CHAPTER 5 :

DEVELOPING
CUSTOMER LOYALTY

DR. MUHAMMAD HAFIZ

ABD. RASHID

FACULTY OF
BUSINESS & MANAGEMENT
 WHAT WE WILL COVER..

■ Definition of loyalty.
■ Definition of customer loyalty.
■ Types of customer loyalty.
■ Characteristics of loyal customers.
■ The role of trust.
■ Five dimensions of trust.
■ Strategies to develop trust.
■ Loyalty program.
■ Loyalty program management.
■ Provider characteristics affecting customer
loyalty.
 DEFINITION OF LOYALTY

■ The condition of being closely

tied to another by affection or
faith.
■ Signifies a person’s devotion or
sentiment of attachment to a
particular object, which may be
another person or group of
persons, a duty, or a cause.
■ Emotionally attached to
something that make us don’t
want to lose it.
DEFINITION OF CUSTOMER LOYALTY

■ Driven by overall satisfaction.

■ Involves commitment from the
customer to make a sustained
investment in an ongoing
relationship with a company.
■ Combination of attitudes &
behavior:
– Repeat buying
– Willingness to recommend the
company to others
– A commitment to the company
demonstrated by a resistance to
switch to a competitor.

Customer Service: Career Success Through Customer Loyalty. Paul R. Timm. 4th Edition. Page 14.
TYPES OF CUSTOMER LOYALTY

1. Convenience Loyalty
2. Emotional Loyalty
3. Incentivized Loyalty
4. Price Loyalty
5. Inertia Loyalty
6. Monopoly Loyalty
TYPES OF CUSTOMER LOYALTY

■ Convenience Loyalty
– Where loyalty is solely
defined by location of
service provider.
– E.g: Ayu prefer to shop at
Tesco Ampang because
that is the nearest
hypermarket to her house.

Sopanen, B. (1996), "Enhancing customer loyalty", Retail Week, No.December, pp.21-4.

 TYPES OF CUSTOMER LOYALTY

■ Emotional Loyalty
– Emotional loyalty includes the
willingness to pay premium
price, recommending your
products and services to
others, and a willingness to
provide feedback to help make
your product better.
– It is based on emotions and
relationships, rather than
purely the transactional
records.

Sampson Lee. Retrieved from: http://crmguru.custhelp.com/cgi-bin/crmguru.cfg/php/enduser/std_adp.php?p_faqid=1359

TYPES OF CUSTOMER LOYALTY

■ Incentivized Loyalty
– Where loyalty relates to the
benefits gained from reward
cards and programmes.
– E.g: Real Rewards, Bonuslink,
points collected when
customer use credit card to
buy products, etc.

Sopanen, B. (1996), "Enhancing customer loyalty", Retail Week, No.December, pp.21-4.

 TYPES OF CUSTOMER LOYALTY

■ Price loyalty
– Consumers constantly
evaluate alternatives and
are loyal to the retailer with
the lowest available price.
– E.g: Fahimi frequently use
E-Bay to shop online
because the company offer
vast selection of products
with less expensive price.

Sopanen, B. (1996), "Enhancing customer loyalty", Retail Week, No.December, pp.21-4.

TYPES OF CUSTOMER LOYALTY

■ Inertia loyalty
– Occurs when a customer has a
high repeat of purchase but
has no emotional attachment
to the company.
– Characterised by customer's
unwillingness to actively seek
alternatives / substitutes.

Sopanen, B. (1996), "Enhancing customer loyalty", Retail Week, No.December, pp.21-4.

Serli Wijaya. Retrieved from: http://puslit2.petra.ac.id/ejournal/index.php/hot/article/viewFile/16235/16227
 TYPES OF CUSTOMER LOYALTY

■ Monopoly loyalty
– Where there are no
available choices.
– It maybe happened
because of government
legislation establishing a
single supplier.
– E.g: TNB, Telekom, Bursa
Malaysia, etc.

Sopanen, B. (1996), "Enhancing customer loyalty", Retail Week, No.December, pp.21-4.

CHARACTERISTICS OF LOYAL
CUSTOMERS

❑ Customer who always

give and take with our
company.
❑ Spread the positive
information about our
company by using word of
mouth to other people,
relative or customer.
❑ Customer that is hard to
tackle and attract in
order to get their interest
and willingness to buy and
satisfied with our product
and services.
 CHARACTERISTICS OF LOYAL
CUSTOMERS

❑ A customer who don’t care

or worried to spend their
money to buy our product
and services.
❑ A customer who stay with
our company even though
the conflict and problem arise
and together help us to settle
it.
 THE ROLE OF TRUST

■ Trust is the most important

criteria for a relationship.
■ Trust has to be earned, and
it does not happen
overnight.
■ Trust can be gained
through continued positive
efforts on the part of
everyone in your
organization.

Customer Service: Building Successful Skills for the Twenty-First Century. Robert W. Lucas. 3rd Edition. Page 318.
 5 DIMENSIONS OF TRUST

5 dimensions of trust are:

1. Personal experience
2. Organizational knowledge (of
the company)
3. Deference (respect or
courteous expression)
4. Reference (what one learns
about a company from
others)
5. Glitz (advertising, packaging
and high pricing)

Customer Service: Building Successful Skills for the Twenty-First Century. Robert W. Lucas. 3rd Edition. Page 319.
 STRATEGIES TO DEVELOP TRUST

1. Communicate effectively
and convincingly.
2. Display caring.
3. Be fair.
4. Admit errors or lack of
knowledge.
5. Trust your customers.
6. Keep your word.
7. Provide peace of mind
(calmness).

