International Journal of Information, Business and Management, Vol. 5, No.

3, 2013

Customers Loyalty: Concept & Definition (A Review)

Dr. Muhammad Tariq Khan

Head, Department of Management Sciences University of Haripur, Pakistan
[email protected]

Abstract

Generally speaking, customer loyalty means the intention of repurchasing products and services,
and this is the goal of industry or loyalty is a deeply held commitment to re-buy or re-patronize a
preferred product or service consistently in the future, thereby causing repetitive same-brand or same
-brand set purchasing. So customer loyalty is seen as one of the key factors of a company’s success.
Several researchers have pointed out that it costs more than five to six times as much to obtain a new
customer than to keep an existing one and an improvement of 5 percent in customer retention leads to an
increase of 25 percent to 125 percent in profit. This study is focused on defining the customer loyalty and
explaining its concept.

Introduction

Loyalty is a phenomenon that received a great deal of interest among marketers, (Reddy et al 2011)
though recent years have shown a growing interest in customer loyalty Kuusik (2007) even during the
1980s customer loyalty was on most marketers’ minds and numerous companies spent millions on
customer relationship management programs with the goal of building customer loyalty (Pitta et al 2006).
Over the past few years, loyalty has become important because of increased competition within respective
industries. Companies infer “loyalty” to have a similar meaning and have developed strategic marketing
and advertising efforts around creating a connection between the company and its customers (Liang 2008).
Generally speaking, customer loyalty means the intention of repurchasing products and services, and this
is the goal of industry (Pi, & Huang 2011).

BOSE and RAO (2011) found that in the business context, loyalty is the customer’s commitment
to do business with a particular organization which effects in repeat purchases of goods and services of
that organization. It also results in recommending the goods and services to friends and associates.
Similarly Musriha (2012) also asserted that customer loyalty is the commitment held by customers to
repurchase or subscribe to a product or service in the future. Krumay & Brandtweiner (2010) expressed
that customer loyalty is seen as one of the key factors of a company’s success and a necessary premise
among others to gain customer loyalty is how the customers perceive the customer service.

According to Kuusik (2007) the globalization of competition, saturation of markets, and

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development of information technology have enhanced customer awareness and created a situation where
long-term success is no longer achieved through optimized product price and qualities. Instead,
companies build their success on a long-term customer relationship.

According to Pitta et al (2006) the concept of customer loyalty is not something that consumers
recognize. For most companies the customer or brand loyalty issue is, in behavioral terms, nothing more
than repeat purchasing. In fact, many company efforts aim solely at increasing the percentage of repeat
purchases among current customers. Supporting this effort, marketing strategists have developed
predictive models that show the important profitability effects of increasing the repeat purchase rate
among existing customers.

Li & Green (n.d) and Chen & Ching (2007) visiting literature extracted that loyalty is a deeply
held commitment to re-buy or re-patronize a preferred product or service consistently in the future,
despite situational influences and marketing efforts having the potential to cause switching behavior. So
thereby causing repetitive same-brand or same -brand set purchasing. The customer’s attitude toward a
service or product (brand) including attitudinal preference and commitment has a greater impact on
forming loyalty. Quality is a necessary element in defining loyalty. Furthermore, service quality,
perceived value and customer satisfaction are associated with loyalty.

Li & Green (n.d) stated that loyalty strategies are created by having the suitable marketing mix –
product, price, place, promotions and a value proposition to support the target segments and to have the
appropriate positioning in the minds of the targeted consumers in comparison to competitors.

Concept of Customers Loyalty

Customer loyalty has been the popular topic among the business workplaces (Leong et al 2012)
and recent years have shown a growing interest in customer loyalty (Kuusik 2007) so has been widely
researched in the domain of marketing (BOSE and RAO 2011). Loyalty is a positive belief in the value
that a company provides, leading to increased purchases over time. “Loyalty is a positive belief,
generated over the course of multiple interactions, in the value that a company and its products or services
provide, which leads to continued interactions and purchases over time” (Oracle Corporation, 2005).
However, in the business world, there are still considerable differences of opinion about the specific
elements of loyalty (Thompson, 2007).

Uncles et al (2002) asserted that at a very general level, loyalty is something that consumers may
exhibit to brands, services, stores, product categories (e.g., cigarettes), and activities (e.g., swimming).
Customer loyalty as opposed to brand loyalty is to emphasize that loyalty is a feature of people, rather
than something inherent in brands. Unfortunately there is no universally agreed definition. Instead, there
are three popular conceptualizations: loyalty as primarily an attitude that sometimes leads to a

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relationship with the brand, loyalty mainly expressed in terms of revealed behavior (i.e., the pattern of
past purchases) and buying moderated by the individual’s characteristics, circumstances, and the purchase
situation.

