Loyalty As A Market Segmentation Tool Marketing Essay

There is a common understanding that customer loyalty is a key success factor in the development of superior market performance. When we are talking about constructing loyalty, we are thinking about a long term process that helps gaining long-term profitability for the company. Customer loyalty is something that a company tries to achieve, not something that could just be asked for. If in companies it is normal to assume that people are loyal and obedient to leadership figures then in customer and company relationship it is a thing that has to be earned by the company. (Hougaard & Bjerre 2002) Loyal customer base has to be earned, it can not be taken for granted.

“Customer loyalty is the seller’s perception of the consumer’s positive attitude to the product manifested by rebuying”( Kunoe 1994 in Hougaard & Bjerre 2002:109). In buyers perspective it means that the buyer makes a straight re-buy without considering alternative options and experiences low transaction costs compared with the buyer who uses pure market contract to plan, decide and execute the exchange. Loyal customers mean to the company, minimal transaction c osts, in terms of sales and marketing expenses. (Hougaard & Bjerre 2002) David A. Aaker (1991) defines brand loyalty also as a measure of the attachment that a consumer has to a brand. Brand loyalty, or resistance to switching, can be based on a simple habit (no motivation to change the habit), preference (people genuinely like the brand, based on use and experience over a long time of period), or because of the switching costs. Last aspect is especially important for example amongst software users, when they have made a substantial time investment in learning how to use particular software system. ( Aaker & MacLoughlin 2010) Customers loyalty towards brand can help to reduce transaction and marketing costs for the company and fasten consumers decision making process.

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1.1. Loyalty as a market segmentation tool

There are many ways of classifying loyal and non-loyal customer behaviour. Hougaard & Bjerre (2002) suggest that customer repurchase behaviour could be divided in three categories:

Switching behaviour- either the consumer stays with you (loyalty) or turns against you (switching).

Promiscuous behaviour- either the customer is loyal to you or flirts with many and various alternatives (promiscuous).

Polygamous behaviour- the customer makes a stream of purchase, but their loyalty is divided among number of products. They may be more or less loyal to your brand or solution than any other.

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Loyalty reflects different degrees of belonging, decision criteria and preferences among customers and target groups. In that sense loyalty factor should be considered the most relevant market segmentation criteria.  Loyalty pyramid is a simple but convincing behavioural model to illustrate different loyalty segments (Hougaard & Bjerre 2002).  See figure 1.

Figure 1. Market segmentation based on the loyalty pyramid. Source: Aaker (1991) in Hougaard & Bjerre (2002:118)

When Hougaard & Bjerre (2002) divide consumer behaviour in three big categories, that were described in the previous chapter, then Aaker (1991) identifies five levels of brand loyalty in association with consumer behaviour, starting with not loyal customers in the bottom of the pyramid to very loyal customers on the top of the pyramid. He describes the customer behavior in each  level and points out challenges that marketing professionals are facing in the terms of trying to lift consumers to the higher pyramid level. Greater number of customers in the higher sections of the pyramid means that the more effective is the pursued branding policy.

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Aaker’s (1991) Brand Loyalty pyramid describes five types of consumer behaviour:

1. Switchers: are buyers who are not loyal to the brand and it does not influence her/his purchase decision. They tend to switch brands that they buy. It is suggested from marketing point of view to raise brand name awareness amongst these consumers. People have to know this brand before they can start considering buying it.

2. Satisfied/ habitual buyers: these are the consumers who buy the brand out of habit. They tend to be reasonably satisfied customers. Although when they have trouble buying their regular brand they switch to other brand relatively easily. From marketing perspective it is important to raise the thresholds between the brand and other brands.This will create opportunities to make customers more loyal to one specific brand.

3. Satisfied buyer with switching costs: they are satisfied buyers who are reluctant to switch to a competing brand due to existing thresholds. Such thresholds can come in the form of: expenses incurred in terms of time, financial expenses, and the feeling of making concessions to quality.If marketing efforts look to entice satisfied buyers of another brand into switching to your brand, the brand will have to offer major benefits compensating the switching costs. It is important to focus on increasing perceived quality if thing about retaining or attracting new buyers.

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4. Brand likers: these buyers are true brand enthusiasts. Their brand preference is affected by an emotional benefits alongside with rational benefits such as price, time and quality. Emotional benefits can be pursued by linking certain associations or experiences with a brand. This highly positive attitude towards the brand can also be seen as a friendship. This is reflected also by the fact that brand likers are generally unable to state why exactly they have such a strong preference for the brand in question.

5.Committed buyer: these are the proud users of the brand. The brand plays an important role in buyers everyday life. Committed buyers buy this brand because it has close ties with their personal values. Retention of consumers at this level of brand loyalty can best be realized by rewarding their loyalty.

