Shopping on line can be easy, simple and save you lots of money. It can also take a lot of your time, frustrate you, and result in unwanted purchases. Now the same can be said for regular high street shopping, but with the vast opportunity presented by the Internet it will pay you to spend a few minutes reading this and understanding how to better optimize your Loyalty Business Model shopping experience:
1. Compare - without doubt the biggest advantage that the Loyalty Business Model offers shoppers today is the ability to compare thousands of Loyalty Business Model at a time. This is a great thing, but not necessarily all the time! Too much can be daunting at times so take advantage of the great comparison sites and where possible let them do the hard work for you.
2. Research - if it has been said it will be on the internet. Ignorance is no longer a justifiable reason for buying the wrong thing. Take the time to research in detail everything that you could possible want to know about
3. Testimonials - don't know anybody that has bought a Loyalty Business Model? Wrong! If the Loyalty Business Model is good the internet will let you know. Use the Internet as a friend and get testimonials before you buy.
4. Questions - Got a question about Loyalty Business Model then search the Forums, FAQ's, Blogs etc. Don't be afraid to ask .....
5. Reputation - Never heard of the company selling Loyalty Business Model? Don't worry, no reason why you should know every company in the world, but you know someone that does! Use the internet to find out what people are saying about Loyalty Business Model and build up a picture of their reputation for sales, returns, customer service, delivery etc.
6. Returns - still worried that even after all of the above your Loyalty Business Model wont be what you want? Check out the returns policy. There is so much competition now that someone, somewhere is bound to offer the terms that you are comfortable with.
7. Feedback - happy with your Loyalty Business Model then let people know, after all you are depending on others people input in your buying decision, so why not give a little back.
8. Security - check for the yellow padlock on the Loyalty Business Model site before you buy, and the s after http:/ /i.e. https:// = a secure site
9. Contact - got a question about Loyalty Business Model, or want to leave a comment then check out the sites contact page. Reputable companies have them and respond.
10. Payment - ready to pay for your Loyalty Business Model, then use your credit card or PayPal! Be aware of companies that don't accept them, there may be genuine reasons but given the huge amount of choice you have when buying online there is no reason at all not to buy via credit card or PayPal.
The
loyalty business model is a business model used in strategic management 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 (business) or service leads to customer satisfaction, which leads to customer loyalty, which leads to profitability.
The service quality model
A model by Kay Storbacka, Tore Strandvik, and Christian Gronroos (1994), the service quality model, is more detailed than the basic loyalty business model but arrives at the same conclusion. In it, customer satisfaction is first based on a recent experience of the product or service. This assessment depends on prior expectations of overall
quality compared to the actual performance received. If the recent experience exceeds prior expectations, customer satisfaction is likely to be high. Customer satisfaction can also be high even with mediocre performance quality if the customer's expectations are low, or if the performance provides value (that is, it is priced low to reflect the mediocre quality). Likewise, a customer can be dissatisfied with the service encounter and still perceive the overall quality to be good. This occurs when a quality service is priced very high and the transaction provides little value.
This model then looks at the strength of the business relationship; it proposes that this strength is determined by the level of satisfaction with recent experience, overall perceptions of quality, customer commitment to the relationship, and bonds between the parties. Customers are said to have a "zone of tolerance" corresponding to a range of service quality between "barely adequate" and "exceptional." A single disappointing experience may not significantly reduce the strength of the business relationship if the customer's overall perception of quality remains high, if
switching costs are high, if there are few satisfactory alternatives, if they are committed to the relationship, and if there are bonds keeping them in the relationship. The existence of these bonds acts as an exit barrier. There are several types of bonds, including: legal bonds (contracts), technological bonds (shared technology), economic bonds (dependence), knowledge bonds, social bonds, cultural or ethnic bonds, idiological bonds, psychological bonds, geographical bonds, time bonds, and planning bonds.
This model then examines the link between relationship strength and customer loyalty. Customer loyalty is determined by three factors: relationship strength, perceived alternatives and critical episodes. The relationship can terminate if: 1) the customer moves away from the company's service area, 2) the customer no longer has a need for the company's products or services, 3) more suitable alternative providers become available, 4) the relationship strength has weakened, or 5) the company handles a critical episode poorly, 5) unexplainable change of price of the service provided.
The final link in the model is the effect of customer loyalty on profitability. The fundamental assumption of all the loyalty models is that keeping existing customers is less expensive than acquiring new ones. It is claimed by
Fred Reichheld and Sasser (1990) that a 5% improvement in customer retention can cause an increase in profitability between 25% and 85% (in terms of
net present value) depending upon the industry. However, Carrol and Reichheld (1992) dispute these calculations, claiming that they result from faulty cross-sectional analysis.
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 Amortization (business).
- 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-profit 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.
