Customer Loyalty (engl.) " Kundenbindung (de.)

Definition
The subject of this definition is the business relationship between a company and its customers. According to Bruhn/ Homburg¹ there are two perspectives of customer loyalty :

• 
  
  The supplier-related perspective
  All measures of a company to build and influence (stabilize/ expand) the behavioural intentions of the customers positively.


• The demand-oriented perspective
  Loyalty is understood as faithfulness and is demonstrated by the repeated choice of the shopping sites, due to high satisfaction with the good services offered. 

Customer loyalty describes the attitude towards a specific company, its products and its services. It indicates high levels of customer satisfaction with a company and accordingly results in frequent transactions. These transactions also demonstrate the desire for a stable commercial relationship. Furthermore, long term loyalty means continuous securing of profits and is a source of competitive advantage.²
Therefore, customer loyalty can be seen as the main driver and purpose of companies marketing activities.

How a Company gains Customer Loyalty
First of all a company is focussed on its economic value which means the company’s sales and profit. But to gain this, they have to focus also on aspects that are in front of the economic impact.³ In this part a closer look is taken at how a company gains the loyalty of its customers.

Firstly, the positioning of a company is important as the customer has to get to know the company and to make the customer using the offered service.
After using, the customer evaluates the service he gained by comparing his expected and the received service. If this matches or exceeds his expectation, it results in satisfaction and commitment. 

As a result, the purchase, in terms of cross- or up-selling, will be repeated and the company recommended to others, which implies customer loyalty.⁴ Finally, economic value will rise as fgure 1 demonstrates.
Accordingly, customer satisfaction is seen as a central key to customer loyalty.

Figure 1: The Impact of Customer Loyalty⁵

Satisfaction and commitment drift apart increasingly, due to the customers variety seeking. Hence, satisfaction brings real loyalty only in connection with an increase in value.⁶ That requires permanent customer-oriented thinking and action in all areas of the company.
Accordingly, the company has to think about what the customer should be bound to, for example to a private label or a brand. Furthermore, it is important to think about the options of loyalty schemes as there are different ones with different focuses. Some are focussed on interaction, based on a regular contact and therefore on a psychological connection
for example direct mailing. Others are those designed to build psychological change barriers such as service programs.⁷

The numerous measures to build customer loyalty have to be coordinated to be successful. For this need the customer relationship management (CRM) has been developed, which uses all marketing instruments to build up the customer loyalty systematically.⁸

Advantages of Customer Loyalty
There are a lot of advantages customer loyalty has for a company and why it is worth to invest in it in order to build such loyalty.
As loyal customers...

• 
  
  are 5 - 7 times cheaper to maintain than to gain new customers as regular customers need less traditional advertising.


• 
  
  buy more and more frequently in terms of a repurchase.


• are prepared to spend more for a service or a product.⁹


• pay less attention to marketing activities of competitors, barriers to competitors can be build.


• make use of advertising for free through word of mouth recommendation.


• are prepared to be more tolerant of mistakes by the company.


• allow the optimization in the use of advertising by concentrating on the most loyal audiences. This results in less money being wasted in advertisement.


• mean also a reduction of business risks, because they pay on time and cause fewer failures.

Finally, the longer the relationship to a customer lasts, the more profitable they are according to Customer Life Time Value.¹⁰ 

Customer Loyalty and e-Commerce
One important aspect in this context is trust, as the company has to gain the customers trust to make him use a service or buy a product.

Without the internet it seemed easier for companies to build customer loyalty, as trust could be build over a long period of time within a personal contact. On the other hand the customer had limited possibilities to compare offers and to make use of them.
But companies where also limited in their possibilities, due to the difficulty of obtaining customers data and because many potential customers were far away.

The internet as a complex, increasingly saturated market offers a high competitive intensity and a high market transparency with low transaction and drifting costs.¹¹ This results in the risk for a company that the customer is prepared to change to another company with a high degree of probability.

