customer commitment and loyalty

Customer commitment and loyalty


The objective of many marketing strategies in the last 10 years has been building the customer’s
commitment to a brand or a dealer. This has taken three forms:

• Creating customer satisfaction -delivering superior quality products and services.

• Building brand equity - the sum of the intangible assets of a brand. Factors that contribute to this are:

Name awareness,
Perceived quality,
Brand loyalty,
The associations consumers have towards the brand,
Trademarks,
Packaging,
Marketing channel presence

• Creating and maintaining relationships

Success with any of these strategies will result in high levels of repeat purchase, insulation from price increases and improved responsiveness to marketing communications by customers. There has been an evolution of marketing thought and activity over this last decade. Initially, the quality movement placed customer satisfaction as the ultimate goal of marketing programs. However, as satisfied customers were shown to defect to other brands or providers at relatively high rates, strategists looked to creating a greater commitment with the customer.

Two ways to achieve this were to build brand equity (primarily for consumer products) and
to build relationships (primarily for industrial products.) Brand equity used mass media
advertising, corporate citizenship and public events sponsorship to build a brand image.
Relationship marketing sought to build interdependence between partners and relied on
one-to-one communications, historically delivered through the sales force. With the growth
of marketing databases and the Internet, the ability to reach customers individually became
a viable strategy for a wide range of firms including consumer products companies.
The growth in relationship marketing was fueled by the writings of management consultants.


Taking inspiration from mass customization manufacturing technologies and applying
them to marketing communications, Peppers and Rogers encouraged a one-to-one focus
on “share of customer” rather than the massmarketer’s “share of market.” This was based on the marketer’s ability to communicate a unique message to the customers based on the company’s knowledge of their interests.

They claimed that this one-to-one interaction with customers would lead to improved lifetime value. Frederick Reichheld further developed the importance of building customer commitment
in his 1996 book The Loyalty Effect. He focused on the cost of customer defection and set the stage for the problem by claiming “many major corporations now lose and have to replace half their customers in five years . Using examples from financial service companies, advertising agencies, and manufacturing firms, Reichheld claimed that even small improvements in customer retention can as much as double company profits. This is because:


1. It costs less to serve long-term customers.


2. Loyal customers will pay a price premium.

3. Loyal customers will generate word of-mouth referrals to other prospective customers.