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The Value of Loyalty

The Value of Loyalty . Maria Luisa Lares Debra Lawrence MKTG 652. What is Loyalty ?. Relates to a relationship not satisfaction. Customer loyalty  customer satisfaction. What is Loyalty ?. Relates to a relationship not satisfaction Created by beliefs, perceptions and experiences.

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The Value of Loyalty

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  1. The Value of Loyalty Maria Luisa LaresDebra Lawrence MKTG 652

  2. What is Loyalty ? • Relates to a relationship not satisfaction Customer loyalty  customer satisfaction

  3. What is Loyalty ? • Relates to a relationship not satisfaction • Created by beliefs, perceptions and experiences

  4. Customer Perceptions Can Influence Loyalty • How customers feel about performance of current provider • How customers feel about value of switching to competitor • How customers perceive the industry or marketplace

  5. What is Loyalty ? • Relates to a relationship not satisfaction • Created by beliefs, perceptions and experiences • Affected by customers’ interactions with competitors

  6. What is Loyalty ? • Relates to a relationship not satisfaction • Created by beliefs, perceptions and experiences • Affected by customers’ interactions with competitors • Loyalty is shown by different propensities toward the brand, store or service

  7. Loyalty Attitudinal Behavioral Components of Loyalty

  8. Behavioral Component of Loyalty • Continuity of purchase (retention; repurchase; advocacy of brand) • Duration of time as customer • Intent to recommend

  9. Attitudinal Component of Loyalty • Psychological attachment/attitude to brand/product/service • Satisfaction • Commitment • Trust

  10. Why Loyalty is Valuable • 65% of business from existing customers • Costs 8x more to find new customer than to keep existing happy • Takes 12 good service experiences to overcome a single bad one • 7 out of 10 customers switch due to bad service

  11. Cost of Client Service Profits Returns & Losses Customer Retention Price Sensitivity Customer Spending (sales) Processing Costs No. of Referrals Why Loyalty Matters:Economic Factors

  12. Why Loyalty is Valuable • Loyal customers are less costly to serve • Loyal customers pay higher prices for same bundle of goods • Loyal customers market the company

  13. But….Is Loyalty Profitable? HBR study of four companies found overall weak to moderate correlation between profits and customer tenure; in fact: • Long-standing customers often exploit their value to get premiums/discounts • Loyal customers are more price sensitive • Weak link between customer longevity & propensity to market via word-of-mouth

  14. Evaluating/Measuring Loyalty • Defection rates and “silent attrition” • Benchmarking • RFM modeling • Event-history • Study of failure • Five Why’s • The Acid Test

  15. History of Loyalty Management • 1970s Focus on understanding/managing customer satisfaction • 1980s Focus on tying customer behaviors to economic value • 1990s+ Focus on understanding underlying drivers of loyalty

  16. Pursue customers actively Build “emotiveness” into customer base Make it easier for customers to stay, harder to go Reduce/eliminate sources of dissatisfaction Focus on customer’s changing needs Underlying Drivers of Loyalty

  17. Manage customer migration, not defection Integrate attitudes, needs & satisfaction to understand drivers of migration Tailor investments & loyalty approaches to most critical parts of opportunity Principles driving loyalty must originate at the top of the organization, then communicated New Era in Loyalty Management

  18. Center of gravity for business loyalty - whether of customers, employees, investors, suppliers or dealers - is the personal integrity of the senior leadership team. Reichheld’s Six Principlesof Loyalty

  19. Preach what you practice Play to win-win Be picky Keep it simple Reward the right results Listen hard, talk straight Reichheld’s Six Principlesof Loyalty

  20. · Companies are not alarmed enough · Unpleasant to study failure too closely · Difficult to define defection/root causes · Sometimes difficult to define “customer” · Challenging to get the right people to learn from failure · Difficult to conceptualize/set up mechanism to convert defection analysis into ongoing strategic system Why Customers Defect

  21. · Which of your customers are the most profitable and loyal? Which of your customers place the greatest value on what you offer? · Which of your customers worth more to you than your competitor? Know Thy Customer

  22. Identify the underlying elements of loyalty formation/maintenance in industry Operationalize the major variables that drive loyalty Determine variables within mgmt control and their impact loyalty metrics Monitor customer attitudes and behaviors Developing a Loyalty Strategy

  23. Developing a Loyalty Strategy Different customers need to be treated in different ways!

  24. Developing a Loyalty Strategy

  25. What are Strangers?

  26. Little fit between co.’s offerings and customer’s needs Lowest profit potential !!! Actions Make no investment in these relationships Make profit on every transaction What are Strangers?

  27. What are Barnacles?

  28. Limited fit between co.’s offerings and customer’s needs Low profit potential Actions Measure size & share of wallet If size is small, impose strict cost controls If share is low, focus on up- and cross-selling What are Barnacles?

  29. What are Butterflies?

  30. Good fit between co.’s offerings and customer’s needs High profit potential Actions Aim for satisfaction, not attitudinal loyalty Milk the accounts as long as active Cease investing when activity drops off What are Butterflies?

  31. What are True Friends?

  32. Good fit between co.’s offerings and customer’s needs Highest profit potential !!! Actions Communicate consistently but not overkill Build attitudinal and behavioral loyalty Focus on relationship What are True Friends?

  33. Customer Relationship Management “CRM” program Loyalty program Coalition/cross-promotion Proprietary Formal/informal Tools for Implementing a Loyalty Strategy

  34. Accelerate loyalty life cycle Strategically planned Implemented as part of larger loyalty management program Continually motivate customers to earn awards Characteristics of Successful Rewards Programs

  35. Loyalty Programs Clubs Continuity Private label exclusive Acquisition Tools Coupons Coalition Points Prizes/Incentives Difference Between Loyalty and Acquisition Programs Primary goal: retaining/Improving existing customers Primary goal: obtaining new customers

  36. Examples of Customer Loyalty Programs

  37. Word of mouse spreads faster than word of mouth Customer loyalty is replaced by “click-loyalty” Easier & faster to find/switch to competitor Key to success - need to be highly customer-focused Loyalty Trends in E-Commerce

  38. Final Thoughts on Loyalty ·US companies lose 50% of customers/yr · Customer longevity increases customer worth · What keeps a customer loyal is the value he or she receives · Understand the difference between mass production (cost effective) and mass customization (response to a need)

  39. Final Thoughts on Loyalty The key to customer loyalty is the creation of value, the key of value creation is organizational learning and the key of organizational learning is the value of failure.

  40. The Value of Loyalty Maria Luisa LaresDebra Lawrence MKTG 652

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