2. customer loyalty
3. customer satisfaction
4. Measuring Loyalty a though approach
I. Claim I. Right question, right way to measure Loyalty and Satisfaction
II. Claim II. Word of mouth and growth correlation
5. NPS Calculator, does it work?
“The only way to grow a business is to get customers to come back for more and tell their friends” Andy Taylor, CEO Enterprise Rent-a-Car firm. In my assignment, I´m going to tray explain that not only companies have to concentrate on re-purchases and on Reichheld´s survey assumptions, as soon as we could find in our customers loyalty and profitable indicator to grow.
2. Definition of Loyalty and Growth
Author admitted, to describe research it was not so easy, because many industries made some mistakes with understanding what it is a loyalty. Reichheld give a definition of loyalty as a “ willingness as a someone -as an employee, a customer, a friend - to make an investment or personal sacrifice in order to strengthen of a relationship”. Here comes my first question? How many customers are able to sacrifice to give something in return? Can we really measure that transparently? That could be another approach in Reichheld research. I think not many customers are willing to pay more because they are required to be loyal. Most of them regarding some discounts or bundles of goods because they are buying over time and expecting something back. I think after-buy process to measure truly loyal customers is more difficult as pointed out by author.
Second claim Reichheld mentioned, that loyal customers are buying over time and as their income growth, increase they have more incentives to buy or purchase even more for products. Why they are not paying the same price as before or even lower? In many, cases it is true that loyal customers are paying less money for products, and sales departments are better off because serving still the same customers, lowering acquisition costs of applying for new customers. In other words, serving loyal customers cost as less as requiring new ones. That is a hard argument and nothing to argue with it.
Reichheld understand loyalty as a word of mouth indicator of human behaviour. In his words, loyal and satisfied customers are able to tell their friends, family, colleagues about products and companies (Customer Behaviour). Word of mouth factor and recommendations are indicators of customer loyalty. Reichheld is concerned, indicators of loyalty we can measure. Customer acting as a reference is willing to have for companies. Customers as a promoters received an economic value from company (Customer Value). They take their own risk with recommending products or goods.
Reichheld´s loyalty is not link with repeated purchases. Why is it like that? Because if customer´s income increases they are able and willing to stay by supplier of goods and don´t go to cheaper competitor. Because they are satisfied, get something in return (economic value) they have more familiar incentive to stay and maybe because they like the firm. For the company loyal customers are beneficial, because they bring new customers and in this case increases company revenues. We know that acquisition new customers in rational way (promotions, advertising) and R&D costs are very expensive for each company existing on the market. Decreasing the costs bring more profits and allow companies to reach their goals. That is loyalty in words of Reichheld and I agree with him (Customer Loyalty).
3. Definition of Customer Satisfaction
Reichheld is concerned that customer satisfaction has nothing to do with sales growth. But in some cases, like in producing car companies, has something to do with. One of car manufacturers spent a lot of money for customer satisfaction surveys, and it almost made company in a bankruptcy. Car dealers are not on customer satisfaction oriented as a main goal for the company. They are looking for another indicator´s for growth and profitability. After than comes that question, why is it like that? Because, as Reichheld has researched, customers are more price sensitive for goods, and in car selling market they expecting for their satisfaction something in advance, like new flow mats or oil change. Sales people are going to do everything to make their customers satisfied, in other words to buy them. Even it will cost more for car industries. That is strongly point out in this research example. I think it is more expensive for the companies to serve satisfied loyal customers. That is why Reichheld couldn´t find correlation satisfaction with sales growth. After then comes another question, is it expensive for companies to serve loyal but dissatisfied customers? I think in frame of this research, is it cheaper to serve dissatisfied but loyal customers, because dissatisfied but loyal customer don´t ask for another bundle of goods or discounts etc. He/she stays loyal, but it decrease companies profitability, dissatisfied customers are not buying in long run. They are staying loyal and satisfied maybe in short run, because companies can measure customer´s ability for re-buying, and in long run attracting with new products and offers. Another point is that being loyal does not mean automatically to be satisfied. If customers are dissatisfied and loyal it cost more to serve them, if they ask for economic bonding (discount), but if they don´t have another alternative way and they stay, they are loyal but dissatisfied.
I think, if we don´t look at research Mr. Reichheld, dissatisfied customers would probably leave those companies, which did not fulfil their expectations (if they have alternatives). They are not recommending and promoting anymore. It could be even worse, dissatisfied customers would tell 10 another about bad experiences with the firm or product. That´s how could be dangerous word of mouth customer behaviour in negative way.
Another interesting definition of customer satisfaction could be express below, that customer satisfaction results from automated and complex information processing. A customer uses a psycho- logical comparison process to contrast experiences resulting from buying or using a product or service an prior expectations or a certain aspiration level concerning buying companies products. Satisfaction is the result of this process. On the other hand, dissatisfaction results from a noticeable (negative) deviation of experienced performance and anticipated performance / expectations (Helm, 2009).
Reichheld research in car manufacturer industry shows, that sales people winning customers with their “bad intentions”, no matter how it cost company, they just want to customers buy their products/cars and stay loyal, and satisfied(Customer Satisfaction). This one way expectation from sales people only to get better score, reach company goals and increase their profits are most important for car manufacturer in this dual game. Customer satisfaction is on the second position. To get better information about our loyal customers, car companies shall be more customers oriented to understand their needs, expectations and focus on customer activities (Customer Orientation).