It is critical that a good knowledge base is to be built up through the correct use of information technology. A good knowledge base of the customer will allow the business to get ‘closer’ to the customer, and have a deeper understanding of the customers needs. Getting closer to the customer will allow a sense of trust to develop and create the foundations for a lasting relationship. . According to Rogers (1995), the pre-twentieth century store owner was a relationship marketer who nurtured customers as individuals. “He carried his data base in his head”. The articles identify information technology as a vital tool for today’s businesses, in building a knowledge base of the customers, in order to get ‘closer’.
In summary, a high degree of customer loyalty in a business, can increase revenue, reduced customer acquisition costs, lower costs of serving repeat purchasers, and eventually improve profitability ( Reichheld, 1993.). Customer loyalty should represent an underlying objective for any strategic marketing plan. (Kotler, 2002). Customer Loyalty can take many forms, be it cognitive, affective or conative. Conative being the most desirable and only attained after repeat purchase, time, and continually meeting firms expectations. Potential determinants of loyalty include customer satisfaction, switching costs, customer value/equity, and consumer/company identification.
Importance and benefits of the study.
Instead of merely evaluating customer satisfaction, customer retention and loyalty research examines those delivery attributes and issues that most relate to customer commitment and their perception of value. Good customer loyalty research helps to identify, prioritize, and improve the areas of performance which have the greatest leveraging impact on loyalty This study will help managers to identify areas of strength that can be leveraged in sales and marketing efforts, determine compensation plans, Prioritize actions, and to motivate employees towards common goals.
This research will allow managers to understand how to create loyal customers and allow them to set goals in order to achieve this. The creation of loyal customers is very important, as these customers are by far the most profitable. They create revenues from increased product and service buying, from price premiums and from referrals. They also create customer acquisition cost savings through increased word-of-mouth sales.
Why conduct Customer retention and loyalty research?
To prioritize actions that will improve desired outcomes.
Should your focus be on improving customer service response time or improving quality of customer contact; Are clients frustrated by your credit approval process, or maybe your maintenance fees? Objective data about what types of experiences are most important to attaining high customer loyalty will allow organization can prioritize investments.
To determine executive compensation/bonus plans.
This usually occurs after the client has completed one study in order to establish a point of reference and set targets. Then, compensation and bonus schemes are tied to meeting these goals, as measured by subsequent surveys. In some cases, the goal is to improve a specific measure by a pre-determined amount (such as increasing the customer service satisfaction rating by 10%). In other cases it is to improve an experience measure (such as reducing the percent of customers that have experienced billing errors from 10% to 5%).
To identify areas of strength that can be leveraged in sales and marketing efforts. Loyalty research isn't solely about finding your failings —it's also about finding out what you do well that makes customers loyal. Promoting your strengths will resonate with potential customers, and will likely be enforce by complementary word-of-mouth.
To motivate employees towards common goals.
Sharing results that are significant to a department, team or other workgroup can be very motivating for employees. The research will allow them to understand how well they are doing, or where they need to improve. Future research will also let them see how their actions are reflected in ongoing feedback.
To communicate with shareholders. Some people feel customer loyalty data should be kept for management, but imagine how much confidence it instills in shareholders to know that the business is actively pursuing long term customers.
Advantages of loyal customers
Increased product and service buying.
This is the most obvious benefit of loyal customers. They continue to purchase your companies service over competitors for potentially years.
Price premium charging.
Having a loyal customer base will create less elasticity in its potential pricing, therefore allowing the business to charge premium prices without the likelihood of customers switching their suppliers
Customer acquisitions cost savings through increased word-of-mouth sales.
By reaching out to new customers through other existing customer’s referrals, a snowball effect can be created, substantially reducing any marketing/advertising costs that would otherwise be incurred by the business.
Customer loyalty has a significant impact on the performance of businesses, and is considered as an important source of competitive advantage. The sooner this research is done the sooner the business can reap the award of increased revenue, reduced customer acquisition costs, lower costs of serving repeat purchasers, which all lead to greater profitability. In fact, through not understanding the dynamics and consequences of customer loyalty the business may be actively losing customers and profits.
Research Design.
