Customer Value Customer Loyalty and Customer Satisfaction
Introduction
A new paradigm faced by the marketing discipline is relationship marketing (Gronroos 1994). Relationship marketing involves maintenance of relations between the company and the forces in its micro-environment like suppliers, the public, intermediaries, and most importantly its customers. Companies started giving more importance to maintaining relationship with customers as they understood the importance of retaining their existing customers and taking proper care of them than trying to attract new customers. Existing customers are cheaper as the cost of maintaining relationship with them is much lesser than the cost of acquiring new customers. The idea behind relationship marketing is to provide superior value to the customers so that they become loyal to the company and keep buying its products and services in the future. For strengthening bonds with their customers, companies relentlessly try to improve the satisfaction levels as customer satisfaction is one of the key criteria for customer loyalty (Heskett et al. 1994). Customer satisfaction in turn can lead to customer loyalty as satisfied customers tend to become repeat customers to the company. A review of the existing literature in marketing reveals that customer value, customer loyalty, and customer satisfaction are closely related to each other. Understanding the right value proposition that should be offered by a company to its consumers is the key to improve their satisfaction levels and loyalty. A loyal customer base is like a captive mine which ensures the long-term success of any company. Evidence in marketing literature suggests that a superior perceived customer value leads to customer satisfaction. Research on the interrelationships between customer value, customer satisfaction, and customer loyalty also showed that customer satisfaction mediates the relationship between customer value and customer satisfaction. Another stream of literature pointed out that under certain circumstances, customer value can directly lead to customer loyalty without being mediated by customer satisfaction.
Customer Value
As businesses jostle with each other to provide better value to their target customers, one important construct which has attracted lot of interest from both academic researchers and marketing managers is customer value (Parasuraman 1997). But in spite of the importance of customer value, there was lot of confusion in literature regarding the exact definition of the construct. Definition of customer value relied upon other popularly used marketing terms like worth, quality, benefits, and utility which were themselves vague and not well defined in the literature. The first widely accepted definition of customer value was given by Zeithaml (1988) who defined it as “the customer’s overall assessment of the utility of the product on perceptions of what is received and what is given”. As customers expend resources like their money and time in selecting and buying a product, they expect certain benefits from the consumption of the product. These benefits may be either monetary or nonmonetary. For example, if a self-employed woman buys a computer, she expects not only to improve her earning potential but also to save time in delivering her work faster and devote more time for her personal life. The definition of Zeithaml (1988) simply means that customer value is the difference between benefits that a consumer receives from buying a product or service in relation to the resources expended to buy them. Lot of studies investigated the importance of customer value in the context of consumption. Notable among them is the means-end model proposed by Zeithaml (1988) which proved that perceived value is a direct precursor to the purchase decision of consumers and a direct consequence of a company’s service quality. Dodds et al. (1991) conceptualized perceived value as the difference between perceived quality and perceived psychological and monetary sacrifice and proved that customer value is an antecedent of consumer purchase intention.
Customer value is often confused with the value of customers to the business. While the former refers to what consumers think about the offerings of a company, the latter refers to what companies expect to gain from their customers in the long-term. Researchers like Woodruff (1997) even viewed customer value as a source of competitive advantage. Due to its importance in impacting consumer choice, companies use consumer value construct in their greater analysis while determining how good they are doing in serving their customer base. Business research related to consumer value includes what consumers do with products purchased, whether the products are priced right in relation to their perceived customer value, and how service quality can be used to improve customer value. Customer value is a useful framework that is applicable to many situations faced by marketers and yields rich understandings to the problems at hand. The first implication of customer value is that marketers should assess the total customer benefit and total customer cost for each of the competitor’s offer to know where his/her offerings stand in the buyer’s mind. Second, a marketer whose offerings are facing a customer value disadvantage can make them attractive by either increasing total customer benefit or by decreasing the total customer cost.
Customer Satisfaction
Customer satisfaction is a measure of the extent to which the products and services offered by a company meet the expectations of the customers. If the performance meets expectations, the customer is satisfied; if the performance falls short of expectations, the customer is dissatisfied. If the performance exceeds expectation, the customer is delighted. In the modern competitive marketplace where companies compete to attract new customers and retain their existing customers, customer satisfaction is seen as a key differentiator between companies and as a vital part of business strategy. The importance of the concept of customer satisfaction has grown over the years as it is one of the main determinants of customer loyalty. It is a known fact that customers who are not satisfied with the products/services offered by a company will switch to other companies. Satisfied customers keep buying the product from the same company, say positive things about the product to others, and may start buying more products and services from the company in future. All these positive effects of customer satisfaction will result in better financial performance of the company in the long run. For example, American customers desisted from buying American car brands and started buying Japanese made automobiles as the latter offered better fuel efficiency and overall quality for a cheaper price. American automobile companies like GM and Ford had to come up with more attractive, compact, and fuel attractive models to counter competition from their Japanese rivals. This improved the satisfaction levels of American customers in the 1980s and led to the revival of the American auto industry.
Customer Loyalty
Customers are better informed now than they were in the past. As a result, the tendency of customers to switch from one company to the other has increased. In such an environment, making the customers to keep buying the products and services offered by a company is the key to its long-term success. Customers are said to be loyal to the company when they consistently purchase its products or services over a long period of time. One of the best examples of a company with a loyal customer base is Apple. Apple’s fans identify the brand with themselves and remain steadfastly loyal to it. They even dislike buying products from competing companies. Early academic research viewed customer loyalty as repeated purchasing of company’s products by consumers. The concept of customer loyalty is similar to relationship commitment, which refers to the desire to be in a valued relationship with the company.
Brown (1952) focused on the behavior of customers and classified loyalty into four different types. But the behavioral definition of loyalty was criticized by some researchers to be insufficient in distinguishing between true loyalty and spurious loyalty. For example, lack of alternatives may make customers to buy products of a company even if they are not satisfied with it. Responding to this criticism, researchers have proposed attitudinal dimension (in addition to the behavioral dimension) to measure loyalty. Later researchers have suggested that both attitudinal and behavioral dimensions should be included in any measure of loyalty. Customer loyalty is considered as the key end objective of customer relationship management as retaining the existing customers and making them buy more products offered by the company impacts its long-term profitability.
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