CUSTOMER LOYALTY: BEHAVIOURAL, ATTITUDINAL OR BOTH?

Transcription

1 GJBM ISSN: Vol. 1 No. 1, June 2007 CUSTOMER LOYALTY: BEHAVIOURAL, ATTITUDINAL OR BOTH? Harsandaldeep Kaur *, Harmeen Kaur Soch ** and Nidhi Sabharwal *** ABSTRACT Relationship marketing shifts the focus of marketing discipline from short-term transactions to long-term relationships with customers. Customer loyalty is important strategic objective for all managers. Loyal customers build businesses by buying more, paying premium prices and act as advocates of their products/services resulting in increased number of customers for the firm. It is argued that customer acquisition is costlier than customer retention. Customer defections adversely affect bottom lines and market share. The concept of customer loyalty presents a paradox. There are three different ways to measure loyalty: behavioural loyalty expressed in terms of repeat patronage behaviour; attitudinal loyalty manifested as emotional and psychological attachment towards brand and composite measure of loyalty, which combines both behavioural and attitudinal dimensions. The present study explores the concept of customer loyalty and its dimensions. Key Words: Relationship Marketing, Customer Loyalty, Behavioural, Attitudinal, Composite Loyalty Relationship marketing involves establishing, developing and maintaining successful relational exchanges (Morgan and Hunt 1994). The growth of relationship marketing has shifted the focus of marketing discipline from study of market place exchanges as short-term, discrete transactions to that of developing long-term relationships with customers (Dwyer, Schurr and * Junior Research Fellow, Department of Commerce & Business Management, Guru Nanak Dev University, Amritsar, Punjab, India Phone: harsandaldeep@yahoo.com ** Sr. Lecturer, Department of Commerce & Business Management, Guru Nanak Dev University, Amritsar, Punjab, India. Phone (o) to 06 Extn: , Fax: meenu_soch@yahoo.com *** Junior Research Fellow, Department of Commerce & Business Management, Guru Nanak Dev University, Amritsar, Punjab, India. Phone: nidhisabharwal_ns@yahoo.com

2 82 Harsandaldeep Kaur, Harmeen Kaur Soch and Nidhi Sabharwal Oh 1987; Morgan and Hunt 1994; Berry 1995; Agustin and Singh 2005). It is widely accepted that customer relationships are one of most important assets of businesses (Srivastava et al., 1998; Gupta and Lehmann, 2003; Ryals, 2005). Developing and increasing customer loyalty is crucial factor in company s growth (Reichheld 1996; Lee and Cunningham 2001). Customer loyalty usually leads to lower marketing costs, more efficient operations and higher profits (Colgate and Norris 2000). Loyal customers tend to produce greater cash flow and profits; are less sensitive to price increases and they generate positive word of mouth (Heskett et al. 1994; Reichheld 1996). According to Reichheld and Sasser (1990), service companies can increase profits by almost 100% by retaining just 5% of their current customers. Fornell and Wernerfelt (1987) emphasized that marketing resources are better spent on defensive marketing strategies than offensive marketing strategies because it costs five times more to acquire and service new customers than retaining old customers (Rust and Zahorik, 1993; Reichheld 1996; Gruen, 1997; Ganesh et al. 2000). Loyal customers increase shareholder value by reducing the volatility of the firm s cash flow (Ryals 2002). Long-term loyalty results in more stable businesses and therefore a lower cost of capital (Srivastava et al. 1998). Customer defections have a devastating impact on a service company s performance (Lee and Cunningham 2001). It adversely affects bottom lines because companies lose great deal of price premium and loss of referrals from continuing service customers (Reichheld and Sasser, 1990). The defecting customer has to be replaced (at a high acquisition premium) by a new customer who buys less frequently and in smaller quantities (lower revenues), requires more service (high service cost), and is less likely to recruit new customers (higher marketing costs) (Anderson and Mittal 2000). Customer loyalty is difficult to define. There are three different ways to measure loyalty: behavioural loyalty, attitudinal loyalty and composite measure of loyalty. Behavioural loyalty is mainly in terms of revealed behaviour i.e. the pattern of past purchases (Tucker 1964; McConnell 1968; Chaudhari and Holbrook 2001). Attitudinal loyalty reflects the emotional and psychological attachment inherent in loyalty (Jacoby and Kyner 1973). The composite measure combines both attitudinal and behavioural dimensions to measure loyalty (Day 1969). The purpose of this study is to examine the concept customer loyalty and its dimensions. The study is organized as follows. First we discuss the concept of loyalty. Second we describe the three different types of loyalty followed by conclusion. Customer Loyalty Loyalty has been widely researched and as a result the concept of loyalty has received many different definitions and interpretations in the literature. The concept of loyalty suffers from a lack of clear conceptual and operational definition. At a very general level, customer loyalty is the feeling of the attachment to or affection for a company s people, products, or Vol. 1, No. 1, June, 2007