Szűts & Tóth (2008) expressed that ‘customer loyalty’ is a customer's demonstration of faithful
adherence to an institution or merchant despite the occasional error or indifferent service. In this view,
customer loyalty is an attitude or behavior that customers explicitly vocalize or exhibit.

Basarir & Dhaheri (2009) asserted (referring Stone et al., 2000) that the term customer loyalty “is
a physical and emotional commitment given by customers in exchange for their needs being meet”. It is
related to the behavior of the customers who visit the supermarkets repeatedly. It is very important to
keep a customer happy to have more business. In order to keep the customer for more businesses the
customer satisfaction needs to be warranted by the market. The customer satisfaction can be thought as a
key element of the strategies that supermarkets can gain loyalty with. However Oracle Corporation (2005)
argued that loyalty should not be confused with customer satisfaction. Although loyalty is built on
satisfaction, organizations can have satisfaction without loyalty.

Marshall (2010) also asserted (quoting many studies) that loyalty refers to a deeply held
commitment to re-buy or re-patronize a preferred product or service consistently in the future, thereby
causing same-brand or same organization purchasing, despite influences and marketing efforts having the
potential to cause switching.

Bagdonienė & Jakštaitė (2007) citing several studies revealed that customer loyalty is the highest
valuable result of marketing efforts, thus the development of customer loyalty has become an important
focus on marketing strategy. The customer loyalty is winning the confidence of the customer in favor of
an organization so that the relationship becomes a win-win situation for both the organization as well as
the customer. Researchers affirmed the benefits of customer loyalty to provider inclusive lower customer
price sensitivity, reduced expenditure on attracting new customers and improved organization’s
profitability and noted that loyal customers pass on favorable word-of-mouth comments about a company
or product. The customer loyalty is termed as customer commitment to do business with particular
organization, purchasing their goods and services repeatedly and recommending the products and services
to friends, acquaintances and associates. Loyalty is more than just repeat purchase. Someone who keeps
buying may be doing so out of inertia, indifference or exit barriers rather than loyalty. Customer loyalty
has evidence not only as behavior but also as attitude. The latter as a certain belief and feeling stimulates
to react in a certain way towards things, people and events, determines attachment to goods, service or
organization. A richer understanding of the attitudinal component of loyalty is crucial, as it is shown
linked to future usage, enhanced word-of-mouth recommendations, and ultimately to customer
profitability. Loyalty based on the attitude is less faithful than loyal behavior; moreover both attitude and
behavior are changing over time. In other words loyalty is not a static state. Customer loyalty has

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emotional and rational background. Feelings, expectations, relations with staff of the organization,
determine the emotional loyalty, whereas rational loyalty is determined by thinking, availability of
information and its understanding, cognition of organization activities’ processes. Some researchers
created a framework of four different categories of loyalty, based on the factor of behavior and attitude:
true loyalty, spurious loyalty, latent loyalty and no loyalty, and six types of loyalty: monopoly loyalty,
inertia loyalty, convenience loyalty, price loyalty, incentivised loyalty and emotional loyalty. Customers
can be loyal forcibly when they have not another choice (prisoners), can be loyal in several cases
(detached loyalists), can be venally loyal (purchased loyalists), can be loyal from satisfaction (satisfied
loyalists) and can be loyal implicitly (apostles).

McCain et al (2005) extracting from several studies asserted that customer loyalty is generated
through a belief (service quality), affect (satisfaction), and cognitive (customer loyalty) process. Studies
reported that the development of consumer loyalty follow the cognitive–affective–conation–action pattern.
During this process, a consumer can become loyal at each of these four phases. The first phase is
cognitive loyalty. In this stage, consumers recognize that one brand is better than other alternatives and
form preferences based upon their evaluations of service quality. The second phase is affective loyalty, in
which the liking of the product and a positive attitude toward the brand are developed based upon
continuous experiences of product satisfaction. In the third loyalty phase, conation loyalty, a
brand-specific commitment to repurchase is generated and the intention to return is formed. Finally, the
return intention is ‘‘transformed into readiness to act’’ at the action loyalty phase (Oliver, 1999, p. 36). In
the loyalty development process, it is vital to note the importance of the cognitive loyalty as the starting
point that leads to subsequent loyalties.

Szczepańska & Gawron (2011) are of the opinion that customer loyalty can be defined as a
constant and positive attitude towards an object (i.e. brand or business enterprise). They revealed that
customer loyalty (previously associated with the field of marketing studies) is becoming a link between
management and marketing. The quantifiable loyalty factors (i.e. customer portfolio profitability)
determine the ways in which desired values are devised and presented to the customers. Marketing def-
inition of loyalty traditionally covered two aspects of the phenomenon: behavioral aspect and attitudinal
aspect.

