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CUSTOMER LOYALTY
Despite the reported benefits of loyalty and its links to financial performance,
a review of marketing literature indicates that there has long been disagreement
about what represents customer loyalty and how it should be measured. Generally,
assessing customer loyalty to a seller, manufacturer, or service provider has often
consisted of using either actual purchase behavior or customer self-reports. For
instance, Newman and Werbel (1973) consider loyalty as repurchase behavior
and Tellis (1988) equates loyalty with repeat purchase frequency. Massey,
Montgomery, and Morrison (1970) see loyalty as a probability of purchase
while
both Cunningham (1966) and Neal (1999) view loyalty as a proportion of a
customer’s purchases. Segal (1989) has gone as far as to suggest that a customer
is loyal if more than about 90% of his / her purchases are to a single supplier. It has
been suggested that behavioral data is easier and less costly to collect (Dekimpe,
Steenkamp, Mellens, and Abeele, 1990) and that it may be superior to attitudinal
data because it represents how customers actually behave instead of how they
merely feel (Colombo and Morrison, 1989). Nonetheless, behavioral measures are
not problem-free. Several authors have cautioned against using and interpreting
behavioral data to gauge loyalty and have criticized the setting of arbitrary cut-off
margins to assess whether a customer can be classified as loyal or not. In addition,
customer loyalty is often conceptualized as a dichotomous variable (i.e., either ‘on’
or ‘off’). However, several authors have argued against this and have suggested that
loyalty represents a dynamic, temporal, and continuous concept. For instance,
Fournier and Yao (1997) suggest that, often consumers are classified as loyal or
disloyal based on some arbitrary cutoff in purchase-share qualifications, which
precludes attention to loyalty levels and types. Finally, using purely behavioral
definitions and measures of loyalty tends to overestimate true levels of loyalty. In
fact, by simply observing overt behavior one cannot differentiate whether a
customer’s loyalty is true or spurious (Zabava Ford, 1998). Simply put, because
behavioral measures cannot successfully differentiate whether a customer that has
remained with the same bank over several years has done so out of real loyalty,
simply because no competitor has established a presence close to the customer’s
home or place of work, or alternatively, because the customer perceives little