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Advanced Studies In Consumer Decision Making Behaviour

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Table of contents

INTRODUCTION 2

RESEARCH DONE ON CUSTOMER SATISFACTION AND BRAND LOYALTY 3

DEFINITIONS OF SATISFACTION AND LOYALTY 5

TRUE BRAND LOYALTY 6

THE RELATIONSHIP BETWEEN SATISFACTION AND LOYALTY 7

SIX PANELS THAT SHOWS SOME OF THE POSSIBLE ASSOCIATIONS OF SATISFACTION AND LOYALTY 7

EVALUATION OF THE SIX PANELS 8

OTHER KEY ELEMENTS THAT INFLUENCE BRAND LOYALTY 10

IS VALUE A BETTER TOOL THAN SATISFACTION FOR MEASURING DETERMINING FACTORS FOR LOYALTY ? 10

THE IMPORTANCE OF TRUST FOR GENERATING BRAND LOYALTY. 11

BRAND LOYALTY - A COMPANY / STRUCTURAL APPROACH 13

SATISFACTION-BASED VS. COMMITMENT-BASED COMPANIES 13

THE CONCEPT OF CO-REVOLUTION 14

CAN ALL COMPANIES ACHIEVE BRAND LOYALTY ? 15

CONCLUSION 17

APPENDIX 18

TABLE 1: LOYALTY PHASES WITH CORRESPONDING VULNERABILITIES 18

TABLE 2: SATISFACTION VS. LOYALTY 18

TABLE 3: BRAND VALUE MODEL 19

TABLE 4: AN INTEGRATED CUSTOMER VALUE MEASUREMENT SYSTEM 20

TABLE 5: FOUR LOYALTY STRATEGIES 20

REFERENCES 21

Introduction

Does customer satisfaction generate brand loyalty ? This is an area of special interest in the field of postacquisition. In the book Consumer Behavior written by John C. Mowen and Michael Minor a model of the consumer postacquisition process encompasses five major phases: 1) product usage / consumption, 2) consumer satisfaction / dissatisfaction, 3)consumer complaint behavior, 4) the disposition of goods, and 5) the formation of brand loyalty. (Mowen / Minor, 1998)

This suggests that consumer satisfaction is closely related to brand loyalty. The thought that brand loyalty is directly influenced by satisfaction / dissatisfaction is logical. However, in recent research there are strong arguments that question to which extent customer satisfaction is able to generate brand loyalty.

In 1990 the United States General Accounting Office reported on the quality programs of 20 companies that had scored well in the 1988 and 1989 Baldrige award evaluations. Among the major findings, the companies indicated that, while their customer satisfaction levels had increased, levels of customer retention had remained almost unchanged; some of the companies even reported customer retention declines (Lowenstein, 1997).

Brand loyalty is an increasingly interesting area that companies devote more time and effort to. This is a consequense of the fact that constantly more companies see the importance of a closer and longer relationship with their customers to attain development and growth. In mature markets it is of strategic importance to keep old and loyal customers since it is four to six times less costly to retain old customers than to obtain new ones (Mowen /Minor 1998).

The purpose of this assignment is to get a better understanding of the satisfaction - loyalty relation and try to identify key elements for attaining loyalty. Thus, it will be focused on to which extent consumer satisfaction generate brand loyalty, other non-satisfaction determinants of customer loyalty and their interrelationship. In the end there will be given a set of managerial recommendations for how companies should organize and work to achieve loyalty.

Research done on Customer Satisfaction and Brand Loyalty

For over a decade companies have been focused on customer satisfaction as a way to become more customer-focused and improve customer loyalty and thus profitability. The assumption has been that the more satisfied a customer is, the more loyal they will be (Neal, 1999).

Triggered by the widespread adoption of the marketing concept, efforts to align marketing strategy with the goal of maximizing customer satisfaction have been pursued in earnest by product and service providers (Oliver 1999).

Reported data show that, in 1993 post-purchase research, largely including customer satisfaction work, accounted for one-third of revenues received by the largest U.S research firms (Wylie, 1993). Subsequent data confirm the trend, showing that the number of firms commissioned in the United States and Europe, respectively (Higgins 1997).

From some parts the satisfaction research have been questioned. Calls for a paradigm shift to the pursuit of loyalty as a strategic business goal have become prominent. Some writers in particular have deplored the popularity of mere satisfaction studies. Deming was among the first to state that "It will not suffice to have customers that are merely satisfied (Deming, 1986). More recently, Jones and Sasser commented that " merely satisfying customers that have the freedom to make choices is not enough to keep them loyal" (Jones / Sasser, 1995).

Thomas A. Steward argues in his article "A satisfied customer isn't enough" that the assumption that "satisfaction and loyalty move in tandem" is wrong. However, in monopolistic or oligopolistic markets customers are more or less stuck, loyalty rises steeply even at low levels of satisfaction, inching up only a little more at the highest level.

(Steward, 1997).

Perhaps the greatest proponent of the "satisfaction isn't enough" camp is Reichheld, who came up with the term "the satisfaction trap." Citing an impressive array of evidence from Bain & Company, he notes that, of those customers claiming to be satisfied or very satisfied, between 65 and 85% will defect.

Moreover, in the automobile industry, in which 85% to 95% of customers report that they are satisfied, only 30% to 40% return to the previous make or model (Reichheld, 1996).

In 1994, the Juran Institute, a leading total quality consulting organization, presented results of a study among top managers from more than 200 of America's largest companies. While over 90 % had an ongoing process for measuring

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