The importance of customer loyalty - Literature review Example

? The Importance Royalty Introduction Every consumer desires to purchase a product from a brand that she/he perceives to have the best product features, images and of the best quality. It is these perceptions that bring about the products consumer loyalty. Brand loyalty begins with the purchase of the product for trials, and if the products quality is satisfactory, they become consistent in purchasing the product. Research findings conclude that high quality conscious buyers will always opt for best quality commodities. Consumers are said to purchase products which are heavily advertised, of popular brands and only shop at the selected shops or stalls. These individuals are said to have the perception that the price of a product is directly proportional to its quality, thus the higher the price the better quality. Hence, consumer loyalty is influenced by the brand name, its price and quality (Liu and Hung, 2009). Defining customer loyalty Brand loyalty is the consumers repeated intention or behavior to continually repurchase the commodity. Brand loyalty is defined as the strength of preference towards a brand than other available options (Chen et al, 2009). Brand loyalty is determined through repeat buying and the sensitivity of the price (Hoq and Amin, 2010). There are six conditions, which define brand loyalty. These conditions can be summarized as follows; the biased product purchase behavior expressed for a long duration, and the purchase has had influence in consumer’s decision making over other alternative product. True brand loyalty only exists when a customer have a high preference towards the brand and is only confirmed by the repetitive purchase of the product. This loyalty is said to be of considerable significance to the company. With brand loyalty, consumers are not affected by the increase of prices (Anvari and Amin, 2010). There are two approaches used in defining the loyalty construct; first is the behavioral one which suggested that the loyalty of a brand is only expressed when there is repeat purchase of commodity overtime. The other approach is the attitudinal perspective, which assumes that loyalty of a brand is not necessarily determined by the consistency of its purchase, and that repetitive product purchase must be accompanied by positive attitude towards the behavior. Therefore, brand behavior is a function of both attitudes and the consumer behavior. Established consumers or those who are loyal to a brand are likely to continue buying from the company regardless of price fluctuations of the product (Wang and Sidek, 2008). Therefore, it is indispensable for a company to establish a strong relationship with the consumer through marketing strategies such as packaging, advertising their products and producing commodities of the right quantity and quality whish are of satisfactory to the consumer (Chi, Yeh and Yang 2009). Factors influencing the customer loyalty To start with is the product quality judgment. Product quality judgment is categorized in to two sub groups namely a) perceived quality and b) objective quality. Perceived product quality is considered as the consumer’s consistency purchase of the product or the benefit of a product after evaluation. It has also been defined as the recognition of a product by the user. Objective quality has been defined as the orientation of the product (Akbar and Parves, 2009). The difference between these two types of quality is that objective quality standard is predesigned by a product whilst perceived quality standard is the influence by internal and external attributes of a product, which in turn affect the consumer’s products evaluation. It has also been pointed out that in objective quality; the consumers utilize their experience and knowledge to grade the products advantages, durability and satisfaction (Armstrong and Kotler, 2009). Perceived quality is also defined as a consumer judgment on the overall cumulative and advantages. It is argued that perceived quality can indicate salient differentiation of a commodity and make a consumer become loyal to it (Chi, Yeh and Yang 2009). Despite the fact that consumers have adequate information about a product, they may have no time and motivation to do a thorough research about the product and will only pick products information selectively and use the information to make their evaluation (Udo, 2010). Building on that, perceived information can, therefore, be seen as a relative concept which have individual situational and comparative evaluation. Perceived quality is said to be affected by factors, which include experience, the education background, risks associated to the product and situational factors such as the purpose of the product, the period the product is purchased and the consumers’ social background. Therefore, perceived quality can be characterized as consumers subjective evaluation of a product quality from the experience and feelings (Akbar and Parves, 2009). Brand awareness is another factor that influences the consumer loyalty. Brand awareness and perceived quality have a significant relationship in their bicycle brand study. More researches have also maintained that high brand awareness improves on the perceived quality ((Kuang and Yeh, 2009). It is further suggested that high brand awareness brings raises the consumers quality evaluation. This evaluation is said to promote consumers brand loyalty and brand trust hence more purchase. Thus, brand awareness has the greatest impact on brand loyalty. Therefore, new business should strategize on creating their brand awareness in order to get massive brand loyalty (Cheng and Lee, 2011). Research has indicated that famous brand names do influence consumer’s perception and may be beneficial to the firm than the infamous brand names. Despite of the existence of many unfamiliar brand names and other alternatives, consumer’s perception on famous brand names makes them trust them. This way the firms attract more customers through their brand names and their images (Colwell et al, 2009). Many researches have shown that brand identity and brand awareness to be positively related especially in influencing consumer decision. This implies that consumers will only buy products that are familiar and well known. The higher the brand awareness is, the higher the consumer’s intention to purchase the product. Moreover, it shows that loyalty is also being positively related to purchase intention (Jamal and Anastaciagou, 