For this final link to hold, the relationship must be profitable. Striving to maintain the loyalty of unprofitable customers is not a viable business model. That is why it is important for marketers to assess the profitability of each of its clients (or types of clients), and terminate those relationships that are not profitable. In order to do this, each customer's "relationship costs" are compared to their "relationship revenue." A useful calculation for this is the
patronage concentration. This calculation is hindered by the difficulty in allocating costs to individual relationships and the ambiguity regarding relationship cost drivers.
Expanded models
Virtuous CircleSchlesinger and Heskett (1991) added employee loyalty to the basic customer loyalty model. They developed the concepts of "cycle of success" and "cycle of failure". In the cycle of success, an investment in your employees’ ability to provide superior service to customers can be seen as a virtuous circle. Effort spent in selecting and training employees and creating a corporate culture in which they are empowered can lead to increased employee satisfaction and employee competence. This will likely result in superior service delivery and customer satisfaction. This in turn will create customer loyalty, improved sales levels, and higher profit margins. Some of these profits can be reinvested in employee development thereby initiating another iteration of a virtuous cycle.
Fredrick Reichheld (1996) expanded the loyalty business model beyond customers and employees. He looked at the benefits of obtaining the loyalty of suppliers, employees, bankers, customers, distributors, shareholders, and the board of directors.
Data collection
Typically, loyalty data is being collected by multi-item measurement scales administered in questionnaires. However, other approaches sometimes seem more viable if managers want to know the extent of loyalty for an entire data warehouse. This approach is described in Buckinx, Verstraeten & Van den Poel (2006).
Loyalty and Egoism
The loyalty business model assumes the philosophical validity of pursuit of self-interest. However, much work in ethics assumes the validity of
altruism (seeking the best interest of others). "Clearing Up the Egoist Difficulty with Loyalty" (Stieb 2006), attempts to show that when interests are shared there becomes no difference between seeking one's interest and that of others. This is also called the "Aristotelian" model based on Aristotle's related analysis of friendship in his
Nicomachean Ethics.
See also
References
- Buchanan, R. and Gilles, C. (1990) "Value managed relationship: The key to customer retention and profitability", European Management Journal, vol 8, no 4, 1990.
- Buckinx W., Geert Verstraeten, and Dirk Van den Poel (2007), " Predicting customer loyalty using the internal transactional database," Expert Systems with Applications, 32 (1).
- Carrol, P. and Reichheld, F. (1992) "The fallacy of customer retention", Journal of Retail Banking, vol 13, no 4, 1992.
- Dawkins, P. and Reichheld, F. (1990) "Customer retention as a competitive weapon", Directors and Boards, vol 14, no 4, 1990.
- Fornell, C. and Wernerfet, B. (1987) "Defensive marketing strategy by customer complaint management : a theoretical analysis", Journal of Marketing
- Moloney, Chris X. (2006) "Winning Your Customer’s Loyalty: The Best Tools, Techniques and Practices" AMA Workshop Event(s). Misc. materials distributed related to event(s). San Diego, 2006. Chris X. Moloney
- Reichheld, F. (1996) The Loyalty Effect, Harvard Business School Press, Boston, 1996.
- Reichheld, F. and Sasser, W. (1990)"Zero defects: quality comes to services", Harvard Business Review, Sept-Oct, 1990, pp 105-111.
- Schlesinger, L. and Heskett, J. (1991) "Breaking the cycle of failure in service", Sloan Management Review, spring, 1991, pp. 17-28.
- Stieb, James A. (2006) "Clearing Up the Egoist Difficulty with Loyalty", Journal of Business Ethics, vol 63, no 1.
- Storbacka, K. Strandvik, T. and Gronroos, C. (1994) "Managing customer relationships for profit", International Journal of Service Industry Management, vol 5, no 5, 1994, pp 21-28.
The
loyalty business model is a
business model used in
strategic management 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 (business) or
service leads to customer satisfaction, which leads to customer loyalty, which leads to profitability.
The service quality model
A model by Kay Storbacka, Tore Strandvik, and Christian Gronroos (1994), the service quality model, is more detailed than the basic loyalty business model but arrives at the same conclusion. In it, customer satisfaction is first based on a recent experience of the product or service. This assessment depends on prior expectations of overall quality compared to the actual performance received. If the recent experience exceeds prior expectations, customer satisfaction is likely to be high. Customer satisfaction can also be high even with mediocre performance quality if the customer's expectations are low, or if the performance provides value (that is, it is priced low to reflect the mediocre quality). Likewise, a customer can be dissatisfied with the service encounter and still perceive the overall quality to be good. This occurs when a quality service is priced very high and the transaction provides little value.
This model then looks at the strength of the business relationship; it proposes that this strength is determined by the level of satisfaction with recent experience, overall perceptions of quality, customer commitment to the relationship, and bonds between the parties. Customers are said to have a "zone of tolerance" corresponding to a range of service quality between "barely adequate" and "exceptional." A single disappointing experience may not significantly reduce the strength of the business relationship if the customer's overall perception of quality remains high, if switching costs are high, if there are few satisfactory alternatives, if they are committed to the relationship, and if there are bonds keeping them in the relationship. The existence of these bonds acts as an exit barrier. There are several types of bonds, including: legal bonds (contracts), technological bonds (shared technology), economic bonds (dependence), knowledge bonds, social bonds, cultural or ethnic bonds, idiological bonds, psychological bonds, geographical bonds, time bonds, and planning bonds.