The object of this study is to propose and empirically analyze a conceptual framework that considers perceived value/ equity, customer satisfaction, Company/consumer identification and switching costs and how these impact on customer loyalty. Through mainly qualitative research we will develop a conceptual model explaining the causal relationship linking these variables and explore their relationships. In this model we suggest that customer satisfaction mediates the impact of customer equity on customer loyalty in a positive relational nature. This aspect of the study will answer important questions such as:
Why there is a high churn rate?
What drives customer loyalty for this particular business?
How well do customers identify with the firm?
The study will, as a secondary objective, develop a picture of the overall satisfaction and degree of customer loyalty for the business. This aspect of the project, using mainly quantitative research, will deliver key statistics such as:
What percent of customers are loyal?
What percent are at risk?
How do satisfied vs. dissatisfied customers' experiences differ?
comprehensive customer loyalty research process
Firstly, we will have to identify how data will be used, get an idea of the research scope and methodology. After which a hypothesis will be identified, with regards to what factors correlate to customer loyalty, to do this there will be a number of interviews and/or group sessions with the staff. By doing this it also ensures buy-in, whereby any changes brought about from the change encounter less organizational resistance.
The quantitative phase will determine whether the hypothesis is correct in relating various variables. We will ask select customers to participate in a forum. Typically through focus groups (online or traditional), these customers discuss their experiences and their own perceptions of what leads to loyalty.
After which, a presentation of the hypothesis is made to all departments that may be affected by the process. This is to help ensure buy-in. Customer loyalty research is often met with resistance. Presenting all potentially affected constituencies with hypotheses before going into data collection shows them the analysis will be comprehensive, that no one department will be "picked on."
There will be a degree of quantitative research preparation required to ensure successful data collection, whereby the customer list is gathered and cleaned before the survey design begins. We have to know whom to contact and how to contact them.
Even the biggest companies have customer list problems. These can include outdated contact information, missing fields, or even inappropriate contacts
To ensure that the survey instrument is comprehensive but concise, client input is necessary. The customer loyalty research questions will be well-established, and modifications will be made based on the characteristics of satisfaction that are unique to the particular business. For example, a client that promotes online technical support would want to measure satisfaction with this aspect of its business more so than others.
To collect the data, we will conduct field work via the Web or by phone. The choice depends upon the nature of the customer. For example, if your customers are typically internet support managers, we would recommend Web-based collection. If your customers are consumers who may not have Internet access, we would recommend using the phone.
We will use a multitude of method in order to collect data, secondary and primary. They are as follows.
PRIMARY RESEARCH - Fieldwork
Primary, or new research includes Quantitative and Qualitative techniques.
Quantitative research will be carried out questionnaires, on relatively large samples (sample sizes will be discussed later) and therefore results are statistically robust. Qualitative research is more concerned with obtaining a deeper understanding of why something is happening. This type of research involves smaller samples of people, usually in small groups or on a one to one basis. Qualitative research can provide powerful insights into people's behaviour and specific techniques allied to clinical psychology are often used to understand peoples' deeper felt feelings and attitudes. This type of research will help in constructing a conceptual framework of what influence customer loyalty.
Some of the techniques used in quantitative and qualitative research will include:-
Telephone surveys
Most households have a telephone (at least one) and therefore telephone surveys provide an easy way of reaching households all over the country, quickly. The development of CATI (Computer assisted telephone interviewing) has enhanced the analysis of telephone data. Postal surveys will not be used, as typically response rates to these surveys are not very high and are prone to errors in coverage and response rates.
Face to face interviews
Face-to-face interviewing is a core technique of the market research industry, both in the street and at home. It facilitates showing of visual aids and often allows deeper insights to be gained than for example postal surveys. This technique will be especially valuable in gaining qualitative knowledge.
Computer Assisted Personal Interviewing (CAPI) has enhanced the performance of this technique.
Group discussions (focus groups)
These groups comprise of around 8 to 10 people and will be led by a skilled moderator. Everyone is encouraged to give their views frankly, over typically one and a half hours. Group research is especially suitable for generating ideas and brainstorming for problems such as what factors influence loyalty.
Customer empathy, loyalty and satisfaction surveys
This research has the specific objective of determining who your customers are, why they buy from you & whether they come back. These surveys, which will be made face-to-face, or by telephone, are fundamental in determining the successfulness of the research. This is because empathy studies can tell you very important information such as, what it’s like being a customer of yours, whether they like your service and if not, where you are going wrong. This is helpful is establishing links between factors such how equity or Company/consumer identification influences the loyalty exhibited
Mystery shopping
Are customers actually getting the service that you have expected? A mystery shopper will tell you the truth, like it is. So if changes are required then you can make them, before it's too late.
