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by
Harkiranpal Singh
May 2006
Harkiranpal Singh
Asia Pacific University College of Technology & Innovation
Technology Park Malaysia
Bukit Jalil, 5700 Kuala Lumpur, Malaysia
May 2006
kiran@apiit.edu.my
Abstract
To be successful, organizations must look into the needs and wants of their customers.
That is the reason why many researchers and academicians have continuously
emphasized on the importance of customer satisfaction, loyalty and retention.
Customer satisfaction is important because many researches have shown that
customer satisfaction has a positive effect on an organisation’s profitability. Due to
this, the consequences of customer satisfaction and dissatisfaction must be considered.
There is also a positive connection between customer satisfaction, loyalty and
retention. Therefore, customer satisfaction, loyalty and retention are all very
important for an organization to be successful
Keywords: Customer satisfaction, customer loyalty, customer retention
quick service. This is shown in Figure 1 retention. They all convey a similar message
below. in that:
Overall
more likely to tell another ten people of
Quick Service Customer Accuracy their unfortunate experience.
Satisfaction of Billing
• Furthermore, it is important to realise that
Billing Billing
many customers will not complain and
Clarity Timeliness this will differ from one industry sector to
another.
Service
Good
Quality
Competitive • Lastly, if people believe that dealing with
Value Pricing
customer satisfaction/complaint is costly,
they need to realise that it costs as much
Figure 1 as 25 percent more to recruit new
Factors that Affect Customer Satisfaction customers”.
In order to achieve customer satisfaction, Aaker (1995) said that the strategic dimension
organisations must be able to satisfy their for an organisation includes becoming more
customers needs and wants (La Barbera and competitive through customer
Mazursky, 1983). Customers’ needs state the satisfaction/brand loyalty, product/service
felt deprivation of a customer (Kotler, 2000). quality, brand/firm associations, relative cost,
Whereas customers’ wants, according to new product activity, and manager/employee
Kotler (2000) refer to “the form taken by capability and performance (Figure 3).
human needs as they are shaped by culture and
individual personality”.
Customer
Satisfaction/
Effect of Customer Satisfaction on Brand Loyalty
Profitability
Product/Service
Customer satisfaction does have a positive Quality
effect on an organisation’s profitability.
According to Hoyer and MacInnis (2001),
Brand/Firm
satisfied customers form the foundation of any Associations
LONG-
successful business as customer satisfaction CURRENT TERM
PERFORMANCE PROFITS
leads to repeat purchase, brand loyalty, and
positive word of mouth. Relative Cost
The Importance of Customer Satisfaction in relation to Customer Loyalty and Retention Harkiranpal Singh, kiran@apiit.edu.my
The Importance of Customer Satisfaction in Relation to WP-06-06
The Importance of Customer Satisfaction in relation to Customer Loyalty and Retention Harkiranpal Singh, kiran@apiit.edu.my
The Importance of Customer Satisfaction in Relation to WP-06-06
well a customer’s expectations are met while Bansal and Gupta (2001): “Building customer
customer loyalty is a measure of how likely a loyalty is not a choice any longer with
customer is to repurchase and engage in businesses: it’s the only way of building
relationship activities. Loyalty is vulnerable sustainable competitive advantage. Building
because even if customers are satisfied with loyalty with key customers has become a core
the service they will continue to defect if they marketing objective shared by key players in
believe they can get better value, convenience all industries catering to business customers.
or quality elsewhere. Therefore, customer The strategic imperatives for building a loyal
satisfaction is not an accurate indicator of customer base are as:
loyalty. Satisfaction is a necessary but not a
sufficient condition of loyalty. In other words, • Focus on key customers
we can have satisfaction without loyalty, but it • Proactively generate high level of
is hard to have loyalty without satisfaction”. customer satisfaction with every
interaction
McIlroy and Barnett (2000), “in a business • Anticipate customer needs and respond to
context loyalty has come to describe a them before the competition does
customer’s commitment to do business with a • Build closer ties with customers
particular organisation, purchasing their goods • Create a value perception”.
and services repeatedly, and recommending
the services and products to friends and McIlroy and Barnett (2000) said that loyalty
associates”. Anderson and Jacobsen (2000) cannot be taken for granted. They said that it
said customer loyalty is actually the result of will continue only as long as the customers
an organisation creating a benefit for a feels they are receiving better value than they
customer so that they will maintain or increase would obtain from another supplier.
