Customer Loyalty and Retention

Topics: Customer, Customer relationship management, Business terms Pages: 13 (3382 words) Published: March 7, 2011
The Importance of Customer Satisfaction in Relation to Customer Loyalty and Retention by Harkiranpal Singh

May 2006

UCTI Working Paper WP-06-06

The Importance of Customer Satisfaction in Relation to Customer Loyalty and Retention Harkiranpal Singh Asia Pacific University College of Technology & Innovation Technology Park Malaysia Bukit Jalil, 5700 Kuala Lumpur, Malaysia May 2006 Abstract To be successful, organizations must look into the needs and wants of their customers. That is the reason why many researchers and academicians have continuously emphasized on the importance of customer satisfaction, loyalty and retention. Customer satisfaction is important because many researches have shown that customer satisfaction has a positive effect on an organisation’s profitability. Due to this, the consequences of customer satisfaction and dissatisfaction must be considered. There is also a positive connection between customer satisfaction, loyalty and retention. Therefore, customer satisfaction, loyalty and retention are all very important for an organization to be successful Keywords: Customer satisfaction, customer loyalty, customer retention

The importance of customers has been highlighted by many researchers and academicians. Zairi (2000) said “Customers are the purpose of what we do and rather than them depending on us, we very much depend on them. The customer is not the source of a problem, we shouldn’t perhaps make a wish that customers ‘should go away’ because our future and our security will be put in jeopardy”. That is the main reason why organisations today are focusing on customer satisfaction, loyalty and retention. According to Hansemark and Albinsson (2004), “satisfaction is an overall customer attitude towards a service provider, or an emotional reaction to the difference between what customers anticipate and what they receive, regarding the fulfilment of some need, goal or desire”. Customer loyalty, on the other hand, according to Anderson and Jacobsen (2000) “is actually the result of an organisation creating a benefit for a customer so that they will maintain or increase their purchases from the organisation. Oliver (1997) said that customer loyalty refers to “a deeply held commitment to re-buy or re-patronise a preferred product or service consistently in the future despite situational influences and marketing efforts having the potential to cause

switching behaviour”. True customer loyalty is created when the customer becomes an advocate for the organisation, without incentive”. According to Hoyer and MacInnis (2001), customer retention is “the practice of working to satisfy customers with the intention of developing long-term relationships with them”. Zineldin (2000) said that retention can be defined as “a commitment to continue to do business or exchange with a particular company on an ongoing basis”.

Customer satisfaction
Many researchers have looked into the importance of customer satisfaction. Kotler (2000) defined satisfaction as: “a person’s feelings of pleasure or disappointment resulting from comparing a product’s perceived performance (or outcome) in relation to his or her expectations”. Hoyer and MacInnis (2001) said that satisfaction can be associated with feelings of acceptance, happiness, relief, excitement, and delight. There are many factors that affect customer satisfaction. According to Hokanson (1995), these factors include friendly employees, courteous employees, knowledgeable employees, helpful employees, accuracy of billing, billing timeliness, competitive pricing, service quality, good value, billing clarity and

Harkiranpal Singh

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The Importance of Customer Satisfaction in Relation to


quick service. below.

This is shown in Figure 1

retention. They all convey a similar message in that: • Satisfied customers are most likely to share their experiences with other people to the order of perhaps five...

References: Aaker, D. A., 1995, Strategic Market Management. 4th ed., New York, John Wiley. Anderson, H. & Jacobsen P. Ф., 2000, Creating Loyalty: Its Strategic Importance in Your Customer Strategy. In S. A. Brown, ed., Customer Relationship Management, Ontario, John Wiley, 2000, pp. 55-67. Anton, J., 1996, Customer Relationship Management: Making Hard Decisions with Soft Numbers, Upper Saddle River, Prentice-Hall. Bansal, S. & Gupta, G., 2001, Building Customer Loyalty Business-to-Business Commerce. In J. N. Sheth, A. Parvatiyar & G. Shainesh, eds., Customer Relationship Management. New Delhi, Tata McGraw-Hill, 2001, pp. 3-25. Bowen, J. T. & Chen, S. L., May 2001, The Relationship Between Customer Loyalty and Customer Satisfaction, International Journal of Contemporary Hospitality Management, pp. 213-217. Clarke, K., 2001, What Price on Loyalty When a Brand Switch is Just a Click Away?,
The Importance of Customer Satisfaction in relation to Customer Loyalty and Retention Harkiranpal Singh,
The Importance of Customer Satisfaction in Relation to
Aspect of Cognitive Process, Journal of Marketing Research, Vol. 20, November, pp. 393-404. McIlroy, A. and Barnett, S., 2000, Building Customer Relationships: Do Discount Cards Work?, Managing Service Quality, 10 (6), pp. 347-355. Oliver, R. L., 1997, Satisfaction: A Behavioural Perspective on the Consumer, New York, McGraw Hill. Reichheld, F. F., 1996, The Loyalty Effect: The Hidden Force Behind Loyalty, Boston, Harvard Business School. Sivadass, E. & Baker-Prewitt, J. L., 2000, An Examination of the Relationship Between Service Quality, Customer Satisfaction, and Store Loyalty, International Journal of Retail & Distribution Management, 28 (2), pp. 73-82. Storbacka, K., Strandvik, T. & Grönroos, C., Sept 1994, Managing Customer Relationships for Profit: The Dynamics of Relationship Quality, International Journal
of Service Industry Management, pp. 2138. Zairi, M., 2000, Managing Customer Dissatisfaction Through Effective Complaint Management Systems, The TQM Magazine, 12 (5), pp. 331-335. --- 2000, Managing Customer Satisfaction: A Best Practice Perspective, The TQM Magazine, 12 (6), pp. 389-394. Zineldin, M., 2000, TRM Total Relationship Management, Studentlitteratur, Lund.
Author Profile
Harkiranpal Singh Harkiranpal Singh holds Master of Business Administration (MBA) from University of Leicester, UK and Bachelor of Laws (Honours) (LL.B (Hons.)) from University of London, UK. His interest areas are marketing, strategic management, organizational behaviour and law. Harkiranpal Singh is now a senior lecturer at APIIT/UCTI where he lectures subject relating to business, management and law.
The Importance of Customer Satisfaction in relation to Customer Loyalty and Retention Harkiranpal Singh,
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