for the company to focus on satisfying a valuable existing customer that try to attempt to attract a new one who may never develop the same level of loyalty and this may involve determining how much the customer may spend over his or her lifetime (Pride, Hughes and Kapoor, 2008).

By using CLV companies tend to place greater emphasis on customer service and long-term customer satisfaction for the right set of customer, rather than only attempting to maximize short-term sales. CLV is usually based on the role played by customers in pursuit of the company’s profitability; indeed, the “CLV helps the companies to treat each customer differently based on his or her contribution rather than treating all the customers same” (Pride, Hughes and Kapoor, 2008). Calculating the CLV helps the company to know how much it can invest in retaining the customer so as to achieve positive returns.

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In many cases, companies do have limited resources it becomes prudent when the company invest in those customers who bring maximum return to it. This can be made possible by knowing the cumulated cash flow of a customer over his or her entire lifetime with the company or the lifetime value of the customers. Also the CLV framework is the basis for selecting customers, selling the next best product or service to the customer and deciding on the customer-specific communication strategies and therefore CLV can be regarded as the metric that guides the allocation of resources for ongoing marketing activities in a firm adopting a customer-centric approach (Pride, Hughes and Kapoor, 2008).

Importance of customer retention to financial services

Many financial services spend much of their time, energy and even resources looking and building new businesses. Despite it being necessary and important to establish a new customers base “to replace lost business and to grow the enterprise and expand into new markets, a smart company’s main objective should be to keep customers and enhance customer relationships” (Johnson and Weinstein, 2004, p.183). The financial services are realizing that solving the core service problems, service encounter failures, inconvenience and response to failed services are the strategies to enhance and promote customer retention.

Factors such as pricing, competition, ethics, involuntary switching and other related factors account largely to the balance of customer switch motive (Johnson and Weinstein, 2004, p.185). The financial services have to realize that, raising customer retention rate even by a small margin can increase the value of an average customer lifetime profits, for example, State Farm determined that a one per cent increase in customer retention will increase its capital surplus by more than $1 billion over time (Johnson and Weinstein, 2004). A study by Marketing Metrics, which is a New Jersey firm, found that many corporations had spend more than 53 per cent of their budget on customer retention and the returns were profitable (Johnson and Weinstein 2004, p.185). At the same time, the study showed that it costs at least five times “more to get a new customer than to keep an existing one” (Johnson and Weinstein, 2004). Therefore, customer retention by financial services need to be seen as long-term assets for the operating costs on customers is low, their loyalty to the company is likely to be strong and their lifetime value is likely to increase benefiting the company.

Conclusion

Therefore it is important for companies to realize the need and benefit of customer retention. More so, the key to customer retention is customer satisfaction and once customers are satisfied they tend to stay longer, talk favorably about the organization, pay less attention to the competition, they become less price sensitive, they generally offer service ideas to the company and they largely cost less to serve than new customers.

References

  1. Berndt, A and Brink, A., 2004. Customer Relationship Management and Customer Service. Lansdowne, Juta and Company Ltd.
  2. Capon, N., 2008. Managing Marketing in the 21st Century. Gillingham, Wessex Publishing.
  3. Fortenberry, J.L. and Fortenberry, J.L., 2009. Health Care Marketing: Tools and Techniques. MA, Jones& Bartlett Learning.
  4. Johnson, W.C. and Weinstein, A., 2004. Superior customer value in the new economy: concepts and cases. NW, CRC Press.
  5. Kitchen, J. and Proctor, T., 2001. The informed student guide to marketing, London, Cengage Learning EMEA.
  6. Little, E. and Marandi, E., 2003. Relationship marketing management. London, Cengage Learning EMEA.
  7. Payne, A. et al. 1998. Relationship Marketing: Winning and Keeping Customers, MA, Butterworth-Heinemann.
  8. Pride, W.M., Hughes, R.J. and Kapoor, J.R., 2008. Business. London, Cengage Learning.
  9. Ries, A. and Trout, J., 2005. Marketing warfare. NY, McGraw-Hill Professional.
  10. Swartz, T.A. and Lacobucci, D., 2000. Handbook of services marketing & management. CA, SAGE.

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BusinessEssay. "Customer Loyalty and Their Needs From Business." November 27, 2021. https://business-essay.com/customer-loyalty-and-their-needs-from-business/.