3 Customer Loyalty: Behavioural, Attitudinal or Both? 83 services (Jones and Sasser 1995). The literature brings out three ways to define loyalty: stochastic approach, which is purely behavioural; deterministic approach, that considers loyalty as an attitude and composite loyalty, which combines both attitudinal and behavioural loyalty (Tucker 1964; McConnell 1968; Jacoby and Kyner 1973; Dick and Basu 1994; Oliver 1999; Odin et al. 2001; Chaudhuri and Holbrook 2001; Uncles et al. 2003; East et al. 2005; Rundle- Thiele 2006; Bandyopadhay and Martell 2007). Table 1 gives a summary of loyalty measures used in previous studies. Behavioural Loyalty Behavioural loyalty reflects the customer actions and involves the measurement of past purchases of the same brand or the same brand-set and/or the measurement of probabilities of future purchase given past purchase behaviour (Bandyopadhay and Martell 2007). The behavioural measurements consider consistent, repeat purchase behaviour as an indicator of loyalty and ignore the cognitive processes underlying that behaviour (Tucker 1964; McConnell 1968; Carman 1970; Bowen and Chen 2001; Chaudhuri and Holbrook 2001). The major assumption of defining loyalty from behavioural perspective is that internal processes are spurious and behaviour captures the loyalty (Tucker 1964; Hart et al. 1999). The behavioural measures anticipate the repeat purchase patterns of consumers from basic information about penetration and average purchase frequency (Knox and Walker, 2001). The advocates of behavioural approach suggest that most consumers have split-loyalty portfolios of habituallybought brands (Uncles et al., 2003). The problem with this approach is that repeat purchases of the brand are without any attachment to brand attributes (Day 1969) and repeat buying may be done for reasons like lack of choice, habit, low income, or complex psychological reasons (Dick and Basu 1994; Hart et al. 1999; Odin et al. 2001; Bandyopadhay and Martell 2007). Biel (1992) observed that behavioural measure fail to reveal what is in heart and mind of the consumers. Managers who adopt behavioural approach try to maintain their share of category of sales by matching competitor initiatives and avoiding supply shortages, and achieve growth through increased market penetration (Uncles et al., 2003). Attitudinal Loyalty The behavioural definitions fail to explain how and why brand loyalty develops and changes. According to Day (1969), there is more to brand loyalty than just consistent buying of same brand. The attitudinal approach infers customer loyalty from psychological involvement, favoritism, and a sense of goodwill towards a particular product or service (Kim et al. 2004). Attitudinal loyalty reflects the consumer s psychological disposition towards the brand (Evanchitzky et al. 2003). According to Jacoby and Kyner (1973), brand loyalty is the biased (nonrandom), behavioural response (purchase), expressed over time, by some decisionmaking unit, with respect to one or more alternative brands out of a set of such brands and is a Global Journal of Business Management

4 84 Harsandaldeep Kaur, Harmeen Kaur Soch and Nidhi Sabharwal Table 1: Summary of Loyalty Measures Used in Previous Studies Author Product StudyType Purpose Loyalty Measure Used Key Findings Tucker Softdrink Experimental To examine the growth of brand Behavioural Consumers become brand loyal (1964) loyalty where there is no prior Loyalty even when there is no distinguishconsumer knowledge. able difference between brands. McConnell Beer Experimental To test whether strength of brand Behavioural Brand loyalty is significantly (1968) loyalty is dependent on the subjective Loyalty related to total purchase selections perceived quality of a brand and time. and price. Day (1969) Food Purchases Experimental To examine two-dimensional concept Composite Brand loyalty includes both of brand loyalty. Loyalty behavioural and attitudinal dimensions. Jacoby And Candy Experimental To define brand loyalty and Composite Brand loyalty is biased repeat Kyner Bars empirically verify this Loyalty purchase of a specific brand (1973) conceptualization using a deliberate evaluation process and is not just repeat purchasing behaviour. Dick and Conceptual To develop a framework for Composite Loyalty is determined by a Basu customer loyalty that combines both Loyalty combination of repeat purchase (1994) attitudinal and behavioural dimensions. levels and relative attitude. Gremler and Service Empirical To examine service loyalty and factors Composite Loyalty is determined by a Brown organizations expected to influence its development. Loyalty combination of repeat purchase (1996) levels and relative attitude. Oliver Conceptual To investigate what aspect of the Composite Loyalty consists of cognitive, (1999) consumer satisfaction has implications Loyalty conative, affective and action for loyalty and what portion of components; satisfaction is loyalty is due to satisfaction. important for loyalty formation. Ganesh et al. Banking Empirical To identify attitudinal and behavioural Composite Customer loyalty behaviour consists (2000) Service differences among satisfied switchers, Loyalty of active loyal behaviour (positive dissatisfied switchers and stayers. word-of-mouth and expansion of service usage) and passive loyal behaviour (not switching even under unfavorable conditions). Vol. 1, No. 1, June, 2007