KOÇOĞLU (2012) is of the view that customer loyalty is defined with consideration paid to the
amount of buying for a given trademark

Suprihanti (2011) expressed that loyalty is an indication that the consumer that always become the
customer, that always have the strength and positive perception to the company. Every customer has
different basics to the loyalty. It depends on their objectivity. The loyalty of customer is showed, by
giving recommendation to other costumers and keeping the consumption of the product continuously.
Explaining customer loyalty Suprihanti (2011) further stated that generally, the customer loyalty means

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that the loyalty of someone to the product, both thing and the services. The loyalty of customer is a
manifest and the follow up of customer satisfaction after using the facilities and using the services that is
given by the company, also to keep becoming the company’s customer.

BOSE and RAO (2011) reported that according to findings of researchers a satisfied customer
tends to be loyal. That customer remains loyal to an organization as long as that organization gives better
services or products as compared to another organization. BOSE and RAO (2011) referring McIlroy &
Barnett, 2000 and Morris et al., 1999 narrated that in the business context, loyalty is the customer’s
commitment to do business with a particular organization which effects in repeat purchases of goods and
services of that organization. It also results in recommending the goods and services to friends and
associates. The key to the successful adoption of relationship marketing lies in the building of client
loyalty in dynamic business environments. Pi & Huang (2011) also stated that customer loyalty means the
intention of repurchasing products and services, and this is the goal of industry.

BOSE and RAO (2011) quoted the words of Shoemaker and Lewis (1999) “loyalty occurs
when the customer feels so strongly that you can best meet his or her relevant needs that your competition
is virtually excluded from the consideration set and the customer buys almost exclusively from you -
referring to you as ‘their restaurant’ or ‘their hotel’.”

Taleghani et al (2011) extracting from literature (Shammout, 2007 and Bigneacaniz et al, 2008)
opined that the customer is the only profitable resource of companies in present and future, but, anyway, a
good customer who makes more profit is always possible to get lost, because, the competition to achieve
a good customers is so high. Nowadays, increase in multilateral information of customers regarding
market and access to information has caused less loyalty of customers to the companies. So, today the
visitors are looking for ways and information through which they would make faithful customers for
themselves, because it causes decrement in marketing and operational expenses and increase in profits,
that the organization and companies are determined to make firm connections with their customers by
taking advantages from marketing strategies. Juncture marketing with its ability in making the customers
faithful through better understanding of their needs and offering of services according to needs and
establishment of long-term connections can be lead to decrease in expenses. Customers with long-term
loyalty rarely tend to other companies, while customers with short-term loyalty easily end their
connection and if find better products will go for them.

Cheng, et al. (2011) extracting from several studies pointed out that customer loyalty refers to a
customer’s possible repurchase behavior, and willingness to become a member of the service institution.
Customer loyalty is the performance of a consumer still choosing the same product or service after
comparing it with other competitor’s products with the premise that the competitive product can be easily
purchased, and it will go through the four stages of perceived loyalty, emotional loyalty, intentional
loyalty and action loyalty.

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CENGİZ et al (2007) asserted that loyalty could be described as repetitive buying behavior caused
by positive attitudes or as a coherent buying behavior arising from the psychological judgment making
and appraisal continuum. Loyalty is not created by a specific service encounter of a consumer but created
by a consumer’s accumulative experience and service with the service throughout time.

John (2011) revealed that customer loyalty is the feelings or attitudes that incline a customer either
to return to a company, shop or outlet to purchase there again, or else to re-purchase a particular product,
service or brand. Customer loyalty is the totality of feelings or attitudes that would incline a customer to
consider the repurchase of a particular product, service or brand or re-visit a particular company or shop.
It affects the success and profitability of companies. Companies can achieve competitive advantage
through customer loyalty and it is the way to gain the best kind of customers and thereby repeat
customers.

Lin, (2012) concluded that prior literature (Cunningham, 1956; Jacoby & Chestnut, 1978 and Dick
and Basu, 1994) on customer loyalty has focused mainly on the loyalty to a given brand, especially
emphasizing on the evaluation of actual repeat purchasing behaviors. Subsequently, psychological
meaning is also considered; and consumer beliefs, affect, and intention are assessed in an attitude-based
framework. Therefore, composite measures of behavioral and attitudinal loyalty are encouraged and have
become the essence of loyalty. In addition, previous studies (Macintosh & Lockshin, 1997; Palmatier et
al., 2007; Reynolds & Beatty, 1999) presented that customer loyalty includes two different constructs:
loyalty to the salesperson and loyalty to the firm. Customers usually have intense and frequent
interactions with their salesperson, and thus they establish a close relationship with the salesperson
instead of the service firm. Therefore, it should be clarified whether customers render their loyalty to the
service employees (salespeople) or to the service firm. Even though the salesperson is the main contact
point between customers and the service firm, customer loyalty to the salesperson is different from
loyalty to the service firm.

