Customer Loyalty

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1. Relevant literature
The literature pertaining to relationships among customer satisfaction, customer loyalty, and profitability can be divided into two groups. The first, service management literature, proposes that customer satisfaction influences customer loyalty, which in turn affects profitability. Proponents of this theory include researchers such as Anderson and Fornell (1994); Gummesson (1993); Heskett et al.(1990); Heskett et al. (1994); Reicheld and Sasser (1990); Rust, et al. (1995); Schneider and Bowen (1995); Storbacka et al. (1994); and Zeithaml et al. (1990). These researchers discuss the links between satisfaction, loyalty, and profitability. Statistically-driven examination of these links has been initiated by Nelson et al. (1992), who demonstrated the relationship of customer satisfaction to profitability among hospitals, and Rust and Zahorik (1991), who examine the relationship of customer satisfaction to customer retention in retail banking. The Bank Administration Institute has also explored these ideas, in particular Roth and van der Velde (1990, 1991)[1]. The service management literature argues that customer satisfaction is the result of a customer’s perception of the value received in a transaction or relationship - where value equals perceived service quality relative to price and customer acquisition costs (see Blanchard and Galloway, 1994; Heskett et al., 1990) - relative to the value expected from transactions or relationships with competing vendors (Zeithaml et al., 1990). Loyalty behaviours, including relationship continuance, increased scale or scope of relationship, and recommendation (word of mouth advertising) result from customers’ beliefs that the quantity of value received from one supplier is greater than that available from other suppliers. Loyalty, in one or more of the forms noted above, creates increased profit through enhanced revenues, reduced costs to acquire customers, lower customer-price sensitivity, and decreased costs to serve customers familiar with a firm’s service delivery system (see Reicheld and Sasser, 1990). The second relevant literature is found in the marketing domain. It discusses the impact of customer satisfaction on customer loyalty. Yi’s “Critical review of customer satisfaction” (1990) concludes, “Many studies found that customer satisfaction influences purchase intentions as well as post-purchase attitude” (p. 104). The marketing literature suggests that customer loyalty can be defined in two distinct ways (Jacoby and Kyner, 1973). The first defines loyalty as an attitude. Different feelings create an individual’s overall attachment to a product, service, or organization (see Fornier, 1994). These feelings define the individual’s (purely cognitive) degree of loyalty. The second definition of loyalty is behavioural. Examples of loyalty behaviour include continuing to purchase services from the same supplier, increasing the scale and or scope of a relationship, or the act of recommendation (Yi, 1990). The behavioural view of loyalty is similar to loyalty as defined in the service management literature. This study examines behavioural, rather than attitudinal, loyalty (such as intent to repurchase). This approach is intended, first, to include behavioural loyalty in the conceptualization of customer loyalty that has been linked to customer satisfaction, and second, to make the demonstrated satisfaction/loyalty relationship immediately accessible to managers interested in customer behaviours linked to firm performance. Both the service management and the marketing literatures suggest that there is a strong theoretical underpinning for an empirical exploration of the linkages among customer satisfaction, customer loyalty, and profitability. The relatively small quantity of empirical research performed on these relationships to date (Storbacka et al., 1994) is probably the result of the paucity of organizations’ measuring “soft” issues, such as customer...
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