Customer Loyalty and Retention

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The Importance of Customer Satisfaction in Relation to Customer Loyalty and Retention by Harkiranpal Singh

May 2006

UCTI Working Paper WP-06-06

The Importance of Customer Satisfaction in Relation to Customer Loyalty and Retention Harkiranpal Singh Asia Pacific University College of Technology & Innovation Technology Park Malaysia Bukit Jalil, 5700 Kuala Lumpur, Malaysia May 2006 kiran@apiit.edu.my Abstract To be successful, organizations must look into the needs and wants of their customers. That is the reason why many researchers and academicians have continuously emphasized on the importance of customer satisfaction, loyalty and retention. Customer satisfaction is important because many researches have shown that customer satisfaction has a positive effect on an organisation’s profitability. Due to this, the consequences of customer satisfaction and dissatisfaction must be considered. There is also a positive connection between customer satisfaction, loyalty and retention. Therefore, customer satisfaction, loyalty and retention are all very important for an organization to be successful Keywords: Customer satisfaction, customer loyalty, customer retention

Introduction
The importance of customers has been highlighted by many researchers and academicians. Zairi (2000) said “Customers are the purpose of what we do and rather than them depending on us, we very much depend on them. The customer is not the source of a problem, we shouldn’t perhaps make a wish that customers ‘should go away’ because our future and our security will be put in jeopardy”. That is the main reason why organisations today are focusing on customer satisfaction, loyalty and retention. According to Hansemark and Albinsson (2004), “satisfaction is an overall customer attitude towards a service provider, or an emotional reaction to the difference between what customers anticipate and what they receive, regarding the fulfilment of some need, goal or desire”. Customer loyalty, on the other hand, according to Anderson and Jacobsen (2000) “is actually the result of an organisation creating a benefit for a customer so that they will maintain or increase their purchases from the organisation. Oliver (1997) said that customer loyalty refers to “a deeply held commitment to re-buy or re-patronise a preferred product or service consistently in the future despite situational influences and marketing efforts having the potential to cause

switching behaviour”. True customer loyalty is created when the customer becomes an advocate for the organisation, without incentive”. According to Hoyer and MacInnis (2001), customer retention is “the practice of working to satisfy customers with the intention of developing long-term relationships with them”. Zineldin (2000) said that retention can be defined as “a commitment to continue to do business or exchange with a particular company on an ongoing basis”.

Customer satisfaction
Many researchers have looked into the importance of customer satisfaction. Kotler (2000) defined satisfaction as: “a person’s feelings of pleasure or disappointment resulting from comparing a product’s perceived performance (or outcome) in relation to his or her expectations”. Hoyer and MacInnis (2001) said that satisfaction can be associated with feelings of acceptance, happiness, relief, excitement, and delight. There are many factors that affect customer satisfaction. According to Hokanson (1995), these factors include friendly employees, courteous employees, knowledgeable employees, helpful employees, accuracy of billing, billing timeliness, competitive pricing, service quality, good value, billing clarity and

Harkiranpal Singh

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The Importance of Customer Satisfaction in Relation to

WP-06-06

quick service. below.

This is shown in Figure 1

retention. They all convey a similar message in that: • Satisfied customers are most likely to share their experiences with other people to the order of perhaps five...
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