Li & Green (n.d) referred perspective proposal of Oliver’s (1997) that loyal customers go through
four stages. First is a cognitive sense (belief). For example, sales promotion or high quality products of a
firm for first time purchase consideration attracts a customer. To be loyal, the customer must consistently
confirm that his or her expectations about the goods or services are met. Second is the affective sense
(favored attitude) in which consumers are repeatedly satisfied from purchasing decisions. Third is the
conative stage that consumers have a behavioral intention – committed deeply to buy. The intention leads
to the fourth stage of action. Customers have the desire to overcome obstacles, e.g., attraction of
competitors or price increase by a firm, to achieve the actual purchase behavior.

Kabir, & Rafe (2012) asserted that for conceptualizing the term customer loyalty, it has
typically been divided into two typologies–behavior and attitude. The behavioral aspect of customer

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loyalty represents- actual repeat purchase of products or services that includes purchasing more and
different products or services from the same company, recommending the company to others, and
reflecting a long-term choice probability for the brand. The customers’ attitudinal component represents
notions like: repurchase intention or purchasing additional products or services from the same company,
willingness of recommending the company to others, demonstration of such commitment to the company
by exhibiting a resistance to switching to another competitor and willingness to pay a price premium.

Antonios (2011) argued that in general terms, customer loyalty is a complex subject to study since
it comprises of many dimensions and its conceptualization has been dominated by the behavioral and
attitudinal approaches. On the one hand behavioral characterizations are in simple terms based on aspects
of recurrent purchase behavior in the manor of studying the amount of purchase, frequency of purchase
and amount of brand switching which have been offered. On the other hand is the attitudinal approach
which comprises of consumer attitudes, preferences and dispositions towards brands, and which, in turn
allow for greater insight into loyal behavior.

Pi & Huang (2011) also mentioned from some reference that customer loyalty could be exhibited
through attitudes and behavior. The attitudes include the intention to repurchase or purchase other
products from the company, the intention to recommend and the immunity to competitors. The behavior
includes the behavior of repurchase, purchasing other products from the company, and recommending it
to others.

Shih-I (2011) concluded that customer loyalty is a customer’s sense of identification with a
business. Shih-I (2011) elaborating the concept also described two alternate forms of loyalty: behavioral
loyalty and attitudinal loyalty. Loyalty is also manifested in two other ways: repeat patronage and
recommendation. Repurchase intention and advocacy are used to evaluate consumer brand loyalty to a
single retailer; advocacy” here is understood to signify positive word-of-mouth, meaning that customers
will recommend a retailer to others. Shih-I (2011) argued that researcher focus loyalty on attitudinal
loyalty and behavioral loyalty. Behavioral loyalty (a substantial element) means consumers’ repurchase
behavioral or intension of specific brand. Attitudinal loyalty (a psychological construct) means
consumers’ sense of specific products or service.

Empen et al (2011) expressed that brand loyalty describes consumers’ attitude or behavior that
directly effects the consumption decision and thereby determines retailers’ optimal pricing strategies. In
most models brand loyal behavior is either defined by the maximum price differential consumers are
willing to accept before they switch to price reduced brands (degree of loyalty) and/or by the size of the
loyal consumer segments (extent of loyalty). Brands might differ with respect to the level of loyalty
and/or the size of their loyal consumer segment. A strong brand has either customers who accept a high
price differential before they switch to another brand or a large brand has many loyal customers (large
loyal segment).

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Shih-I (2011) and Jumaev et al. (2012) quoted that Ganesh et al. (2000) empirically derive two
distinct dimensions of the loyalty construct: active and passive loyalty. Active loyalty behaviors are those
that require a conscious and deliberate effort to undertake, and are reflected in both purchase behavior and
purchase intentions. Passive loyalty can be identified when customer purchase behaviors or intentions are
affected by a change in price or switching cost.

Titko & Lace (2010) have described a chain of effects from employees to profit. The links in the
chain are as follows: Profit and growth are stimulated primarily by customer loyalty. Loyalty is a direct
result of customer satisfaction. Satisfaction is largely influenced by the value of services provided to
customers and satisfied, loyal, and productive employees create the value.

DURUKAN et al (2012) are of the opinion that using income that earned in difficult conditions,
for purchasing certain products or by purchasing certain company is called as customer loyalty.

According to Pi, & Huang (2011) measurement of customer loyalty has three categories: Intent to
repurchase, primary behavior (transaction information) and secondary behavior (the willingness to
recommend products and services in public, and give praise).

According to Palmatier (2007) loyalty to the selling firm is the customer’s “intention to perform a
diverse set of behaviors that signal a motivation to maintain a relationship with the focal firm”. The
customer’s intention to continue to conduct business with the selling firm may be based on the customer’s
interactions with the salesperson and other employees, the comparative advantage of the firm’s
product/service offering, and/or other loyalty generating activities associated with the selling firm. A
significant portion of customer loyalty to the firm is based on elements embodied in, associated with and
controlled by the salesperson and that the customer–selling firm relationship can be undermined if a key
contact employee no longer deals with the customer.

