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The importance of customer loyalty, trust and advocacy

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Image: John BowenJohn Bowen

Dr John Bowen has been recognized as one of the five most influential professors in hospitality management.

An article in the Cornell Hospitality Quarterly listed him as one of the most influential people on hospitality marketing during the decade of the 1990s.

He holds a BS in Hotel Administration from Cornell University, an MS and MBA from Corpus Christi State University and a PhD in Marketing from Texas A&M University.

Dr Bowen is on the editorial board of three Emerald Journals, International Journal of Contemporary Hospitality Management, Journal of Services Marketing and Worldwide Hospitality and Tourism Themes.

View the Table of Contents for the International Journal of Contemporary Hospitality Management, Journal of Services Marketing and Worldwide Hospitality and Tourism Themes.

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For decades marketers and managers have heard that it costs 4-7 times as much to create a customer as it does to retain one and there are a number of reasons why customer loyalty creates such amazing returns.

Increase loyalty, increase profits

In 1990 Riecheld and Sasser published a seminal article on loyalty in the Harvard Business Review. In this scientific study, the researchers found for every five per cent increase in repeat customers, a business, on average, could increase its profit by 25 per cent.

Loyal customers are less price sensitive than non-loyal customers. If they are pleased with the product and value its quality and/ or customer service, they are less likely to jump on a promotion from a competitor.

Trust, a requisite for loyalty

In a study I conducted and published in the Cornell Hotel and Restaurant Administration Quarterly with Stowe Shoemaker we found that trust is at the heart of customer loyalty. Customers do business with businesses they trust. One of the most important indicators is whether someone will recommend you to a friend.

In 2002 Seyhmus Baloglu conducted a study into customer loyalty that found customers who come frequently and spend money may not be loyal. The findings suggest that customers visit and purchase due to convenience, but if something else opened up that was just as convenient and offered a better product they would be gone.

This demonstrates a certain level of trust – customers wouldn’t purchase from a company they don’t have confidence in. However, if someone is unlikely to recommend your product and is likely to move to a competitor, he or she is not a loyal customer or true advocate.

Customers as advocates

Essentially, advocates do your marketing for you. They are also more likely to recommend products, and there’s no better recommendation than a “credible” recommendation from someone who has independently tried and tested the product.

The advent of social media can also reap untold rewards for a business – especially when a satisfied customer can reach hundreds or thousands of potential customers through their networks.

The challenges today

Loyalty is a characteristic that many companies are hinging their customer trust on and as a result many companies have developed customer loyalty programmes.

The airlines were one of the first and others developed tiered programmes. Essentially, the more a customer spent the higher the tiered status. Early advocates of this programme were the baby boomers – they understood these programmes and seemed to be drawn to the rewards they were given for their loyalty.

Now, these loyalty programmes are being challenged by millennials. Millennials recognize the company’s need for their business and want to be recognized as important customers the moment they decide to purchase the product.

Millennials are increasingly replacing baby boomers as the most important market segment in terms of purchasing power and one of the major challenges facing managers is how to develop loyalty amongst these groups.

For more on this challenge; see an article I wrote with Shiang-Lih Chen McCain, ‘Transitioning loyalty programs: A commentary on “the relationship between customer loyalty and customer satisfaction,”’ in the International Journal of Contemporary Hospitality Management.