5 Customer Loyalty: Behavioural, Attitudinal or Both? 85 Table 1: contd... Odin et al. Jeans Empirical To propose a reliable and valid Behavioural Brand loyalty is repeat purchasing (2001) measurement of the concept of Loyalty under conditions of strong customer loyalty. sensitivity. Ball et al. Banking Empirical To extend the European Customer Attitudinal Loyalty is explained by (2004) Industry Satisfaction Index (ESCI) model s Loyalty satisfaction, quality and image; and explanation of loyalty using the primarily by satisfaction and constructs of trust and communication. communication. Garland and Retail Empirical To test the predictive ability of Dick Composite In some circumstances relative Gendall Banking and Basu s customer loyalty model Loyalty attitude is better predictor of (2004) loyalty while in others share- ofwallet is better predictor. Bennett and Service industry Empirical To demonstrate that satisfaction is Attitudinal Satisfaction and attitudinal loyalty Rundle-Thiele of directory not a proxy for loyalty and provide Loyalty are highly associated with positive (2004) advertising empirical support for discriminant relationship. validity of satisfaction and loyalty. East et al. Supermarket, Empirical To test whether combination measures All three Combination measures of loyalty (2005) car and various of loyalty predict specific loyalty forms: are poor predictors of loyalty and service categories outcomes better than singular behavioural, there is no form of loyalty that measures. attitudinal consistently predicts all the and composite loyalty outcomes. Rundle-Thiele Wine Retail Empirical To summarize loyalty dimensions Attitudinal Loyalty is a multi-dimensional (2005) industry those have been used previously loyalty, concept and customers can display and test a consolidated measure situational loyalty in different ways. of loyalty. loyalty, resistance to competing offers, propensity to be loyal and complaining behaviour. Global Journal of Business Management

6 86 Harsandaldeep Kaur, Harmeen Kaur Soch and Nidhi Sabharwal Table 1: contd... Evanschitzky Service Empirical To explore the impact of affective Composite Affective commitment significantly et al. setting and continuance commitment on Loyalty influences attitudinal loyalty and (2006) attitudinal and behavioural loyalty. drives behavioural loyalty. Gomez et al. Grocery Empirical To analyze the behavioural and Composite Loyalty program participants are (2006) Retailing affective loyalty of retail customers. Loyalty both attitudinally and behaviourally companies loyal in comparison to non participants. Rauyren Courier Empirical To examine how relationship quality Composite Perceived quality, trust, satisfaction and Service influences customer loyalty in Loyalty and commitment influences Miller Setting B2B context. attitudinal loyalty while only (2007) satisfaction and perceived quality influence behavioural loyalty. Vol. 1, No. 1, June, 2007