Li & Green (n.d) cited that Oliver’s (1997) perspective proposed that loyal customers go through four
stages. First is a cognitive sense (belief). For example, sales promotion or high quality products of a firm
for first time purchase consideration attracts a customer. To be loyal, the customer must consistently
confirm that his or her expectations about the goods or services are met. Second is the affective sense
(favored attitude) in which consumers are repeatedly satisfied from purchasing decisions. Third is the
conative stage that consumers have a behavioral intention – committed deeply to buy. The intention leads
to the fourth stage of action. Customers have the desire to overcome obstacles, e.g., attraction of
competitors or price increase by a firm, to achieve the actual purchase behavior. With loyal customers,
companies can maximize their profits. Loyal customers are willing to (1) purchase more frequently (price
insensitivity), (2) try the firm’s new products or services (repurchase intention), (3) recommend products
and services to others (word-of-mouth), and (4) give companies suggestions (complaint behavior)

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(Reichheld & Sasser, 1990). Furthermore, Zeithaml, Berry, and Parasuraman (1996) propose a
comprehensive multi-dimensional framework to measure customer loyalty. In their research, loyal
consumers have (1) high purchase intention (repurchase intention), (2) less price sensitivity (price
insensitivity), (3) feedback to the firm (word-of-mouth, complaint behavior), and (4) do more business
(frequent purchase and no switching behavior).

Ayyildiz & Cengiz (2007) quoted from the literature that loyalty has been defined as repeat
purchase behavior led by favorable attitudes or as a consistent purchase behavior resulting from the
psychological decision-making and evaluative process. Customer loyalty is generated through a belief
(service quality), affect (satisfaction), and cognitive (customer loyalty) process. The development of
consumer loyalty follows the cognitive-affective-conation-action pattern. During this process, a consumer
can become loyal at each of these four phases. The first phase is cognitive loyalty. At this stage,
consumers recognize that one brand is better than other alternatives and form preferences based upon
their evaluations of service quality. The second phase is affective loyalty, in which the liking of the
product and a positive attitude toward the brand are developed based upon continuous experiences of
product satisfaction. In the third loyalty phase, conation loyalty, a brand-specific commitment to
repurchase is generated and the intention to return is formed. Finally, the return intention is “transformed
into readiness to act” at the action loyalty phase. Loyalty must be achieved through customer satisfaction,
based on the perceived performance of the service product; hence service quality and customer
satisfaction are two prerequisites of loyalty.

Marshall (2010) revealed (citing several studies) that much of the original work on loyalty defined
it in behavioral terms (repurchase or purchase frequency) and then later admitted an attitudinal
component. Behavioral loyalty reflects customer actions and involves the measurement of past purchases
of the same brand or and/or the measurement of probabilities of future purchase given past purchase
behaviors. Attitudinal loyalty, on the other hand, is the consumers’ psychological disposition toward the
same brand or brand-set and involves the measurement of consumer attitudes. Both behavioral and
attitudinal loyalty are important concepts in understanding long-term customer relationships, especially
when it is important to predict future patronage by the customer. One can certainly be a loyal customer
yet be an infrequent shopper, so frequency of consumption must not be confused with loyalty. Marshall
(2010) also suggested that true loyalty is, in some sense, irrational. Competitors can (and do) take
advantage of this position, engaging consumers through persuasive messages and incentives with the
purpose of attempting to lure them away from the preferred offering. These enticements are the obstacles
that brand and or service loyalists must overcome.

Ivanauskiene & Auruskevicien (2009) citing some studies asserted that loyalty is also interpreted as
an expectation to continue a relationship with a particular brand. Generally loyalty has been explained as
(1) an active loyalty when a consumer re-use the brand and recommend the brand to others, and (2) a
passive loyalty, that is characterized as a not switching even when brand provides less positive conditions.

