Customer retention and Loyalty

Question 1

Why is customer relationship economics so important? (3)

Answer 1

1. Customer acquisition: There is a continuous need for businesses to attract new customers.
2. Customer retention: to be successful, organisations need to restrict customer defection as well.
3. Relationship marketing focuses on both acquisition and retention (think about the 4 P’s)

Question 2

What does Howard Schultz say about customer loyalty? (1)

Answer 2

“If people believe they share values with a brand they will stay loyal to the brand”

e. g. Body shop
- Customer loyalty is both an attitudinal and behavioural tendency to favour one brand over all others.

Question 3

What makes loyal customers profitable? (4)

Answer 3

1. Bring life time value (LTV)
2. Tend to spend more as relationships develop (less price elastic may consolidate their purchases to one brand)
3. Cost less to serve (don’t need lots of information)
4. Bring new customers (advocacy)

Question 4

What are the different tiers of loyal customers? (4)

Answer 4

1. Hardcore loyal: buys the brand all the time
2. Split loyal: Loyal to 2 or 3 brands
3. Shifting loyal: Move from one brand to another quite often
4. Switchers: not loyal to any brand, looking for deals and something new always

Question 5

What are the different strands of understanding loyalty? (4)

Answer 5

1. Attitudinal: can have favourable attitude towards a company but price is an obstacle.
2. Behavioural
3. Composite (a bit of both)

= mix of both attitudinal and behavioural loyalty is important to success of brands

Question 6

What is polygamous loyalty? (1)

Answer 6

1. polygamous loyalty’ is a better description of actual consumer behaviour than either brand switching (a conscious once-and-for-all change of allegiance to another brand) … or promiscuity (the butterfly tendency to flit from brand to brand without any fixed allegiance)

Question 7

What is the ladder of loyalty? (3)

Answer 7

1. The firms marketing activities are expected to revolve around trying to move customers up in this ladder until they become advocates or partners
2. It allows organisations to reflect on different types of loyalty that exist within their customer relationships i.e. loyalty based on inertia versus true loyalty.
3. it emphasises the development and enhancing of relationships (customer retention)

Question 8

What are drivers against loyalty? (6)ne

Answer 8

1. Sales promotion
2. Price comparison websites
3. New entrants
4. Economic changes
5. EXperimenters culture
6. Fickle expectations

Question 9

What is the value of customer retention? Should you aim for 0 defections? (2)

Answer 9

1. It is cheaper:
   - will need less advertisement as they are already aware of the benefits and brand.
   - new service adoption: more willing to try out new products and extensions
   - firms are not focusing enough on retention compared to acquisition (60-70 % diehards purchase compared to 5-20 new customers)
2. Especially in saturated markets when attracting new customers is harder