HOW DOES CUSTOMER LOYALTY CONTRIBUTE TO THE SUCCESS OF ANY

COMPANY?
Andreea Mihaela RAICA
Master student
andreea_raica91@yahoo.com
Abstract: What the present paper tries to prove is that companies have to follow a certain path in order to become
more customer-oriented and thus, more profitable. To be more specific, the paper sets the main milestones that
play a vital role in retaining profitable customers and creating loyalty. Firstly, both market and customers
expectations are based on quality and excellence, which form the cornerstone in attracting customers and
building the bridge to satisfaction. Secondly, customer satisfaction encourages increased purchasing and locks
out the companys competition, which represents the next part of the bridge towards loyalty. Finally, loyalty
guarantees the customer base and allows more accurate budgeting, strategic planning and lower marketing
costs, which in turn increase firms profitability. Being aware of what drives the loyalty of profitable customers,
as well as the cost of servicing and satisfying those customers is a critical step towards the success of any
company.
Keywords: CRM, expectations, loyalty, profit, satisfaction
1. INTRODUCTION
Everything on this planet is subject to a continuous change. Nowadays, change is faster and more far-reaching than
ever. However, in this world of change, things such as the fundamental role that a customer plays in an organization
are resistant to this phenomenon and simply cannot be changed. Regardless of being a service provider or product
manufacturer, a business organization survives in the pockets and on the goodwill of its customers (Murphy, 2001,
p.1), thus becoming responsible to find a way to answer its customers in kind. The process of serving the customers
is considered to follow the route of a boomerang: the company throws to its customers services/products of a certain
quality and the boomerang effect makes them come back to the company. Of course, what is coming back depends
exclusively of what the company delivered.
Because the market became increasingly fragmented and commoditized, the route of the boomerang isnt that clear
anymore and organizations find difficult to use traditional mass-media marketing techniques to reach their
customers and capture market share. Broad marketing and advertising campaigns are simply no longer as effective
as they once were. One message does not fit all anymore. Because of the fast multiplication of services and
customer needs, organizations need to market for many more types of users. This is why they started to focus on
customer relationship management (CRM) as the best way to acquire, retain and grow profitable customers. CRM
requires organizations to learn what their customers want and tailor the marketing by focusing on the attributes that
represent value to the customer and create loyalty.
2. THE IMPORTANCE OF LOYALTY FOR THE SUCCESS OF A COMPANY
In order to have a clear picture of how customer loyalty can contribute to the success of a company, this paper is
going to break the customer relationship chain into small pieces and present each of them separately, taking into
account also the way they interrelates with each other (see Figure 1).

Figure 1. The customer relationship chain

Starting from the end of the spectrum, from the fact that every organization wants to be successful, which, in
financial terms, means being profitable and improve its business performance, we can say that companies biggest
goal is to lock-in the most profitable customers. But, how can a company make a distinction between profitable and
unprofitable customers and, more importantly, how can it manage to retain the loyal customers after turning the
first-time buyers into satisfied and finally into loyal customers are questions whose answers will be further
discussed.
2.1. First contact
A customer having a specific need represents the starting point of our discussion. He starts searching for a product
that should fulfil his need by reading advertisements and consumer guides to acquire information mostly regarding
the benefits that the product will deliver. All this information provides our customer with expectations about the
products performance, but also represents the first contact between the two parties, the customer and the
organization. Immediately after he purchases the product and officially becomes a first-time consumer of that
specific product bought from that specific company, he is able to use the product and compare its actual
performance with his expectations and needs. The customer has now the capability to make both a judgment of
perceived quality - how the product compares against standards of excellence for the product class and a judgement
of value quality received relative to the outlays, frequently measured as cost or price of the product (Oliver, 2010,
p. 14). Moreover, consumers also judge the consumption outcomes, generating reasons or assigning responsibility
for purchase outcomes, situations known as attribution, whose judgment creates certain emotions that the customer
may experience. These are specific human affects, such as anger, guilt or delight, which can result from regretting
the bad decision of buying the product or, on the contrary, from being pleased with the product whose capabilities
exceeded the expectations. When considering only the functional characteristics of the product, without explicit
reference to expectations, the customer develops an attitude towards the product, which does not involve a complex
affect, but only simple feelings of pleasure or displeasure as far as the purchase is concerned.
2.2. Satisfaction
All these possible feelings that the customer may experience after purchasing the product result in what is referred to
as satisfaction. The English word satisfaction stems from the Latin, from the words satis (enough) and facere (to
make) (Raab, Ajami, Gargeya, Goddard, 2008, p.59). Thus, it can be said that customer satisfaction is about
products and services, which are able to provide what is supposed to, without exceeding the threshold of being
enough. Customer satisfaction has been the subject of considerable research over time and has been defined in
many ways. For example, Ph. Kotler (2008) argues that satisfaction appears as a feeling of pleasure or
disappointment experienced by a client when he compares his perception of the companys performance with his
initial expectations regarding that particular performance. R. L. Oliver (2010) proposes another definition that
appears to be sufficiently general in scope so that on the one hand, it would relate to the many domains of
satisfaction and on the other hand, it would distinguish the concept of satisfaction from other behavioural responses
engaged in by consumers: Satisfaction is the consumers fulfilment response. It is a judgement that a product/service
feature, or the product/service itself, is providing a pleasurable level of consumption-related fulfilment, including
levels of under- or overfulfilment.