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Researchers argue that loyalty is a permanent interaction process between the brand and the user rather
than the outcome. Loyalty can be described as (1) a loyalty, based on inertia, when the user purchases a
brand again because he/she used to do it, however if the conditions allow the user will replace the product
with the competitors brand; and (2) a true brand loyalty when the decision to repeat purchase is made on
satisfactory experience and positive attitude toward the preferred brand. Mostly researchers distinguish
between two types of loyalty - behavioral loyalty and attitudinal loyalty. Attitudinal loyalty is loyalty as
an attitude that causes a gradual long-term relationship with the brand. Attitudinal commitment (or strong
positive attitude) is a mandatory condition to build true loyalty toward the brand. Behavioural loyalty
model, explained by taking references on a series of past purchases and only after the consumer
motivation and commitment toward a particular brand where analyzed. Studies have shown that the vast
majority of consumers are "polygamous" - loyal to the line of brand-names in category, and only a limited
number of users can be attributed to the "monogamous" (completely loyal to a single brand)
or ”promiscuous“ - disloyal to any trade mark. Behavioral loyalty model can be described as a loyalty
formed after a number of product purchases when consumer was likely satisfied with the brand attributes
and found out that all brands in category are more or less similar. Both loyalty models - behavioral and
attitudinal loyalty - are “highly intertwined”. The third popular profile of loyalty is when the purchase is
influenced by individual’s characteristics, the environment and the purchase situations and even a positive
attitude and strong brand commitment don’t matter when the product purchase is confronted with certain
co-determined factors. Researchers divided the antecedents of loyalty into four main groups:
(1) Characteristics of the environments
(2) Characteristics of relationship
(3) Characteristics of the consumer
(4) Consumer perception of the company.
Some researchers also singled out three aspects of user loyalty that are essential to the development of the
long-term relationship between the consumer and brand. These are: 1- Calculative commitment,
2- Affective commitment and
3- Brand satisfaction
Ivanauskiene & Auruskevicien (2009) quoted that some researchers proposed categorization of
customer loyalty types by segmenting loyal ones into four categories – Captive, Convenient seeker,
Contented and Committed – and gave brief description of typical behaviors and attitudes associated with
each category.

Ivanauskiene & Auruskevicien (2009) referred some studies and stated, that there is no one
commonly accepted description of loyalty and even now still many debates take place on what customer
loyalty is and what the key drivers that cause loyalty are. The complexity of loyalty concept leads to
persistent debates and differences in interpretation of the concept, even more, researchers stressed the
need to examine the concept of loyalty together with the effectiveness of loyalty programs and Customers
Relationship Management elements as instruments to build loyalty.

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Durukan & Bozaci (2011) asserted that under today’s competitive and difficult business
environment, loyal customers are vital for success and continuity of companies. At this point creating
customer satisfaction is seen as a prior condition to ensure customer loyalty. There are generally three
types of customer in terms of customer loyalty. The first category involves customers who are not loyal.
The second category consists of individuals who forced to be loyal because of some factors like switching
costs. On the other hand the third category consist of sincere loyal customers who have not a thought of
changing firm, carry positive feelings and thoughts toward company, voluntarily choose the firm and
represents positive word of mouth behavior.

Marshall (2010) referred Oliver (1997) and reported that consumer loyalty is considered an
important key to organizational success and profit. Loyalty has been defined 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 or same-brand set purchasing, despite situational influences and marketing
efforts having the potential to cause switching behavior”. Most analyses of loyalty have been from a
behavioral perspective, excluding attitudinal type data and concentrating on a deterministic perspective.
Loyalty is much more than just repeat purchases as oftentimes repeat purchase may be the result of inertia,
indifference or exit barriers.

Jandaghi et al (2011-a) concluded that in fact, customer’s commitment is the outcome of an

organization, which creates advantages for customers so that they keep on increasing their purchase from
the same organization. Real customer’s commitment is established when he/she is motivate to purchase
without any encouragement. This relationship is established if parties feel that there are special
advantages for them and they can attract each other like two poles. Loyal customer does not only focus on
prices but also he/she acts like a fan of organization and, as a result, helps to attract new customers.
Likewise, the cost to acquire a new customer is 15 times of retaining an existing customer and by %5
increases in customers’ loyalty; the profit also increases 25 – 85 percent.
Dhandabani (2010) in their research about banks wrote that customer loyalty is a feeling of
commitment on the part of the consumer to a product, brand, marketer, or services above and beyond that
for the competitors in the market place, which results in repeat purchase. A loyal customer to a bank is
thus, one who will stay with the same service provider, is likely to take out new products with the bank
and is likely to recommend the bank services. They further wrote that behavioral intention could be
captured by such measures as repurchase intentions, words of mouth, loyalty, complaining behavior, and
price sensitivity. Loyalty is predominantly satisfaction driven and therefore customers’ satisfaction
measurements are believed to give a better indication of future performance of service firms than, for
instance financial and accounting based measures.

Gyulavári (2010) revealed that customer loyalty originally referred to repeated purchase behavior
but currently there is a distinction between behavioral and attitudinal loyalty concepts, which has been
widely accepted. Attitudinal loyalty is referred to the commitment of the customer towards the objective

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of loyalty, especially the brand or the store. The attitude components to elaborate the phases of latent
loyalty and some authors focused on spurious loyalty and its antecedents to explore further dimensions.
Researchers distinguish forced, cognitive and inertial loyalties. Cognitive loyalty arises from the
perceived functional superiority of the store. Some identifies price and incentivized loyalties that can be
categorized as two facets of cognitive loyalty.

