Customer Loyalty & Customer Satisfaction a paradox


By

Sumanta Dutta
Faculty Member
ICFAI National College
Garia, Kolkata
 


"I hear and I forget, I see and I remember
I experience and I understand."
  
-Confucius, Legendary Chinese Philosopher

What are the new mantras in the field of marketing? The answer is "new" as if the question portrayed the hidden truth of the answer.

Instead of pampering existing customer with more features, it is better to built up a logical relationship between customer loyalty with that of satisfaction level associated with customer. That is why Patricia Seybold, a renowned customer guru in her seminar at Mumbai aptly said,' until we redesign our entire business to be customer driven, we don't be able to meet the needs of the 21 st century customers."

Gandhi's definition of customer throws some light in this respect

1) A customer is not an outsider to our business. He is definite apart of it. A customer is not an interruption of our work. He is the purpose of it.
2) A customer is doing us a favour by letting us serve him. We are not doing any favour.
3) A customer is not a cold statistic; he is a flesh & blood human being with feelings and emotions like our own.
4) A customer is not someone to argue or match wits with. He deserves courteous and attentive treatment.
5) A customer is not dependent on us. We are dependent on him.
6) A customer brings us his wants. It is our job to handle them properly and profitably-both to him and us.


The paradox?

Such thought in relation to "new customer" strikes marketers to identify who are their customers they should focus on.Beacause customers are all not created equal. Due to the 20-80-30 rule: 20 % of customers bring 80 % of the revenue of which 30% is spent for maintaining the bottom line customers. Hence it is important to find out which customers are the 20% best customers for the company and to treat them differently in order to acquire, upgrade and retain them. (Sampson Lee)

Then what's the definition of best customer?-High loyalty and high satisfaction?  In his" Killer Customer Care" George Colombo introduce "Delta Principle". It pointed out that" the quality of your customer is experience is not a direct result of the objective quality of your products and services. Instead, customer satisfaction is more a function of how closely your customers' experiences with your business conform to their expectation."

Customer Satisfaction= [customer experience-customer expectation] (Rust and Oliver, 2000)

Customer Satisfaction>0

It enhance the customers  LMV

Customer Satisfaction<0

Customer attrition are more frequent result in fall in LMV


LMV: Every customer is an assets and has a economic life time market value (LMV).a customer life time value can be determined by using the following formulae-

LMV= [average customer transaction amount*number of transactions he or she will conduct with the organization over time]

It is combination of high value spending efforts and resources to acquire, upgrade and retain that customers. It is the high loyalty that will entails marketer to enjoy a long term relationship.

Customer Loyalty:

Marketers and customer relationship based on the fact that delivering customer satisfaction to ensure customer loyalty. A problem is often raised that proportion of customer will still defect to competitors even if they are satisfied with the brand. Hence, customer satisfaction does not ensure customer loyalty. A customer loyalty is based on two important principles:

1) Loyalty may not buy through discounts or cheap bribes. It is the demonstrating competitive pricing can have a crucial role on winning and retaining customers.
2) Customers are not homogenous in character.

Customer loyalty is purely a behavioural phenomenon.

Lock in Loyalty

"locked in " with the existing marketer or no switcher category

Incentivised Loyalty

Customer loyal based on the incentives/schemes provided to them
( e.g. pantaloons greencard,Airtel lifetime offer)


Customer satisfaction:

Customer means that the customer's needs are met, products and services are satisfactory and customer experience is positive. (Gitomer, 1998).

Kotler (1997) defines customer satisfaction as follows- "satisfaction is a persons feeling of pleasure or disappointment resulting from comparing a product is perceived performance (or outcome) in relation to his or her expectations." It portrayed the idea of measuring how satisfied customers are with the organization's efforts in a market place. Customer satisfaction measures the following variables:

1) Product
2) Service
3) Relationship
4) Price
5) Convenience
6) Brand image
7) Brand association
8) Total customer experience

The above explain different views related with two ambiguous terms. Now the paradox raised the following questions.

1) Does satisfied means loyalty of customers?
2) Does satisfied leads to loyalty?

The answer to the first questions is no. As due to highly competitive market scenario, competitive pricing mechanism and incentivised brand building programme makes the  customer vulnerable over there lifetime.

The answer to the second questions is often no as because there are several factors other than satisfaction like occasion of use, peer pressure etc influenced the process. Hence, the argument still exists.

In the world of mass customization, the work of the marketing department is not only restricted to developing more customer but also to find out a way to strike a balance between customer loyalty and customer satisfaction.However, the idea is easy to say but difficult to implement. But taking the advantage of competitive environment it is necessary to effectively design and supply new product offering so that it indirectly enhance the long run economic life time value (LMV).
 


Sumanta Dutta
Faculty Member
ICFAI National College
Garia, Kolkata
 

Source: E-mail February 28, 2007

       

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