Table 1. Vertical and Horizontal Views of Satisfaction

After reviewing all these definition of customer satisfaction, it can be observed the fact that most authors disregard
part of the views of satisfaction, which are summed up in Table 1. Firstly, they see satisfaction only through the eyes
of the consumer. They forget to emphasize that satisfaction is also fundamental to the profits of firms supported
through purchasing and patronization and to the stability of economic and political structures, thus, from satisfaction
with consumption benefiting not only consumers, but also firms, industries and governments. Secondly, beside the
various satisfactions experienced by customers during product/service delivery, with final consumption outcomes or
even with satisfaction itself, the vertical and horizontal views should also be considered. Vertical implies a level of
abstraction along micro (individual) and macro (aggregate) dimensions, while the horizontal analysis examines the
process by which antecedents or determinants cause satisfaction and the subsequent effects of satisfaction on other
consumer thoughts and actions (Oliver, 2010, p.9).
Now that the basic concept of satisfaction and its views are clearer, lets have a closer look at the consequences of
satisfaction gathered in Table 1. There can be observed two major trends: on the one hand, when talking about the
feelings of the customer after one-time purchase, we can distinguish between:
a satisfied customer whose expectations were met and who is complimenting the product/service or even
the company itself (should < is) and,
a dissatisfied one whose expectations were higher than the perceived performance and who is complaining
about the product/service (should > is).
As far as the post-purchase behaviour is concerned, one thing is certain - regardless of his feelings - the customer
will generate word of mouth, which can be positive (encourage others to become customers) or negative (negatively
influence others opinions regarding the company). When feelings get involved, things are not that clear anymore, as
the customer may either decide to revisit the same company with the intention to repurchase the product or
repatronize the service (satisfied customer) or simply move to other provider, maybe one of the companys
competitors (dissatisfied customer).
2.3. Loyalty
If there is the case of the satisfied customer deciding to repurchase, which brings us to our second trend, other
consequences of satisfaction get involved. Having purchased the product previously, the customer has more than
likely developed an attitude towards it. As mentioned previously when talking about customers first contact with
the company, an attitude is a fairly stable liking or disliking toward the product based on prior experience previous
satisfaction (Oliver, 2010, p.15). This attitude becomes the basis for the customers expectations in the next
encounter with the product, develops a strong bond with the customers intention to repurchase and has great
influences on his general perception of the product/services quality. The consumer may now reach a point where his
sensitivity decreases as his relationship with the organization becomes stronger than it was during the first contact
and even accepts some drawbacks in the product performance, especially if they appear to be happening due to
causes that are external to the company (i.g. fate or chance). Most authors and researchers refer to the situation in
which the customer currently finds himself as loyalty towards a product, service or organization. In order to
maintain this state of loyalty, the satisfied customers should show that they are able and want to continue the
interaction with the organization. It is worth mentioning at this point that it is not necessary for a satisfied customer
to be automatically a loyal customer, merely because some are only casual about purchasing, are not interested in a
long-term relationship or they simply dont have the resources to become regular, repeat purchasers. Thus, the
relationship between customer satisfaction and loyalty is not necessary a linear one, in other words, a one-point
improvement on a satisfaction scale does not necessarily imply a one-point increase in loyalty at all point on the
scale (Murphy, 2001, p. 24-25).

Figure 2. The phases of loyalty

As far as this broad concept of loyalty is concerned, the purpose here is to get into a more in depth analysis, as
loyalty will remain the ultimate goal of the firm with regard to its customers after satisfaction is fully pursued.
Richard L. Oliver (2010) defines the concept of customer loyalty as a deeply held commitment to rebuy or
repatronize a preferred product or service consistently in the future, despite situational influences and marketing
efforts having the potential to cause switching behaviour. Moreover, he also establishes the phases of loyalty by
supporting the idea that consumers first become loyal in a cognitive sense, then later in an affective sense, followed
by a conative sense, and finally in a behavioural sense, described as action-inertia (see Figure 2).
The cognitive loyalty is attributed to one specific brand prefered to its alternatives due to the brand attribute
information (purely functional characteristics) that is available to the customer, being sometimes referred to as
phantom loyalty. If satisfaction appears in the customers experience with the brand, he enters in the affective
loyalty phase, where a liking toward the brand develops based on cumulative satisfying consumption occasions.
However, customers experimenting any of these two forms of loyalty may still think about switching brands. Only
after they pass through repeted episods of positive affect toward the brand, they are thought to have steped into the
conative loyalty state and to have reached a deeper level of social commitment to repurchase. If in this phase the
consumer develops a behavioural intention, in the last one, action loyalty, the intention is tranformed into readiness
to act, which is complemented by the desire to overcome any obstacles that may interfere with the action of
rebuying that specific brand.
In order to obtain a better understanding of the topic, it is worth taking into consideration more than one perspective
regarding the process through which customers become loyal to an organization. Stanley A. Brown (2001)
considered one such view through his four-quadrant model illustrated in Figure 3., where by addressing the
relationship between loyalty (the Y-axis) and profitability (the X-axis), he managed to establish three other phases of
loyalty that a consumer may encounter during his lifetime: the courtship, the relationship and the marriage.

