Chap 12 Flashcards
is an old-fashioned word that has traditionally been used to
describe fidelity and enthusiastic devotion to a country, a cause, or
an individual.
loyalty
in a business context describes a customer’s willingness to
continue patronizing a firm over the long run, preferably on an
exclusive basis, and recommending the firm’s products to friends
and associates.
loyalty
importance of customers loyalty to firm profitability
Higher purchases, share of wallet and cross-buying
Reduce customer service cost
Positive word-of-mouth and referrals
Low price sensitivity
Amortization of acquisition costs over a longer period
importance of customer loyalty to firm profitability
- profit derived from increased purchases
- profit from reduced customer service costs
- profit from referrals to other
customers - profit from lower price sensitivity that allow a price premium
- acquisition costs can be amortized over a longer period
are like free
sales and advertising, saving the
firm from investing as much
money in these areas.
positive word of mouth reccomendations
often benefit from
introductory promotional discounts,
whereas long-term customers are
more likely to pay regular prices,
and when they are highly satisfied
they tend to be less price
sensitive.
new customers
can be substantial and can
include sales commissions,
advertising and promotions costs,
administrative costs of setting up an
account, and sending out welcome
packages and sign-up gifts.
customer acquisition costs
included feelings by customers that in an established
relationship, there was less risk of something going wrong, greater
confidence in correct performance, and the ability to trust the provider.
confidence benefits
embraced mutual recognition between customers and
employees, being known by name, having a friendship with the service
provider, and enjoyment of certain social aspects of the relationship.
social benefits
included better prices, discounts on special
deals that were unavailable to most customers, extra services, higher
priority when there was a wait, and faster service than most customers.
special treatment benefits
wheel of loyalty includes?
- build a foundation for loyalty
- creates loyalty bonds
- reduce churn drivers
often brings long-term revenues and continued growth from
referrals.
acquiring the right customers
typically results in costly churn, a diminished company
reputation, and disillusioned employees.
attracting the wrong customers
involves developing long-term, cost-effective links with
customers for the mutual benefit of both parties, but these efforts need not
necessarily target all the customers of a firm with the same level of intensity.
customer retention
effective of tiering a service (enumeration)
or the customer pyramid
platinum
gold
iron
lead
These customers form a very small percentage of a
firm’s customer base, but are heavy users and tend to contribute
a large share of the profits. This segment is usually less price
sensitive, but expects higher service levels in return, and it is
likely to be willing to invest in and try new services.
platinum
includes a larger percentage of customers
than the platinum, but individual customers contribute less profit
than platinum customers. They tend to be slightly more price
sensitive and less committed to the firm
gold
These customers provide the bulk of the customer base.
Their numbers give the firm economies of scale. Hence, they are
important so that a firm can build and maintain a certain capacity
level and infrastructure, which is often needed for serving gold
and platinum customers well. However, ____ customers on their
own may only be marginally profitable. Their level of business is
not enough to justify special treatment.
iron
Customers in this tier tend to generate low revenues for a
firm, but often still require the same level of service as iron
customers, which turns them into a lossmaking segment from a
firm’s perspective.
lead
The foundation for building true loyalty lies in
customer satisfaction
drives customers away and is a key factor in
switching behavior.
Dissatisfaction
The satisfaction–loyalty relationship can be divided into three main zones:
defection, indifference, and affection
Customers will switch if switching costs are high or there are no viable
or convenient alternatives.
the zone of defection
Extremely dissatisfied customers can turn into ___ providing an abundance of negative word-of-mouth for
the service providers.
“terrorists”