1.2. Different types of brand loyalty

Brand loyalty is a multidimensional phenomenon and there is a lot of theory crafting behind the concept itself. Nowadays, in the domain of contemporary consumer behavior research it is widely considered that constructing brand loyalty is an important part of the process of creating suitable marketing strategies worldwide. Brand loyalty as a psychological construct could be analyzed by simply observing how it occurs in most cases of consumer-product interaction. Briefly, it is considered that being loyal to a certain brand means to feel emotionally attached to it and to its products, its policy and everything related to it.

In this section, we will try to give some examples of how different kinds of brand loyalty work. According to Sheth and Park (1974) there are different ways for this phenomena to appear. They mention that brand loyalty could exist without an actual material link between the product and the consumer. It is not necessary for the consumer to own a certain product in order to be loyal to its brand[T1] . A clear example for this, is how some adolescents feel strongly related to some car brands without even having owned or driven such a car themselves. Therefore, it is possible to observe the brand loyalty created by the sole image of the brand and by the given information about it or by the popular word of mouth. In order to be socially accepted, some individuals also change their consumer behavior to be able to fit in by relating to a popular brand, without being materially attached to it.

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Brand loyalty could also be based on simple repetitive buying tendency. There is no special need of emotional attachment. In this case, The practical side of the product consumption is taken into consideration. The consumer has a particular preference for this one brand and keeps buying its products just because he feels satisfied with their quality and they “work” best for him/her.

Several essential types of brand loyalty have been mentioned in Sheth and Park’s (1974) theory:

1. Behavioral brand loyalty (is the type that) occurs when the relationship between the consumer and the product becomes strong because of the frequency of the encounters. Using simpler terms, behavioral loyalty is when the products of a brand are easily obtainable and are frequently shown to the consumer. These products are strategically placed by the marketers in order to establish such a relationship with the consumer. It is considered that once this bond with the consumer is created, it is really hard to reform his behavior towards another brand.

2. Behavioral-evaluative – brand loyalty is different to the strictly behavioral loyalty because of the eventual consequences of a purchase. The loyalty may become stronger or weaker depending on the consumer’s evaluation of the products. A fluctuation in the consumer’s attitude towards the brand could be observed also thanks to different communicative and social sources of information about the brand. Therefore the way the user feels about the products can be manipulated.

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3. Behavioral emotive loyalty. According to Sheth and Park (1974) it is the type of loyalty that is affected by certain emotions provoked to the consumer. A clear example is the case of children and how they could attach emotionally to a certain brand of sweets and “stick to it” too informal. The behavioral-emotive loyalty is common when the consumer can clearly recognize a particular brand product’s distinctive design, color and size. For example, This occurs with different car designs or perfume package shapes (for example).

4. Behavioral evaluative emotive loyalty. “The behavioral-evaluative-emotive brand loyalty largely arises from the reinforcement learning of repetitive buying or consuming experiences. It is also likely to arise from the informational sources.”(Sheth & Park 1974 : 449-459).  According to the research done so far, this is the most common type of brand loyalty. It takes effect when the consumer buys a product, finds it suitable for his needs and eventually develops an emotional relation with it. This is most likely the type of loyalty most companies would like to provoke in their consumers. It helps to assure a long term relationship between the brand and the consumer.

5. Evaluative brand loyalty is another type of loyalty where an individual is neither a buyer nor a consumer of a certain product, but is informed by outside sources that the product is good. There is no personal experience with the brand involved here. The example here is of a husband who only is aware that a brand of lipstick or any make-up his wife uses are good. He does not buy nor does he use the product, but is able to evaluate it thanks to outside information including communication and word of mouth. That enables him to generalize and to create an opinion about the brand.

6. The evaluative-emotive brand loyalty is present in consumer behavior when the product is far from the financial reach of the consumer. He is aware of the product’s high quality and in most cases would enjoy owning it. For instance the luxury sports cars and yachts are often the object of this type of loyalty. The Apple company is a clear example as their products are of high quality and often are out of the financial reach of some middle-class consumers.

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7. The emotive loyalty is the last type of brand loyalty presented by Sheth (1974). As its own name suggests, it is only created on the basis of the consumer’s emotions and feelings towards a brand. There is no personal experience, related to it, no material contact with the product. The emotions are solely based on generalization and outside information about the brand. The theorist presents examples like nonsmokers being in an “emotional relationship” with a cigarette brand or a nondrinker with a beer brand. According to the concept, it is possible that the image of a brand could create a relatively strong relationship with the consumer without actually materializing the bond.