Branding and awareness studies (Face-face, telephone surveys and focus groups)
These studies will answer if your services are being marketed in the most effective way. What do customers think of when they see your products? How well is your business known and what is the best way to advertise your services?- These studies are important in defining the influence of variables such as equity and Company/consumer identification
Staff surveys
These surveys help to answer whether employees are motivated towards delivering quality customer service. Staff are often the crossing point between your organisation and the consumer, so it’s essential that to deliver your services effectively, that they are as also committed to customer satisfaction. This helps to find out what does and does not work, where the problems are and how the business can do better.
The surveys will use sampling techniques instead of a census, mainly because of its economic, quality and time benefits. Our aim will be to as representative of the population as possible. The sampling frame, when conducting interviews/surveys on the companies customers will be it based upon customer list of the business, this is because they have all had past experience in dealing with the business. Sample size will primarily be based upon cost and budget constraints. We will there for use non probability sampling, most likely judgmental sampling, basing research upon arbitrary elements, such as customers who have dealt with the business within the past two years for example. This method of sampling helps to reduce cost, time incurred and accurate given the budget constraints.
After the research has been collected we will analyze the data to reach conclusions.
We will use a series statistical techniques to assess current satisfaction levels as well as determine which factors (e.g. perceived value/ equity, customer satisfaction, Company/consumer identification and switching costs and how these impact on customer loyalty) best predict customer loyalty.
After the data has been analysed and conclusions have been made, visual displays of data will be made to facilitate communication of the results, typical displays include perceptual maps, bar charts, line graphs, and tree diagrams.
Follow-up at a later date would also be made available to ensure the data is used to encourage appropriate decisions and to take decisive, corrective action.
Data analysis.
Through statistical analysis, we can identify what experiences lead to customer satisfaction. -and therefore customer loyalty.
For the information which can be measured on a metric scale we will provide a frequency distribution table, with the purpose of obtaining a count of the number of responses associated with each variable and express these counts percentage terms.
Based upon these frequency tables we will use a series of location measures and variability measures.
Measures of Location-
Mean
Using an interval scale, this technique will be used to estimate the average. Responses should be distributed roughly around this point. This is a good measure to give us the basic central tendency.
Mode-
Because a lot of the data will have been grouped into categories the mode will be used in order to attain a measurement for the highest peak of distribution
Measures of variability-
Range and interquartile range- These measurement will give us an idea of the spread of the data, if the data has been strongly influenced by extremities, the interquartile range will probably be used
These measurements, along with the frequency table will help decipher questions such as what percent of customers are loyal and what percent are at risk? How much does satisfaction vary? etc.
Scatter plot graphs will be used to help understand the nature of the relationship between two variables. These are essential in an insight into how variable such as perceived value/ equity, customer satisfaction, Company/consumer identification and switching costs, and how these impact on customer loyalty
This will provide the empirical foundations on which to base a conceptual framework that considers these variables.
Regression analysis will be used to examine the relationships between independent different variables (e.g. Customer satisfaction) and dependant variables (e.g. customer loyalty. This will be done through creating metric scales for these variables during the research phase.
Due to the nature of the study and the relationships between different variables, we will use stepwise regression. Where by a small subset of variables will be used to account for most of the variation in the dependant variable (loyalty).
Nature and form of the results.
The outcome of this study would be an empirically analyzed conceptual framework that considers perceived value/ equity, customer satisfaction, Company/consumer identification and switching costs as the determinants of customer loyalty towards the business. Through quantitative and qualitative research a conceptual will explain the causal relationship linking these variables. In this model we suggest that customer equity mediates the impact of customer satisfaction on customer loyalty in a positive relational nature. Concepts such as company/consumer identification and switching costs will also be factored into the model. This is how the conceptual model of consumer loyalty may look.
mental loyalty . Consumer/company identification
.Expected value Purchase Equity/perceived value customer repeat Customer . . satisfaction purchase loyalty
Switching cost behavioral loyalty
The results will also yield information on levels of satisfaction, degree of consumer/company identification and perceived value of company’s services, so that the business can use this information and apply it to the model. Promoting strengths and eliminating weaknesses.