their purchases from the organisation. They
said that true customer loyalty is created when Anton (1996): “When you can increase
the customer becomes an advocate for the customer loyalty, a beneficial ‘flywheel’ kicks
organisation, without incentive. in, powered by: -
Clarke (2001): “The notion of customer loyalty • Increased purchases of the existing
may appear at first sight to be outmoded in the product,
era of the Internet, when customers are able to • Cross-purchase of your other products,
explore and evaluate competing alternatives as • Price premium due to appreciation of your
well as checking reports from others – at the added-value services,
touch of a button. Yet the evidence shows that • Reduced operating cost because of
the old rules of successful and profitable familiarity with your service system,
management still hold good: customer • Positive word-of-mouth in terms of
retention is still a key to long-term profits, referring other customers to your
while on the other side of the coin there is a company”.
high cost-penalty to low loyalty. Indeed, the
very fact that customers can so readily assess In order to ensure that there is customer
the competing services and products on offer loyalty, organisations must be able to
and then so easily make the new purchase does anticipate the needs of their customers
in itself give added weight to the importance of (Kandampully and Duffy, 1999). According
building strong ties of loyalty with customers”. to Kandampully and Duffy (1999), a
customer’s interest in maintaining a loyal
Bowen and Chen (2001): “It is commonly relationship is depended on the firm’s ability to
known that there is a positive relationship anticipate customer’s future needs and offering
between customer loyalty and profitability. them before anyone else.
Today, marketers are seeking information on
how to build customer loyalty. The increased According to the study done by Bowen and
profit comes from reduced marketing costs, Chen (2001), it supported the contention that
increased sales and reduced operational costs. there is a positive correlation between loyal
Finally, loyal customers cost less to serve, in customers and profitability. Bowen and Chen
part because they know the product and require (2001): “The result of our study supported the
less information. They even serve as part-time contention that there is a positive correlation
employees. Therefore loyal customers not between loyal customers and profitability.
only require less information themselves, they Loyal customers indeed provide more repeat
also serve as an information source for other business and were less likely to shop around
customers”. for the best deals than non-loyal customers”.
The Importance of Customer Satisfaction in relation to Customer Loyalty and Retention Harkiranpal Singh, kiran@apiit.edu.my
The Importance of Customer Satisfaction in Relation to WP-06-06
Day (1994) said that the identification and Qualitative Market Research: An
satisfaction of customer needs leads to International Journal, 4 (3), pp. 160-168.
improved customer retention. Clark (1997):
“Customer retention is potentially one of the Clark, M., 1997, Modelling the Impact of
most powerful weapons that companies can Customer-Employee Relationships on
employ in their fight to gain a strategic Customer Retention Rates in a Major UK
advantage and survive in today’s ever- Retail Bank, Management Decisions, 35
increasing competitive environment. It is (4), pp. 293-301.
vitally important to understand the factors that
impact on customer retention and the role that Coldwell, J., 2001, Characteristics of a Good
it can play in formulating strategies and plans”. Customer Satisfaction Survey. In J. N.
Sheth, A. Parvatiyar & G. Shainesh, eds.,
Conclusion Customer Relationship Management, New
Based on the views and research done by Delhi, Tata McGraw-Hill , 2001, pp. 193-
numerous researchers and academicians, it can 199. .
be concluded that customer satisfaction is very
important. Thus, though customer satisfaction Day, G. S., 1994, The Capabilities of Market-
does not guarantee repurchase on the part of Driven Organisations, Journal of
the customers but still it plays a very important Marketing, 58 (4), pp. 37-52.
part in ensuring customer loyalty and retention.
This point has been echoed by Gerpott et al. Evans, J. R. & Lindsay, W. M., 1996, The
(2001) when they said “customer satisfaction Management and Control of Quality. 3rd
is a direct determining factor in customer ed., St. Paul, West Publishing Company.
loyalty, which, in turn, is a central determinant
of customer retention”. Therefore, Fornell, C., 1992, A National Customer
organisations should always strive to ensure Satisfaction Barometer: the Swedish
that their customers are very satisfied. Experience, Journal of Marketing, Vol.
56, pp. 1-18.
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The Importance of Customer Satisfaction in relation to Customer Loyalty and Retention Harkiranpal Singh, kiran@apiit.edu.my
The Importance of Customer Satisfaction in Relation to WP-06-06
The Importance of Customer Satisfaction in relation to Customer Loyalty and Retention Harkiranpal Singh, kiran@apiit.edu.my