A Study of the Significance of Customer Loyalty to a Firms Profitability
Mariam Peyton is a professional Financial Analyst. She holds a Masters degree in Economics. She specialises in financial analysis and forecasting. Her expertise includes studying the financial performance of companies, markets and entire industries looking for trends, insights and information that can help you glean rich insights for use in academic and market research.
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Customer loyalty and the profitability of a company or organization are anticipated to go hand in hand. Acquiring customer loyalty is one of the most important goals of marketing. Customer loyalty refers to a critical strategic option in today’s competitive environment. The main aim of this assignment was to examine the concept of customer loyalty and its significance in the business. It answers questions like; how important is customer loyalty to a firm's profitability? What is the significance of customer loyalty? How will customer loyalty affect the profitability of an organization?
Customer loyalty generally means the customer is prepared and ready to purchase a product or service more often than all others on the market. It is both an attitudinal and behavioral experience where one brand satisfies the customers’ needs and desires. Customer loyalty is where an individual is familiar and satisfied with a certain product even when there is a number of substitutes on the market. It encourages customers to buy more products and feel a positive emotional experience about the purchase.
In organizations, customer loyalty plays an important role to uplift the business as well as it focuses on establishing good relationships between consumers and suppliers. Loyal customers are the major source of generating profits and bringing more new customers into the business.
When operating a business, it’s quite expensive to attain new customers compared to retaining the existing ones. Therefore, companies are mandated to offer outstanding products at affordable prices and also preserve loyalty programs to satisfy their customers. Important to note is that if the customers are not satisfied and happy with the brand, they will not purchase the product again. Customer satisfaction boosts the business with loyal customers.
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a study of the Significance of Customer Loyalty to a Firms Profitability
Key Learning Outcomes
By the end of the case, students should be able to:
- Understand the concept of customer loyalty and its benefits to a firm, and also identify the key drivers of customer loyalty in an organization or business
- Evaluate the impact of customer loyalty on a firm's profitability and performance
- Apply various strategies and tools used by organizations to enhance customer loyalty and retention
1.0 INTRODUCTION
Customer loyalty refers to the extent to which customers are satisfied with an organization’s products or services and are willing and ready to purchase them again. In organizations, customer loyalty plays an important role to uplift the business as well as it focuses on establishing good relationships between consumers and suppliers. Loyal customers are the primary source of generating profits and bringing more new customers into the business. [Evanschitzky, H., Ramaseshan, B., Woisetschläger, D.M., Richelsen, V., Blut, M. and Backhaus, C., 2012. Consequences of customer loyalty to the loyalty program and to the company. Journal of the academy of marketing science, 40, pp.625-638.]
This assignment will examine the concept of customer loyalty and its significance in the business. It answers questions like; how important is customer loyalty to a firm's profitability? What is the significance of customer loyalty? How will customer loyalty affect the profitability of an organization?
Customers are very fundamental when it comes to operating an organization or business entity. A customer is defined as a party that purchases products or services and has the capability to decide on different products and those who supply them. Important to note is that customers can either be individuals or businesses that use their money on goods and services from companies that meet their needs and desires. Attracting customers is considered the primary goal of every business because they are the ones who create demand and spend money on manufactured goods and services. Customers who feel content with the companies’ goods and services are always anticipated to buy the products or services continuously. Therefore this means that satisfied customers are the companies’ loyal customers who repurchase the products again and again from the same company over time.
Customer loyalty has a number of benefits among which include;
⦁ It reduces customer acquisition costs: Acquiring new customers can be expensive, as it involves marketing, advertising, and sales efforts. Loyal customers are already familiar with the firm and its offerings and do not need to be persuaded or incentivized to buy.
⦁ It enhances customer advocacy: Loyal customers are not only buyers but they also promote the products and services of the firm. This is because they are most likely to recommend the firm's products or services to their friends, family, colleagues, and online communities, creating positive word-of-mouth and referrals. Customer advocacy also boosts the firm's reputation, brand awareness, and trust among potential customers, leading to more conversions and sales.
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