7 Customer Loyalty: Behavioural, Attitudinal or Both? 87 function of psychological (decision-making), evaluative processes. Attitudinal loyalty measurements suggest that consumers form relationships with some of their brands (Uncles et al., 2003). Attitudinal measurements use attitudinal data to reflect the emotional and psychological attachment inherent in loyalty (Bowen and Chen 2001). According to Dick and Basu (1994) in relation to competing brands, attitudes may be measured by asking people about how much they liked the brand, feel committed to it, will recommend to others, and have positive beliefs about it. Managers who adopt attitudinal approach aim to increase sales by enhancing beliefs about the brand and strengthening emotional commitment of customers to their brands through customer relationship initiatives such as loyalty and affinity programs (Uncles et al., 2003). Attitudinal measurements help brand managers to understand reasons for customer s purchase of their brands as well as those of competitors (Bandypadhay and Martell 2007). Composite Loyalty Day (1969) proposed that both attitudinal and behavioural loyalty had to exist in order for customer to be considered loyal. Dick and Basu (1994) defined loyalty as the strength of the relationship between an individual s relative attitude and their repeat patronage. The composite definitions suggest that loyalty should always comprise favourable attitudes, intentions and repeat-purchase (Rundle-Thiele 2005). Oliver (1999) viewed loyalty as a deeply held commitment to rebuy or repatronize a preferred product/service consistently in the future, thereby causing repetitive same brand or same brand-set purchasing despite situational and marketing efforts having the potential to cause switching behaviour. This definition also includes both attitudinal and behavioural components of loyalty. Dick and Basu (1994) argue that for understanding long-term relationships both behavioural and attitudinal loyalty are important, especially when emphasis is not only to understand past behaviours but also to predict future patronage by the customer. Rundle-Thiele and Bennett (2001) also point that loyalty research should incorporate both attitudinal and behavioural measures, as they are both complementary issues of one aspect. Research findings also support that two-dimensional measures are better predictors of customer s loyalty (Ganesh et al. 2000; Chaudhuri and Holbrook 2001; Yi and Jeon 2003; Rauyren and Miller 2007). CONCLUSION This study outlines different dimensions of loyalty. Customer loyalty may be defined either as behaviour or attitude; or as composite loyalty combining both behavioural and attitudinal dimensions. Researchers have used different dimensions to measure loyalty: repeat purchase (Tucker 1964; McConnell 1968); brand purchase behaviour, the amount of brand deliberation and attraction of the buyer to the brand (Newman and 1973); repeat purchasing, willingness to price premium, and engaging in positive word of mouth (Heskett et al. 1994; Zeithmal et al. 1996); share-of-wallet (Jones and Sasser 1995; Keiningham et al. 2003; Cooil Global Journal of Business Management

8 88 Harsandaldeep Kaur, Harmeen Kaur Soch and Nidhi Sabharwal et al. 2007); minimum differential needed for switching (Raju et al. 1994); inertia and brand sensitivity (Odin et al. 2001) and attitudinal loyalty, situational loyalty, resistance to competing offers, propensity to be loyal and complaining behaviour (Rundle-Thiele 2005). Recently studies have demonstrated loyalty is a multi-dimensional concept and customers can be display loyal in different ways (Rundle-Thiele 2005; East et al. 2005; Bandypadhay and Martell 2007). A multidimensional view of customer loyalty is important to help marketers to develop and reinforce actions that maintain loyalty, aimed at strengthening the customersupplier relationship, building trust and increasing profitability (Bennet and Rundle-Thiele 2004; Rundle-Thiele 2005). Further research is required which would empirically evaluate the accuracy of different dimensions of loyalty construct. There is also need for research to identify the underlying processes like satisfaction (Fornell, 1992; Anderson and Sullivan, 1993; Bolton, 1998); trust (Garbarino and Johnson, 1999; Srideshmukh et al., 2002; Chaudhuri and Holbrook, 2001; Ranaweera and Prabhu, 2003); commitment (Garbarino and Johnson, 1999; Bandyopadhay and Martell 2007); corporate image (Andreassen and Lindestad, 1998; Nguyen and LeBlanc, 2001), switching costs (Fornell, 1992; Anderson and Sullivan, 1993; Gremler and Brown, 1996; Jones et al., 2002; Burnham et al. 2003) and service quality (Zeithmal et al. 1996; Jones et al. 2002; Rauyren and Miller 2007) that build behavioural and attitudinal loyalty. REFERENCES Agustin, C., & Singh, J. (2005). Curvilinear effects of consumer loyalty determinants in relational exchanges. Journal of Marketing Research, XLII, Anderson, E.W., & Vikas, M. (2001). Strengthening the Satisfaction-Profit Chain. Journal of Service Research, 3, Anderson, E., & Sullivan, M. (1993). The antecedents and consequences of customer satisfaction for firms. Marketing Science, 12, Andreassen, T.W., & Lindestad, B. (1998). Customer loyalty and complex services the impact of corporate image on quality, customer satisfaction and loyalty for customers with varying degrees of service expertise, International Journal of Service Industry Management, 9, Ball, D., Coelho, P.S., & Machas, A. (2004). The role of communication and trust in explaining customer loyalty an extension to the ECSI model. European Journal of Marketing, 38, Bandyopadhay, S., & Martell, M. (2007). Does attitudinal loyalty influence behavioural loyalty? a theoretical and empirical study. Journal of Retailing and Consumer Services, 14, Berry, L.L. (1995). Relationship marketing of services- growing interest, emerging perspectives. Journal of the Academy of Marketing Science, 23, Bennett, R., & Rundle-Thiele, S. (2004). Customer satisfaction should not be the only goal. Journal of Services Marketing, 18, Biel, A.L. (1992). How brand image drives brand equity. Journal of Retailing, 32, Vol. 1, No. 1, June, 2007

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