Customer Loyalty & Customer Satisfaction – a 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)
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.
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.
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:
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).
Source: E-mail February 28, 2007
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