Ghazizadeh et al. (2010-b) argues that loyalty is only a valid concept in situations where
customers can choose other providers. Companies thus need to understand the nature of their consumers’
reasons for staying and must not assume that it is constantly a positive situation. Ghazizadeh et al.
(2010-b) added that customer retention improves profitability principally by reducing costs incurred in
acquiring new customers. A primary objective of retention strategies must therefore be “zero defections of
profitable customers”. There is a distinction between customers who are simply retained and those who
are loyal. The concept of consumer inertia implies that some customers are only being retained, rather
than expressing loyalty. In fact loyal customers are usually less price sensitive and more intend to increase
the number or frequency of purchases and may become advocates of the organization. Satisfaction with a
bank's products and services thus also plays a role in generating loyalty that might be absent in the
retention situation. Therefore, customer loyalty is not the same with customer retention, as loyalty is
distinct from simple repurchase behavior.
Razavi et al (2012) Customer loyalty has attracted a considerable attention in the literature in a
way that a number of definitions have been proposed for it such as Zeithaml et al (1996) define it as a
customer’s intent to stay with an organization. In another study, it has been defined as a construct that
measures the probability that the customer will return and is ready to perform partnering activities such as
referrals.
Razavi et al (2012) also quoted Oliver who defined customer loyalty as “A deeply held commitment to
re-buy or re-patronize a preferred product/service consistently in the future, thereby causing repetitive
same-brand or same brand-set purchasing, despite situational influences and marketing efforts having the
potential to cause switching behavior”.

Razavi et al (2012) squeezing from several studies expressed that many service providers consider
customer loyalty as a significant source of competitive advantage. Empirical studies demonstrate that
keeping a customer can be up to 10 times cheaper than capturing a new one. This importance is
accentuated when it is coupled with the claim that the customer’s loyalty behavior takes the form of
greater collaboration, fewer complaints, less sensitivity to price and, in sum, greater profitability of the
customers. The strongest evidence of customer loyalty is the percentage of customers who are ready to
recommend others to a particular product or service. Sustained loyalty is attainable when customers
exhibit both positive attitude toward the object, and repeat patronage behavior. All in all, loyalty
conceptualization has two dimensions, namely attitudinal and behavioral. Attitudinal loyalty mirrors a
situation whereby different feelings create an individual’s overall attraction to a product, service or

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organization. The attitudinal components of customer loyalty are determined as price sensitivity, brand
allegiance, and the frequency of purchasing a particular brand. The other dimension is behavioral which is
defined as the intention to stay with the service provider in the future. Loyal customers are inclined to
show two behaviors: repurchase behavior and favorable word-of-mouth. Based on the related literature,
word of mouth can be interpreted as the frequency or potential to recommend others to patronize the
services of a customer’s primary company. Customer satisfaction influences the loyalty of customers.
Customers are more likely to participate in positive word-of-mouth and repurchase when they are
satisfied. Highly satisfied customers of a firm are likely to purchase more frequently in a greater number
and also buy other goods and services offered by the same service provider. Razavi et al (2012)

Silva & Yapa (2009) asserted with many citations that customer loyalty is viewed as the strength
of the relationship between an individual’s relative attitude and repeat patronage. The relationship is seen
as mediated by social norms and situational factors. Cognitive, affective, and conative antecedents of
relative attitude are identified as contributing to loyalty, along with motivational, perceptual, and
behavioral consequences. In the customer-centered business, survival remains to the degree that customer
satisfaction is met. Previous research studies have shown that the repurchase intent was the main benefit
of customer retention. However, some had identified multiple benefits like repurchase intent, price
tolerance, willingness to recommend etc. In reaching retention, vendors should manage satisfaction and
consequences of Customer Loyalty. Loyalty too has a pyramid effect that suggests of having hierarchy in
loyalty levels between customer and vendor. Change in loyalty level will manifest itself in the presence of
specific attitude and.

Bahri-Ammari (2012) stated that customer loyalty allows the company to continue the business
relationship over time and to establish and develop a common history. It is expressed by commitment and
trust between the exchange actors. It is a dynamic concept that is developed by strengthening mutual
commitment and trust in partner. The company aims, through satisfaction, trust and commitment, the
loyalty of its most profitable customers. The purpose is to bring them to the highest level of the
relationship scale. The prospect becomes progressively buyer, client, supporter, lawyer and partner. A
partner is a loyal customer who will recommend the company’s products for other potential customers.
Thus, the profitability will improve. Loyal customer is one who made other purchases and is and will be
less sensitive to high prices. Loyalty is the basis of a psychological process, while retention is far from
having a cognitive component. Retention is measured by the duration of time the consumer's purchasing
history with the company, while the loyalty is determined by the percentage of requests. Loyalty is
measured by emotional and cognitive states. They can be manifested by: attitudinal loyalty, resistance to
competing offers, propensity to be loyal, complaining behavior intentions and behavior loyalty.

