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Published by: Shriharsh Bhat on Mar 30, 2009
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Fostering Loyal Customer Relationships

Duarte B. Morais, Ph.D.
Assistant Prof. of Recreation, Park and Tourism Mgt.

Presentation Outline
1. 2. 3. 4.

Introductions Why talk about loyalty What is a loyal customer How to foster loyal relationships





Why talk about Loyalty
• Mature Industry
– increasing competition

• Focus on getting more customers
– Market share Vs. share of customer

• Competitive advantage
– Price – Service quality – Loyal relationships

The bottom line
• Reduction of 5% of defective customers may result in 80% increase in profitability (Reichheld & Sasser, 1990)


• 60% to 80% of lost customers were satisfied (King, 1996) • 90% of customers who love a company will repeat but only 30% of customers who like the company will repeat (Opinion Research Corp.) • 20-40% of your customers bring 80% of your profits

What to expect from loyal customers
• Behaviors:
– – – – Come back frequently Buy most expensive products Recommend provider to friends Give important suggestions


• Emotions:
– – – – Are attached to the provider/staff Trust the provider Resist changing despite competitors’ persuasion Willing to forgive mistakes



What is a Loyal Customer
• Definition: customers with a long record of purchases from a preferred provider caused by their psychological and emotional bond with that provider • Are there various types of loyalty?

Types of Loyal Customers
+ +
High loyals
Attachment Frequency of Purchases



Latent loyals

Spurious loyals

Low loyals


Differentiated Strategy to Loyalty Segments
“Not all customers were created equal”
• High loyals – most profitable, make them feel like family (20% of your customers) • Latent loyals – find out why they can’t come more often, find other ways they can help, don’t discount • Spurious loyals – come but don’t care, make them connect with you, make them wish for special treatment • Low loyals – don’t get distracted with them, but make sure they are satisfied (approx. 40-60% of your customers)




How to foster loyal relationships
• Current loyalty programs
– Ineffective in creating a bond – Most are simply frequency programs – Make people shop around and look for deals – Make customers price sensitive – Erode profits We can identify loyal customers but we don’t know how to generate customer loyalty

The Love Triangle
Social Network


C B. .

Provider Customer

Resource Investment Model
Retribution to the provider Provider’s investment of special resources Customer’s investment of special resources Protect customer’s equity

4. RIM

Customer’s loyalty to provider

Loyal relationships facilitate special treatment

Morais, Dorsch, & Backman (2004)

4. RIM

Love Status Services

Types of Resources

Information Money


Types of Investments
Give – to your valuable customers
• • • •

4. RIM

Make sure that your special customers receive special treatment Send cards for birthdays rather than just for the holidays Make them feel unique (use name, compliment them for helping) Educate them about front and back stage

Receive – from customers
• • • • Give them opportunities to get to know you (your staff) Help them become advocates of your company (merchandize, web) Seek their opinion Allow them to commit to you with a long term program


B.C. Brand Communities

4. BC

• Definition: group of individuals united through the consumption of your products
– Harley-Davidson’s “HOGs” – Club Med’s “Gracious Members”

• Characteristics
– – – Communality – help and expect help from others Brandfests are used to share history Keep consuming to stay connected

4. BC

Building a Community
2. 3. 4. 5. 6. 7. 8. Use a newsletter to share news about customers Develop an online forum for customers to stay in touch Organize annual events “by invitation” for VIP customers Facilitate picture / story sharing Help customers help each other Give a name to the community …


Action Outline
1. Select your market segment
– – Identify most valuable customers (what criteria?) Identify customers who might become valuable


2. Design a relationship-building service culture
– – – Identify what type of treatment promotes customer loyalty Identify what loyal customers want to give to you Identify potential for the development of a brand community

3. Implement a loyalty treatment
– – – – Design specific communication strategy and message Train staff to understand the importance and the process Create opportunities to invest and receive investments Generate a sense of community among your customers


Measure effects of program and redesign
– – Maintain constant communication with your loyal customers Monitor costs and results of your program

The Love Triangle
Social Network



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