Customer Loyalty

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Description of Customer Loyalty. Explanation.




Definition Customer Loyalty. Description.

Customer Loyalty in general is the behavior which clients exhibit when they make frequent repeat purchases of a brand.

In strategic marketing, customer loyalty is a business model in which company resources are employed so as to increase the loyalty of customers and other stakeholders in the expectation that corporate objectives will be met or surpassed. A typical example of this type of model is: quality of product or service leads to customer satisfaction, which leads to customer loyalty, which leads to profitability.

A fundamental assumption of loyalty models is that keeping existing customers is less expensive than acquiring new ones. According to Buchanan and Gilles (1990), the increased profitability associated with customer retention efforts occurs because:

  • The cost of acquisition occurs only at the beginning of a relationship: the longer the relationship, the lower the amortized cost.

  • Account maintenance costs decline as a percentage of total costs (or as a percentage of revenue).

  • Long term customers tend to be less inclined to switch and also tend to be less price sensitive. This can result in stable unit sales volume and increases in dollar-sales volume.

  • Long term customers may initiate free Word of Mouth promotions and referrals.

  • Long term customers are more likely to purchase ancillary products and high-margin supplemental products.

  • Long term customers tend to be satisfied with their relationship with the company and are less likely to switch to competitors, making market entry or competitors' market share gains difficult.

  • Regular customers tend to be less expensive to service because they are familiar with the processes involved, require less "education," and are consistent in their order placement.

  • Increased customer retention and loyalty makes the employees' jobs easier and more satisfying. In turn, happy employees feed back into higher customer satisfaction in a virtuous circle.

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Compare with: Customer Loyalty Program  |  Customer Relationship Management  |  Customer Satisfaction Model  |  Hospitality Management  |  SERVQUAL  |  Relationship Marketing  |  Relational Capital  |  Analytical CRM  |  Permission Marketing

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