2009). Additionally, products or service price is a prime factor that influences consumer decision making and loyalty. However, there are other factors too, and that price alone may not be the principle factor. However, the principle of microeconomics states that when factors affecting consumer decision is constant, the price of a commodity increases and the demand decreases, and the converse of the statement is true. Therefore, using microeconomics one can forecast consumer’s decision making/loyalty significantly. Hence, one can predict the demand and supply. Price changes influences consumer’s opportunity cost. An opportunity cost is defined as the cost that consumers give up in place of something else. The factor is traded off factor. Increase in price may have no effect to a loyal consumer, but for random consumer, they may be discouraged by the increase in price (Liu and Yen, 2010). Elasticity is another factor that may affect the consumer’s decision-making and loyalty. Elasticity is defined as the quantity change in price. Price of a commodity can influence consumer behavior. Price reductions results to an increase for products purchased. Price elasticity affects the demand of a product such that when the price is elastic, it increases the products demands. The price of the complementary goods has shown to be a factor. Rise in the price of complementary goods leads to decrease in demand of a commodity. For example, increase in cost of diesel leads to decrease in the purchase of vehicles. In addition, future expectations on prices changes influence the purchasing decisions of a consumer. Consumers tend to purchase in large quantities to evade the high prices of the product in the later period. Therefore, building on these facts, products price is one of the factors that influences consumer purchasing decision because the consumer will buy goods to optimize his income rationally and maximize purchasing utility (Roig et al, 2009). Moreover, the consumer are always evaluating the perceived values with the product, if the perceived values are greater than the cost, it is more likely that the consumers perception will be influenced in a positive way and will end up being loyal to that product. The consumer will also be willing to pay an extremely high price to avoid the effects of switching the product (Martinez-Ruiz et al, 2010). This brand loyalty makes the consumers be more prices tolerant and discourages them from comparing prices with other alternatives. Pricing of a product has been found to be a crucial step in influencing consumer’s perception and therefore, make a judgment of the brand as well as its overall assessment. Price consciousness is necessary; it refers to selling the best value at the lowest price (Lin and Hung, 2010). Other factors that influence consumer decision making, and loyalty includes cultural, social and psychological factors. For example, some consumers would decide to buy from a particular store because it is in their locality; it is having excellent services such as credit facilities, or is owned by people speaking their native language Service quality as the interactions between the sales person and the consumer’s (Shen and Chiou, 2009). The services should meet the consumer’s expectations and be of satisfactory to the requirements of the consumers (Jones and Sloane, 2009). Investigations have indicated that Consumers will prefer to shop at particular shops. These preferences are brought about by the services they find in those stalls. Additionally, income is another factor that influences the purchasing decision of consumers. The income, as described, influences the type and quantity of the product to be purchased such that if the consumer’s elasticity increases more products are purchased (Kanagal, 2009). Moreover, certain products are likely to be purchased by high-income earners. For example, giffen goods have been explained to decrease their demands with the increase with income levels (Kim and Li, 2009). Research shows that accessibility of the product in stores is crucial especially for new products. For example, it was observed that when a consumer lacks the product, they look for products alternative from the store instead of going to another store to look for it. Therefore, store environment plays an integral role in influencing consumer’s behavior and their performance (Kotler and Lane, 2009). Brand design may influence the perception of a consumer. Design is defined as the physical visual appearance; this may be shape, lines and other minor details. These details may affect consumer’s performance. Stylish design attracts brand loyalty to fashion conscious consumers. Those living in the fashion world are loyal to products that have been packed in a fashionable store (Kotler and Lane, 2009). Importance of Costumer loyalty Every successful organization must identify the needs of their customers to retain their loyalty. Customer satisfaction is extremely crucial because it has a prodigious effect on organization‘s profitability. Satisfied customers are the foundation of every successful business because of their repeated purchases and brand loyalty. Dissatisfied customer decreases organizations revenue by 1.8%. Evidently, satisfied customers are more likely to advertize the organization through sharing their experiences with other people. Equally, dissatisfied customers will tell another ten individuals of their unpleasant experience with the product. Moreover, it is necessary to note that most customers will just leave and not complain. In addition, the organization should note that maintain customer loyalty is might be expensive but it is not as expensive as recruiting new customers are. In fact, it costs 25% more to recruit new consumers (Chi et al, 2009). Dissatisfied customers will discontinue purchase of the commodity. They also complain about the unfortunate experience with the product to the company management itself or to the people surrounding their lives or even return the product and have a negative word of mouth communication. Therefore, building customer loyalty is not a choice rather the only way to sustain an organizations competitive advantage. Building customer loyalty has become the key marketing strategic objective in this era (Lamb et al, 2009). Pursuing market share is not as efficient as maintain customer loyalty in an organization. This is because to have a substantial gain in the market share implies that the organization must increase their customer base. Consequently, the organization