Figure 3. Browns four-quadrant model

The process starts from the lower left quadrant the courtship where the loyalty is considered very weak, being
based only on product and price, the customer is much more price sensitive and when influenced by advertising,
marketing and promotions, he may easily switch to a competitor. When affection grows, the customer gradually
becomes more confident, loyalty improves becoming more visible and value is created, thus consumer evolves to the
top left or bottom right quadrants, where a relationship based on mutual benefit is achieved. By advancing in the last
quadrant the marriage a strong link between the two parties is established. A high degree of satisfaction forms
the basis of the loyalty, also referred to as true loyalty, as the customer gets personally involved with the company
and begins to feel dependent on it. In order for the marriage to last for a longer period of time, both parties have the
responsibility to ensure positive benefits to the other partner and to show mutual trust and desire to continue the
relationship. As a consequence of a solid marriage, the customer will become advocate that will further recommend
the company to others, thus making it easier for the company to acquire new customers.
2.4. Business performance
So far, we saw the customer passing through almost all the important steps of the relationship chain: his first contact
with the company, followed by feelings of satisfaction that increased the frequency of customers purchases,
pushing him towards loyalty. In order to complete the chain, we shall now see how the sequence of rings discussed
so far translates into profits, ensuring the success of the organization.
As can be seen from Figure 4., the relationship between quality and profits is quite straightforward, at the
organizations level, it is well known the fact that higher quality allows for higher premiums, which translates into
higher margins for the company. It also helps lowering the rate of failure and the operating costs, which in turn
reduces the costs and efforts of recovering from those failures. In addition, when a company is recognized for its

higher quality, it is said to attain a greater reputation and higher awareness among its customers, who start
recommending the company and convincing others to become customers, thus, preventing the company to spend
more money on advertising or on acquiring new customers by themselves. On a more macro scale, at the market
level, a company with a higher quality raises the quality standard level of the market forcing the market expectations
of quality to increase, thus improving the companys reputation in the customers eyes, who will become more
attracted and satisfied.

Figure 4. Direct effects on profitability and related firm performance criteria

As far as the link between customers satisfaction and the companys profits, by summarizing what we discussed
until now, we can agree that satisfaction has direct effects on retention, WOM and marketing cost reductions.
Moreover, it also plays the role of the mediator because a satisfied customer will purchase more, gradually losing his
sensitivity toward the price and becoming more committed to the company, thus rejecting the competitors offers.
When thinking about the benefits loyalty has on the business performance, the first thing that comes out is exactly
what loyal customers mean a steady stream of future customers that the company can always count on, thus,
being able to cut advertising and administrative overheads to a minimum. Investing less attention and money in
them allow companies to concentrate on cultivating the new-acquired customers or on improving products/services
performance. As widely agreed, there are many other positive effects of customers loyalty such as revenue growth
due to repurchases and referrals, as well as cost decline due to lower acquisition costs and serving experienced
customers (Gngr, 2007).
Last, but now least, market share and profit are also linked through the mechanism of repeat purchase and sheer
volume, such as loyalty programs, which we are going to discuss in more details later in this chapter. In addition,
there come into play the other two concepts related to the word share: shares of stock or shareholders wealth and
share of wallet, which suggest multibrand loyalty and the percentage of purchasing in a category attributed to one
brand among others purchased (Oliver, 2010, p. 459).
3. CONCLUSIONS
In the beginning of this paper, there was a big question mark regarding whether there was a general rule to follow to
become a successful company. We have seen that customer loyalty is the key, because loyal customers are worth a
companys every effort to retain and please. In fact, we found out that there are certain ways companies can consider
to keep the customers loyal to them for a longer period of time. A company have to be aware of who its clients really
are, but it also have to show interests in getting to know them better, so that customers can feel that they are cared
about and answer in the same manner. It can also attract them by offering personalized products and services that
perfectly match their needs and wants, thus making it unnecessary for them to think about switching to another
competitor if they are satisfied and receive everything they are looking for from the current one. To keep a customer
happy, rather than simply satisfied, organizations must meet his or her expectations and desires. Moreover, to build a
solid relationship with its customers and make them feel as belonging to a big family, a company need to put the
basic pillars of trust by starting to get involved and interact with them. Thus, understanding and retaining the
customer is of vital importance, because the longer the profitable customers stay with the company, the more
profitable they become.

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