Anselmsson et al (2007) asserted that customer loyalty offers several benefits: it creates entry
barriers for competing brands; makes it possible to charge higher prices; gives the company time to react
on competitors innovations; and also function as a buffer in times of intensive price competition. Broadly,

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there are two schools of thought when it comes to defining and measuring brand loyalty: behavioral and
attitudinal loyalty.

Trasorras et al. (2009) pointed out that, customers who feel they have obtained value from a
product or service might develop loyalty. Loyalty, in turn, breeds retention, which translates into higher
corporate profits. Customer defections have a stronger impact on the financial performance of an
organization than other factors, as it pertained to gaining competitive advantage. Researches suggest the
longer a company keeps a customer, the more profitable that customer becomes. In order to retain
customers, it is important to know why customers leave. Not only does a company lose their future profit
potential but negative experiences are also shared with colleagues, and that may spur additional
defections. The multiple causal factors are pricing, inconvenience, core service failures, service encounter
failures, employee responses to failures, attraction by competitors and ethical problems. No single factor
was seen as consistent with the switchers, rather various combinations of factors led to customer
defection.

Cheng, et al. (2011) referring several studies expressed that customer loyalty can be divided into
true loyalty, false loyalty, potential loyalty and no loyalty according to the strength level of the
relationship between the personal attitude and repurchase behavior. Customer loyalty refers to a
customer’s possible repurchase behavior, and willingness to become a member of the service institution.
Customer loyalty is the performance of a consumer still choosing the same product or service after
comparing it with other competitor’s products with the premise that the competitive product can be easily
purchased, and it will go through the four stages of perceived loyalty, emotional loyalty, intentional
loyalty and action loyalty. In the measurement of customer loyalty, researchers pointed out that the
measurement items of customer loyalty in customer behavior intention include: repurchase after the price
has increased (price tolerance), priority purchase and recommendation. Customer loyalty can be
constructed by the four measurement indexes of the repurchase will, the will of recommending the
company or brand to others, price tolerance and cross-purchase will of the customer.
Tu et al. (2011) with several citations revealed that customer loyalty could be classified as brand
loyalty, service loyalty, and store loyalty. Some studies distinguished customer loyalty in three approaches
including behavioral loyalty approach; attitudinal loyalty approach, and integration of attitudinal and
behavioral loyalty approach. The attitudinal loyalty helps to examine the factors of loyalty, to avoid
switching behavior, and to predict how long customers will remain loyal. Therefore, viewing loyalty as an
attitude-behavior relationship allows integrated investigation of antecedents and consequences of
customer loyalty.

Cengiz & Yayla (2007) referred Stank et al. (1999) who specify customer loyalty as a customer’s
attitude to the service where loyalty has been described as repeat purchase behavior impinged by proper
attitudes or as a consistent purchase behavior arising from the psychological decision-making and
evaluative process. Customer loyalty is shaped, by a customer’s cumulative (long term) experience, with

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the service over time, not by a specific service encounter.

Definition of Customers Loyalty

According to Wijaya (2005) it is not easy to define customer loyalty, as many people and even
managers perceive customer loyalty is equal to repeat purchase behavior of the customers. So Leong et al
(2012) narrated that yet until now, there are no definite boundaries on the antecedents supporting
customer loyalty. But Jumaev et al. (2012) are of the opinion that loyalty is a rich concept with many
possible definitions.

Ivanauskiene & Auruskevicien (2009) expressed that there are no common definitions of loyalty -
and cited Dick & Basu (1994) who defined loyalty as a consumer commitment to the brand or approach
to the brand (service, product category, etc.). Akın (2012) asserted that examining the historical course of
the studies with the subject of loyalty it is found that the researches that try to define what loyalty is have
significant space. The most basic problem encountered in those studies is the failure to achieve a shared
definition of loyalty because although customer loyalty may be a key variable that explains keeping the
customer at hand.

Wijaya (2005) quoted a definition of customer loyalty offered by Kotler, Bowen and Makens
(1999) as:
“How likely customers are to return and their willingness to perform partner-shipping activities
for the organization”. Kotler, Bowen and Makens (1999)

Basarir & Dhaheri (2009) asserted (referring Stone et al., 2000) that:
“The term customer loyalty is a physical and emotional commitment given by customers in
exchange for their needs being meet”. - Stone et al., 2000
BOSE and RAO (2011) appended definition of Khan and Khan (2006)
“Customer loyalty exists when a person regularly patronizes a particular (store or non store) that
he or she knows, likes and trusts”. Khan and Khan (2006)

Wahab et al (2011) extracting from several studies expressed that today, a number of studies have
attempted to define the loyalty. