Understanding Satisfied and Loyal Customers
There is a positive relationship between customer satisfaction and customer loyalty, similarly, a positive relationship between customer loyalty and customer profitability. This is a study done by the Journal of Marketing Management.
A related study supported this idea conducted by Rederick Reichheld of Bain & Company, it says that a 5% increase in customer retention produces more than a 25% increase in sales because returning customers keep buying more from a company over time.
Having these figures in mind, it makes more sense to develop a separate strategy and resource allocation to nurture your existing customers who are patronizing your goods and services over time and a plan for new and satisfied customers.
But what makes satisfied customers differ from loyal customers? Although loyal consumers are most typically satisfied, satisfaction does not automatically translate into loyalty.
Satisfaction is defined as an overall evaluation of performance based on all prior experiences with a firm. — Jones et. al.
What Makes a Customer Satisfied?
Loyal customers feel good about the relationship of your company. They feel a genuine connection on an emotional level. They feel your company listens, understands and values them. They feel satisfied, and satisfaction is a necessary step in loyalty formation.
A study at Cornell University cited two famous theoretical bases for examining customer satisfaction: the confirmation-disconfirmation paradigm and comparison level theory.
Confirmation-disconfirmation theory. Customers assess their levels of satisfaction by comparing their actual experiences with their previous experiences, expectations, and perceptions of the product or services’ performance.
This theory suggests the three outcomes of this evaluation are possible:
- Confirmation happens when the actual performance matches the standard, leading to a neutral feeling;
- Positive disconfirmation happens when the performance is better than the standard, which then leads to satisfaction; and
- Negative disconfirmation happens when the performance is worse than the standard, which then leads to dissatisfaction.
Comparison-level theory. This theory proposes that consumers use comparison levels for the relationship under consideration and also use comparison levels for alternative relationships to determine satisfaction with and tendency to remain in a relationship.
This theory is “the standard against which a member evaluates the ‘attractiveness’ of the relationship.” These customer standards reflect what the brand should achieve not just what it will achieve. A positive relationship between previous experiences and current levels of expectation is supported by this theory.
What Makes a Customer Loyal?
Richard Oliver a distinguished researcher in the field of consumer psychology defined satisfaction as pleasurable fulfillment. That is, the stimulation of the customers’ sense of need, desire, goal, or whatever that recreate a pleasurable experience.
To make a satisfied customer loyal, frequent or cumulative satisfaction may be necessary so that episodes of customer satisfaction become aggregated or blended.
Oliver described loyalty as “a deeply held commitment to re-buy or re-patronize a preferred product or service consistently in the future, thereby causing repetitive same-brand-set purchasing, despite situational influences and marketing efforts having the potential to causes witching behavior.”
An interesting point of view from Jacoby and Chestnut (1978) exploration analysis in customer behavior is that repeat purchase from a customer is an invalid indicator of loyalty because it might mask preference for convenience. This is what Maritz Motivation Solutions called inertia loyalty.
In their study they came up with the 4-Dimensional Loyalty Framework. These are:
- Inertia loyalty is where customers purchase from your brand because there are no other alternatives they can choose from.
- Mercenary loyalty is where customers are actively engaged with your brand because they need to act to earn discounts.
- Cult loyalty is a level of loyalty where a customer finds belongingness to your brand. They feel that your brand is a part of their identity.
- True loyalty is where customers truly believe and trust your brand’s products and services.
Oliver explores the affective domain of customer loyalty. He developed the cognition-affect-conation pattern. It highlights the role of consumer beliefs, affects, and intentions in decision-making phases:
Phase 1: Cognitive Loyalty. This phase focuses on the brand’s performance aspects. It comes from experience-based information where the consumer state is shallow in nature. If the transaction is routine, satisfaction is processed at the utility level.
Phase 2: Affective Loyalty. This phase is directed toward the brand’s likeableness. This is where a liking toward the brand has developed based on the frequent buying experience. This reflects the pleasure dimension of satisfaction.
Phase 3: Conative Loyalty. This phase is experienced when the consumer focuses on wanting to rebuy the brand. By definition, conation implies a brand-specific commitment to repurchase. Thus, this phase is a state where a customer developed the intention to rebuy the product after experiencing it. This kind of loyalty comes also in a form of unrealized action to purchase.
Phase 4: Action Loyalty. This phase develops the commitment to repurchase the brand. This is where the customer intention converted to action. The readiness to purchase in the previous state is transformed into the act of purchase.
He also presented the possible weakness of his framework
How Are They Related To Each Other?
Oliver’s primary question in identifying the relationship between these two primary forces of buying intention was:
- What aspect of the satisfaction response has implications for loyalty?
- What fraction of the loyalty response is due to this satisfaction component?
He came up with six possible associations of satisfaction and loyalty. He described each panel as:
- Panel 1 infers that satisfaction and loyalty are separate manifestations of the same concept or that quality and satisfaction were identical pursuits.
- Panel 2 suggests that satisfaction is a core concept for loyalty, without which loyalty cannot exist, and that it anchors loyalty.
- Panel 3 relaxes the nucleonic role of satisfaction and suggests that it is an ingredient of loyalty but only one of its components.
- Panel 4 suggests the superordinate existence of ultimate loyalty which satisfaction and “simple” loyalty are components.
- Panel 5 is true to the preceding statement that some fraction of satisfaction is found in loyalty and that that fraction is part of, but not key to, the very essence of loyalty.
- Panel 6 suggests that satisfaction is the beginning of a transitioning sequence that culminates in a separate loyalty state. It also suggests that loyalty may become independent of satisfaction so that reversals in the satisfaction experience (i.e., dissatisfaction) will not influence the loyalty state.
Conclusion
Why do we need to distinguish the relationship between a satisfied customer and a loyal customer? One of the most powerful drivers of human behavior is recognition and investing time to study, understand and communicate is imperative to every brand. Knowing these things will not accelerate directly your brand’s profitability, instead, this will help you plan to keep your customers engage.
It is impossible to effectively communicate and build relationships with someone whom you do not understand deeply.
These insights might help you to repurpose your current strategy. Instead of asking “who among my customers will bring me more money?”, maybe an actionable question like “Whose needs can I satisfy or whose intention can I elevate?” will add clarity to your plan.