This model then examines the link between relationship strength and customer loyalty. Customer loyalty is determined by three factors: relationship strength, perceived alternatives and critical episodes. The relationship can terminate if: 1) the customer moves away from the company's service area, 2) the customer no longer has a need for the company's products or services, 3) more suitable alternative providers become available, 4) the relationship strength has weakened, or 5) the company handles a critical episode poorly, 5) unexplainable change of price of the service provided.
The final link in the model is the effect of customer loyalty on profitability. The fundamental assumption of all the loyalty models is that keeping existing customers is less expensive than acquiring new ones. It is claimed by
Fred Reichheld and Sasser (1990) that a 5% improvement in customer retention can cause an increase in profitability between 25% and 85% (in terms of
net present value) depending upon the industry. However, Carrol and Reichheld (1992) dispute these calculations, claiming that they result from faulty cross-sectional analysis.
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 Amortization (business).
- 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-profit 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.
For this final link to hold, the relationship must be profitable. Striving to maintain the loyalty of unprofitable customers is not a viable business model. That is why it is important for marketers to assess the profitability of each of its clients (or types of clients), and terminate those relationships that are not profitable. In order to do this, each customer's "relationship costs" are compared to their "relationship revenue." A useful calculation for this is the patronage concentration. This calculation is hindered by the difficulty in allocating costs to individual relationships and the ambiguity regarding relationship cost drivers.
Expanded models
Virtuous CircleSchlesinger and Heskett (1991) added employee loyalty to the basic customer loyalty model. They developed the concepts of "cycle of success" and "cycle of failure". In the cycle of success, an investment in your employees’ ability to provide superior service to customers can be seen as a virtuous circle. Effort spent in selecting and training employees and creating a corporate culture in which they are empowered can lead to increased employee satisfaction and employee competence. This will likely result in superior service delivery and customer satisfaction. This in turn will create customer loyalty, improved sales levels, and higher profit margins. Some of these profits can be reinvested in employee development thereby initiating another iteration of a virtuous cycle.
Fredrick Reichheld (1996) expanded the loyalty business model beyond customers and employees. He looked at the benefits of obtaining the loyalty of suppliers, employees, bankers, customers, distributors, shareholders, and the board of directors.
Data collection
Typically, loyalty data is being collected by multi-item measurement scales administered in questionnaires. However, other approaches sometimes seem more viable if managers want to know the extent of loyalty for an entire data warehouse. This approach is described in Buckinx, Verstraeten & Van den Poel (2006).
Loyalty and Egoism
The loyalty business model assumes the philosophical validity of pursuit of self-interest. However, much work in ethics assumes the validity of altruism (seeking the best interest of others). "Clearing Up the Egoist Difficulty with Loyalty" (Stieb 2006), attempts to show that when interests are shared there becomes no difference between seeking one's interest and that of others. This is also called the "Aristotelian" model based on
Aristotle's related analysis of friendship in his
Nicomachean Ethics.
See also
References
- Buchanan, R. and Gilles, C. (1990) "Value managed relationship: The key to customer retention and profitability", European Management Journal, vol 8, no 4, 1990.
- Buckinx W., Geert Verstraeten, and Dirk Van den Poel (2007), " Predicting customer loyalty using the internal transactional database," Expert Systems with Applications, 32 (1).
- Carrol, P. and Reichheld, F. (1992) "The fallacy of customer retention", Journal of Retail Banking, vol 13, no 4, 1992.
- Dawkins, P. and Reichheld, F. (1990) "Customer retention as a competitive weapon", Directors and Boards, vol 14, no 4, 1990.
- Fornell, C. and Wernerfet, B. (1987) "Defensive marketing strategy by customer complaint management : a theoretical analysis", Journal of Marketing
- Moloney, Chris X. (2006) "Winning Your Customer’s Loyalty: The Best Tools, Techniques and Practices" AMA Workshop Event(s). Misc. materials distributed related to event(s). San Diego, 2006. Chris X. Moloney
- Reichheld, F. (1996) The Loyalty Effect, Harvard Business School Press, Boston, 1996.
- Reichheld, F. and Sasser, W. (1990)"Zero defects: quality comes to services", Harvard Business Review, Sept-Oct, 1990, pp 105-111.
- Schlesinger, L. and Heskett, J. (1991) "Breaking the cycle of failure in service", Sloan Management Review, spring, 1991, pp. 17-28.
- Stieb, James A. (2006) "Clearing Up the Egoist Difficulty with Loyalty", Journal of Business Ethics, vol 63, no 1.
- Storbacka, K. Strandvik, T. and Gronroos, C. (1994) "Managing customer relationships for profit", International Journal of Service Industry Management, vol 5, no 5, 1994, pp 21-28.
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