More than ever, customer loyalty represents a major advantage for a company in the internet to maintain its share of the market, as growth can only be made by displacement of others.¹²  As sooner or later people have to consume, not non consumption but loyalty is the sharpest weapon of customers today.¹³ 

Especially in the internet there are many parts of services that “a potential customer can not evaluate before purchasing a product”.¹⁴ If the company is able to get the trust of the customer and therefore the customer gains good experiences with the seller and is satisfied with the service he received, he builds a deeper trust on the company. The repetition of such good and satisfying experiences can build customer loyalty, and finally prevents the customer from seeking for alternative offers with lower prices.¹⁵

Beside the above mentioned advantages, those in the use of the internet are for example the potentials to concentrate customers call by internet marketing, due to the simplistic collection of customer information. They can be collected automatically, besides the transactions originate. Accordingly, a specific and individual exposure to the customer is possible.
The comfort for a customer is a further example as the company can profile itself towards the competitors during a repetition of a purchase, because personal data must no be given in once more as they have to with a change to another supplier.
Moreover, the use of electronic interaction systems with User-Tracking, Virtual Communities, for example chats and the usability of websites are important instruments to gain customer loyalty in the internet.¹⁶

"It is not easy, but the company that masters customer relations will be rewarded with both loyalty and profits."¹⁷

¹ Bruhn, M.; Homburg, Ch. (2005); p.8
² Schüller, M.A. (2005); p.5
³ Fritz, W. (2004); p.166
⁴ Fritz, W. (2004); p.174 f.
⁵ Schuckel, M. (2009)
⁶ Schüller, M.A. (2005); p.5
⁷ Fritz, W. (2004); p.187 f.
⁸ Theis, H.J. (2007); p.192
⁹ Strauss, R.; Schoder, D. (2002); p.80
¹⁰ 4 managers
¹¹ Lihotzky, N. (2003); p.33
¹² Fritz, W. (2004); p.175
¹³ Schüller, M.A. (2005); p.10
¹⁴ Schneider, G. (2006); p.150
¹⁵ Schneider, G. (2006); p.149
¹⁶ Lihotzky, N. (2003); p.33
¹⁷ Newell, F. (2002)

Sources

Bruhn, M.; Homburg, Ch. (2005): Kundenbindungsmanagement, 5. Auflage, Wiesbaden

Fritz, W. (2004): Internet-Marketing und Electronic Commerce, Grundlagen – Rahmenbedingungen – Instrumente, 3. Auflage, Deutscher Universitätsverlag/ GWF Fachverlag GmbH, Wiesbaden

Kenzelmann, P. (2008): Kundenbindung, Kunden begeistern und nachhaltig binden, 3. Auflage, Cornelsen Verlag Scriptor Gmbh&Co.KG, Berlin

Lihotzky, N. (2003): Kundenbindung im Internet, Maßnahmen und Erfolgswirksamkeit im Business-to-Consumer Bereich, Deutscher Universitätsverlag/ GWF Fachverlag GmbH, Wiesbaden 

4managers: Kundenloyalität: Wie sie sich rechnet und warum sie sich lohnt, http://www.4managers.de/themen/kundenloyalitaet/, visited 08/28/2009

 Newell, F. (2002): loyalty.com: Customer Relationship Management in the New Era of Internet Marketing, Mcgraw-Hill Professional

Rennhak, C. (2006): Herausforderung Kundenbindung, Deutscher Universitätsverlag/ GWF Fachverlag GmbH, Wiesbaden

Rosen, A. (2002): The e-commerce, question and answer book, 2. edition, New York

Strauss, R.; Schoder, D. (2002): eReality, Das e-Business-Bausteinkonzept, Strategien und Erfolgsfaktoren für das e-business Management, F.A.Z. Institut für Management-, Markt-, Medienforschung

Schneider, G. (2006): Electronic commerce, 6. Auflage, Thomson course technology, San Diego

Schuckel, M. (2009): The impact of Customer Loyalty, lecture: Psychologie, 3rd Semester 

Schüller, M. A. (2005): Zukunftstrend Kundenloyalität: Endlich erfolgreich durch loyale Kunden, 2. Auflage, Business Village GmbH, Göttingen

Theis, H.J. (2007): Handbuch Handelsmarketing, Erfolgreiche Strategien und Instrumente im Handelsmarketing, Deutscher Fachverlag GmbH, Frankfurt a.M.