Customer Service: Building Successful Skills for the Twenty-First Century. Robert W. Lucas. 3rd Edition. Page 319.
 Loyalty Program
■ Loyalty programs are
structured marketing efforts that
reward, and therefore encourage,
loyal buying behaviour -
behaviour which is potentially of
benefit to the firm.
■ Loyalty card is a plastic or
paper card, visually similar to a
credit card or debit card, that
identifies the card holder as a
member in a loyalty program.

http://en.wikipedia.org/wiki/Loyalty_program
Loyalty Program
■ Loyalty cards are a system of
the loyalty business model.
■ By presenting the card, the
purchaser is typically entitled to
either a discount on the current
purchase, or an allotment of
points that can be used for
future purchases.
■ Example: Bonuslink, Tesco
Card, Jusco Card, Real Rewards,
Mesra Link, etc.

http://en.wikipedia.org/wiki/Loyalty_program
Loyalty Program Management
■ Loyalty programs are increasingly
finding the need to outsource
strategic and operational aspects of
their programs, given the size and
complexity a loyalty program
entails.
■ Loyalty program needs to be
managed by agencies with
specialist skills in loyalty consulting,
creative and communication, data
analytics, loyalty software, and
back end operations.

http://en.wikipedia.org/wiki/Loyalty_program
 PROVIDER CHARACTERISTICS
AFFECTING CUSTOMER LOYALTY
■ Responsiveness
– Attend to customer needs promptly.
■ Adaptability
– Customers have different beliefs, values, perceptions, needs
& expectations. Adapt your approach in dealing with others.
■ Communication skills
– Use variety of effective interpersonal techniques. Continually
strive to improve your ability to interact with a variety of
people.
■ Decisiveness
– Being able & willing to make a decision & take necessary
actions to fulfill customer needs.

Customer Service: Building Successful Skills for the Twenty-First Century. Robert W. Lucas. 3rd Edition. Page 325.
 PROVIDER CHARACTERISTICS
AFFECTING CUSTOMER LOYALTY
■ Enthusiasm
– Attaining & maintaining the level of excitement about your
customers, products, services, organization & job.
■ Ethical behavior
– Avoid using any words or actions that might raise scrutiny
or customer skepticism.
■ Initiative
– Taking an action related to your job or customer service
without having to receive instructions from others.
■ Knowledge
– Learning about policies, procedures, resources, products,
services & other information can help to provide total
customer satisfaction.

Customer Service: Building Successful Skills for the Twenty-First Century. Robert W. Lucas. 3rd Edition. Page 325.
 PROVIDER CHARACTERISTICS
AFFECTING CUSTOMER LOYALTY
■ Perceptiveness
– The need to pay close attention to verbal & nonverbal cues,
cultural factors & the feelings or concerns of others.
■ Planning ability
– Involves assessing various factors related to your
organization, industry, products, services, policies &
procedures, resources, and customer based.
■ Problem solving ability
– Take responsibility for the problem. You will need a process
for gathering & analyzing information.
■ Professionalism
– Projecting a positive personal image, through manner of
dress, knowledge, appearance of work area, and mental
attitude.

Customer Service: Building Successful Skills for the Twenty-First Century. Robert W. Lucas. 3rd Edition. Page 325.
 Customer Lifetime Value (CLV)
■ The customer lifetime value is a calculation that
measures the anticipated length of a business’
relationship with a customer, combined with the
anticipated customer financial value. The result is a
prediction of how profitable that customer will be.
■ It allows companies to calculate how much a
customer is worth, and how much a marketing
department should be willing to spend to acquire
each customer.

Customer Lifetime Value: Useful Formula. Kimberley Chan. http://www.onedesk.com/2011/02/customer-lifetime-value-useful-formula/

 Calculating the CLV
■ There are many formulas that can be used to calculate the customer
lifetime value, however, the easiest one is:

CLV = m(r/1 + d – r)
■ m = margin or profit from a customer in one year.
■ Margin = revenue – product or service costs – cost of servicing
(acquisition & promotion costs)

■ r = retention rate is the proportion of net income that is not paid in

dividends.
■ Example: A firm earning RM80 million after taxes and paying dividends
of RM20 million. So, the retention rate :
(RM80 million – RM20 million) / RM80 million = 75%.
■ A high retention rate makes it more likely a firm's income and dividends
will grow in future years. It's often expressed as a percentage.

Customer Lifetime Value: Useful Formula. Kimberley Chan. http://www.onedesk.com/2011/02/customer-lifetime-value-useful-formula/

 Calculating the CLV
■ d = discount rate is the interest rate charged by a central bank
(Bank Negara) on loans to its member banks.
■ If you don’t know what your company’s discount rate is, the Finance
Department will likely be able to give you the number. If not, you’ll
usually be fine using a value between 8% and 15%.

■ Calculating the customer lifetime value will help your company

determine which customers to pay attention to, and which to forget
about. A customer with a customer lifetime value less than zero is
costing your company money; these customers should promptly be
forgotten about.

Customer Lifetime Value: Useful Formula. Kimberley Chan. http://www.onedesk.com/2011/02/customer-lifetime-value-useful-formula/

Q&A