The Relationship Between Customer Satisfaction and Loyalty

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INTRODUCTION

Customers are becoming ever more demanding, and in most markets they have more options to choose from than ever before. . A customer is a person who becomes accustomed to buying from you. Without a strong track record of contact and repeat purchase, this person is NOT your customer; he is a buyer. A true customer is grown over time. The satisfaction a customer gets from the consumption of an organization’s product or service pre-empts his or her subsequent decisions on the same products and services. 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. Customer satisfaction involves an orientation that says, "take care with all parts of the process that develops a good or service for the ultimate customer." The process orientation allows an organization to look at what the contributions of all departments are in satisfying the multiple customers. A well designed customer satisfaction approach can eliminate much of the guesswork regarding how customer satisfaction directly affects business outcomes. It can provide direct estimates of the bottom line improvements you would achieve from specific increases in satisfaction levels. A Customer Satisfaction program helps you determine:

▪ Key drivers of satisfaction
▪ Items that make the greatest contribution to the driver ▪ Components of the driver that should be invested in
▪ Overall level of satisfaction
▪ Overall satisfaction level’s effect on business outcomes

According to Jill Griffin, a consultant and also corporate adviser, the average American company loses 20-40% of its customers each year. In his Book, Customer Loyalty it was intimated that, in recognizing this pattern and its severe impact on corporate competitiveness and profitability, a business must move away from the long accepted market share strategy to a radically different, longer term approach to business: building customer loyalty.

Increased loyalty can bring cost savings to a company in at least six areas:

▪ reduced marketing costs (customer acquisition costs require more dollars) ▪ lower transaction costs such as contract negotiation and order processing ▪ reduced customer turnover expenses ( fewer lost customers to replace/no churning) ▪ increased cross selling success leading to larger share of customer ▪ more positive word of mouth

▪ reduced failure costs

There is a complex relationship between satisfaction and loyalty. Satisfaction is the first tier in the relationship between a customer and the company. In order for a company to differentiate itself from the competition, it will have to move customers from the first tier of this relationship, satisfaction, to the second tier, loyalty. It is commonly known that there is a positive relationship between customer loyalty and profitability. Reichheld and Sasser (1990) found that when a company retains just 5 percent more of its customers, profits increase by 25 percent to 125 percent.

CUSTOMER SATISFACTION

Customer satisfaction is a measurement of customer attitudes about products, services and brands. While it’s always been smart to keep customers happy, the term “customer satisfaction” became popularized in the 1980’s with the total quality movement. 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...
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