The business is currently concerned with its high churn rate of customers, suggesting a lot of customers are being lost after the initial purchase. Meaning that, based upon the model, customers are either not satisfied or lack perceived value for the service they receive. A possible strategy to combat this would be to Enhance Equity/perceived value or improve customer satisfaction. Results from the research should determine the area on which to focus on.
A Presentation of the results will be made to all departments that may be affected. This is to help ensure buy-in. Customer loyalty research is often met with resistance. Presenting all potentially affected constituencies with a comprehensive explanation of the results, and how we arrived at the conclusions, will help to unify the organization towards a common set of goals.
After the data has been fully analysed, visual displays of data will be made to facilitate communication of the results, typical displays include perceptual maps, bar charts, line graphs, and tree diagrams.
Follow-up at a later date would also be made available to ensure the data is used to encourage appropriate decisions and to take decisive, corrective action.
Schedule
1) Hypothesis identification – 1 day
2) The quantitative phase- focus groups- to establish basic hypothesis – 2 days
3) Presentation of the hypothesis to all departments that may be affected by the process. – 2 days
4) Research preparation, customer list is gathered and cleaned before the survey design begins. – 10 days
5) Client input to ensure survey instrument is comprehensive but concise. – 1 day
6) Questionnaire pilot testing – 2 days
8) Questionnaire revision – 2 days
9) Conducting field work – 30 days
10) Data analysis, conclusions – 5 days
11) Presentation of findings – 3 days
12) Follow up
An estimate of 58 days is required for completion of this study.
Each day consists of 6 hours of work at a rate of $150 per hour.
6hours x $150 x 58days = $52,200
Facilities and special resources
Software required
CATI (Computer assisted telephone interviewing)- enhanced analysis of telephone data.
Computer Assisted Personal Interviewing (CAPI) - enhanced the performance of this technique.
Personnel capabilities required:
A skilled moderator for Group discussions (focus groups)
Mystery shopper
Facilities required:
Rooms required for focus groups.
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Bibliography
Bhattacharya, C, B. Sankar, S. 2003, ‘Consumer-Company identification: A framework for understanding consumer’s relationships with companies’ Journal of Marketing, Vol. 67, pp66
Evuleocha, S, U. 1999. ‘Rewriting the rules of relationship marketing: Frequent flyer programs and non travel rewards in an age of consumer savvy’ ()
Holzmuller, H. Nijessen, E. Singh, J. Sirdeshmukh, D. 2003. ‘Investigating industry context effects in consumer firm relationships’ Journal of the Academy of the Marketing Science, Vol 31,No. 1, pp46
Rogers (1995) ‘Modeling consumer satisfaction processes using experienced based norms’ Journal of Marketing Research, Vol 20, pp 296
Heskett, j, l. Earl, W, S. Schlesinger, L, (1997) The Service Profit Chain, New York: Free Press.
Rust. Roland. Zahorik, A. (2000) ‘Customer satisfaction, Customer retention and market share’ Journal of Retailing, Vol.69, pp193
Reichheld, F, F. (1993). ‘Loyalty based management’ Harvard Business Review, Vol 71, pp64
Kotler, P.( 2002), Marketing Management: Analysis, Implementation and Control, 9th ed., Upper Saddle River, New Jersey: Prentice-hall, Inc.
Oliver, R,L.(1999), ‘Cognitive, Affective, and Attribute Bases of the Satisfaction’ Journal of the consumer research, Vol 20, pp38
Gronhaug. Kjell. Gill, M,C.(1991) ‘A transaction cost approach to customer dissatisfaction’ Journal of Economic Psychology, Vol 12, No.1 pp165
Singh, J. Sabol, B. Deepak.(2002) ‘Consumer trust, Value, and loyalty in relational exchanges’ Journal of Marketing, Vol 66, pp15
Measurement Instrument
Questionnaire protocol.-
- Increasing the respondent’s receptiveness.
- The Introduction.
- If the respondent is away or busy
- Establishing the interviewing relationship.
- Gathering the data.
- Recording the interview
- Selection and training.
Priority Matrix below. This tool becomes the basis for driving quality improvement initiatives. It identifies your customers’ requirements, your company’s current strengths and weaknesses, the area or areas that need attention and the parts of your organization that will need to be involved it the process improvement efforts.
Customer Priority Planning Matrix