is forced to serve an increasingly heterogeneous base of customers with their products. Such disparity creates dangerous trends in a company in their service such as a diverse their attention to high potential customers, to cater more or less dilute potential customers, who are less promising. Most of the companies use this approach to win the race in the market share and for its promised profit. However, the company risks and loses the largest margin of loyal customers and in so doing; they reduce their profit margins rather than improving it. A company that wants to succeed should use a different approach instead of that of building market share (Griffin n. d.). Building of customer’s loyalty ensures that the organizations value of product and services are of increased quality to strengthen their relationship with their customers. It helps the company recognize its strengths and weaknesses to build a stable customer base rather than make a single sale. This is so because the organization ceases to focus on the increased services, price breaks, and longer hours and rather starts doing everything to ensure those using the products are retained and are loyal customers (Jessy, 2010). Increased loyalty saves cost of production in six main areas including the reduced market costing. Market costing is the costs obtained via marketing i.e. costs on customer acquisitions, which are often high. It also lowers transactions costs such as new order processing and transactions costs. Another area is the reduced customer turnover expenses such as costs due to lost customers or those of replacing them. Another importance of the customer is the more positive word of mouth resulting to reduced failure costs (Quintal and and Polczynski, 2010). Other reasons, which reveal the importance of customer loyalty, are that sales increase because the consistent repurchase of the product by the customer and friends through positive word of mouth. This strengthens the organization position in the market place where the customers loyal giving the organization the competitive advantage. Additionally, marketing costs are reduced, and the organization will not need to spend money for sales and marketing team because of the existence of a repeat customer. In addition, the satisfied customer will have a positive word of mouth to his relations decreasing the need of advertising for the product. This makes an organization insulated from price competition from its rivals since the loyal customer is less likely to be lured by the low price of the alternative product (Rampersad, 2010). Finally, a happy customer samples other products lines in the organization, helping the organization achieve a larger customer share. For example, a loyal customer of a certain cosmetics industry could end up using all products she requires from the company (Griffin n. d.). Maintaining customer loyalty Maintaining customer loyalty helps the organization identify the potential defectors. By using the records, an organization can learn the pulse of its customers and act accordingly. A set emotion of a product plays a crucial role in the customer’s decision-making. It can be used to retain customers. This can be done with the act of re-communicating with them to instill the emotion that the company cares for them by engaging them at functional and rational level. Communication also retains a customer on the verge of leaving to retention (Heldhi and Chebat, 2009). Communication can be done in terms of email, direct mail or where necessary, personal contact. For example, study done by Hughes on Travelers insurance in USA indicated that where agents telephoned customers frequently, they customers have the tendency to review their policies rather than cancel the policies. The fact that someone communicated with them was encouraging enough to retain them. Listening to the front line staff also facilitates in consumer retention. Customers are often dissatisfied by the organizations inconsistencies, errors, contradictions and other minor things done to their customers. Those in the front line hear first hand information on what bothers the customers (Naeem and Saif, 2010). It is also crucial for one to treat the valuable customers in the best way possible. Organization should survey their customers to find out how they feel about their products and those of their rivals. When survey shows that the customer moves from transaction to transaction, then it shows that their level of commitment is low and the possibility of defections high. This can be done by use of risk and revenue matrix to a) evaluate the value of the customers’ lifetime value categorizing them as high, medium and low b) evaluate the likelihood that they will leave the organization by categorizing them into different classes (Cockrill et al, 2009). Furthermore, the company should build customer loyalty. Organization should listen to customer’s complaints bearing in mind that unless they complain, the organization will remain unaware of the challenges experienced by the customers. Therefore, customer’s complaints are noteworthy because when resolved, they improve the customer satisfaction resulting to high levels of customer loyalty (Asjei et al, 2009). Another strategy to sustain customer loyalty is by suing exit barriers carefully. An organization should make ways, which ensure it is difficult for customers to leave, such as implementing requirements that a customer should fill in a formal notice before quitting. This way, the organization has the opportunity to find out what is wrong with their product to fix it. Importantly, the organization should have relationships, which are strong and close with customers who are valuable; especially those who make referrals on what should be fixed to boost the competitive advantage of the organization. Such relations enable at the organization enhance their image via their activities and their role in the market (Melnyk et al, 2009). Conclusion Evidently, loyal customers will stick around and have repeated purchases. Customer loyalty is motivated by the customer’s attitude and perception, which make them want to continue to do business with the organization. The importance of such relationship is the substantial advantage in the organization revenues and profitability. References Akbar, M. M., and Parves, N. (2009) Impact of service quality, trust and customer satisfaction on customer loyalty. ABAC. j 29(1):24-38 Anvari, R., and Amin, S. M. (2010). 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