I just read a great paper on client loyalty, and I will summarize the concepts for you below. Thanks to Li-Wei Wu, Tunghai University for the great work.
Client loyalty is another one of those terms like strategy. More people talk about it than understand it to a great degree. Let’s explore…
Client loyalty is a product of several things, and it goes beyond satisfaction. The difference between satisfaction and loyalty isn’t that well understood by many, and yet such an incredibly important topic given the implications that the type and degree of loyalty has on client behavior and purchase intent.
Satisfaction is an emotional state that occurs from ongoing interactions with a client. It is generated from the comparison between expectations held prior to purchase and the actual experience. It has a positive effect on the development of client loyalty, but is not the only thing that affects it.
Inertia is a second factor. Customers driven by this motivation prefer consistency, don’t like new routine, price shopping or making new purchase decisions. They prefer status quo. Now while this doesn’t create loyalty in the short-term, routine and habitual behaviors strengthens customer loyalty as well.
Two other factors interact with this framework to impact loyalty generation. The first which is zone of tolerance (ZOT) and alternative attractiveness.
Zone of tolerance is the degree of tolerance for the gap between what a customer hopes to experience with you, and what they consider adequate. Every customer has a different range. Service below the acceptable range creates dissatisfaction while performance above creates satisfaction or even delight. However performance within the range results in an indifferent sentiment. Hence, small improvements may not have an increase in satisfaction or loyalty if it is perceived to fall within the range of the ZOT. If your current performance is below the ZOT, improvements may have a substantial impact on loyalty, as with if performance is above the ZOT. The strongest impact would be achieved at the higher level because customer delight is experienced at those levels. When customers have a wider ZOT, it weakens the impact that satisfaction has on loyalty, as it is more difficult to exceed expectations. Also, performing within the ZOT may result in extremely low levels of loyalty being generated at all, especially in the short term.
The zone of tolerance also impacts inertial loyalty behavior, but in a positive way. Customers who perceive your performance as being adequate are often likely to repurchase on an inertial basis. Therefore those with a wider ZOT lack the motivation to switch to another provider, and over time their experience with you supports the growth of loyalty. However, the fact that a customer deals with you repeatedly may not necessarily signify loyalty, it may only signify that the customer is passive and you haven’t given them enough reasons to leave. To summarize, the relationship between inertia and loyalty is stronger when a customer has a wider ZOT.
The final modifier is alternative attractiveness. This is the customer’s sense of the level of satisfaction is available to them with your competitor. This has 4 dimensions to it:
1) Number of alternatives
3) Ease of understanding the difference
4) Ease of comparison
Perceptions of alternative attractiveness are a major driver in narrowing the ZOT because it helps define and drive expectations. Where alternative attractiveness is high, this tends to narrow the range of the ZOT. It is also interesting to note that increased competition erodes the inertial effect, partially by narrowing the width of the ZOT and also by disrupting repurchase patterns.
Client loyalty isn’t something to be taken for granted. The factors that drive it are dynamic, and there are complexities in understanding what the implications may be for your organization.