Having mentioned these seven types of loyalty that brands can create, it is possible to successfully place most cases of consumer-product relations in one of these categories. Therefore, it would be easier to describe how creating consumer loyalty actually works with different brands. In the research part of this project it is possible to classify Apple consumers through these seven loyalty types.

1.3. Importance of loyal customers for the sales numbers

Consumer research tend to support the view that only one out of ten buyers are 100% loyal to the brand (Hougaard & Bjerre 2002). According to Hougaard & Bjerre (2002) there is a doubt whether loyal customers are more profitable than promiscuous and polygamous buyers.

Barnard & Ehrenberg (1997) are also claiming that exclusively loyal customers are not seen especially important to sales. They are arguing in their article, called “Advertising: strongly pervasive or nudging?” (1997) whether customers fell into two distinct segments, either “Loyals” (each committed to just one brand) or “Switchers” (who are not committed to just one brand). They come to the (into) conclusion that there is no systematic evidence in the literature that rather homogeneous, distinct, and substantial segments of “Loyals” or various “Switchers” can clearly be identified. Instead they suggest that consumers mostly follow a great variety of “Split Loyalty” (very little dynamic and steady switching from one brand now to another one in future) patterns. Barnard & Ehrenberg (1997) are dividing customers also to be either “Heavy” or “Light” buyers. According to them, although heavy buyers are important to the sales, the light buyers are the ones who make most of the sales numbers.  Although it must be mentioned that most of the examples that Barnard & Ehrenberg are giving when they are explaining heavy and light buyers behaviour are about everyday products, that consumers buy often, for (For) example coffee. When it is talked about products like PCs or smartphones, it should be taken into account that these products are more expensive and consumers put more thought into buying these products. Authors think that in this case loyal customers are more important in terms of sales than Barnard & Ehrenberg give them credit for. According to AnalyseSurvey.com (2012) , an online survey solution offerer, and  Hougaard & Bjerre (2002) loyal costumers play great roll in sales also with bringing in new costumers. Loyalty is the most valuable asset of all for branded products, because it is the ultimate indicator of future sales and profits (Hougaard & Bjerre 2002). Existing loyal customers should be looked at as the key to growth, because they are the ones who bring in new potential “Loyals” and also light buyers. In that sense authors think that although loyal customers might not always be directly associated with the big sale numbers they are affecting the numbers indirectly through ‘word of mouth’ and bringing in new costumers.

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1.4. Measuring customer loyalty

Customer loyalty as a concept creates a strange paradox where companies know that for the branded products it’s the most valuable asset, but despite that, there are virtually no companies that have any factual based knowledge about their customer’s loyalty and the value of that loyalty.  Customer satisfaction has been measured, but it is not the same as loyalty (Hougaard & Bjerre 2002). Though the higher the loyalty, the easier is to keep customers happy ( Aaker & MacLoughlin 2010). According to The American Customer Satisfaction Index (ACSI) latest report (2012), Apple’s Macs have for almost a decade (9 years in a row) satisfied more customers than any other vendor’s PCs. Customer loyalty includes in itself satisfaction, but also other aspects that are reflected in the relationship between the customer and the brand. Aaker & MacLoughlin (2010) are stating that the management of brand loyalty is a key to achieving strategic success and if it comes to measuring loyalty of existing customers, then the measurement should include not only sensitive indicators of satisfaction, but also measures of the relationship between the customer and the brand, because the more enduring the (becomes) relationship between the brand and the customer becomes, the more valuable it is for the company. According to them (Aaker & MacLoughlin 2010) these questions should be also answered when we talk about measuring loyalty:

Is the brand respected?

Liked?

Trusted?

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And the ultimate measure: will the customer recommend the brand to others?

Aaker & MacLoughlin (2010) suggest that companies who manage brand loyalty well are likely to:

Conduct exit interviews with those who leave the brand, to locate points of vulnerability.

Have a customer culture whereby people throughout the organization are empowered and motivated to keep the customer happy.

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Measure the lifetime value of the customer expected future purchases are valued

Reward loyal customers with frequent buyer programmes or special unexpected benefits or premiums.

Make customers feel that they are part of the organization, perhaps through customer clubs.

Have continuing communication with customers, using direct mail, the Internet, toll free numbers, and a solid customer back-up organization.

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Manage customer touch points to ensure that the brand does not falter in key contexts.

Protect the relationship with the loyal customer base during tough economic times when there are pressures on marketing budgets.

Aaker & MacLoughlin (2010) suggested points, what state successful brand loyalty management, will be the key points of this research to find out why people are loyal to Apple. The Authors aim is to find out whether they are they doing all of these suggested things.

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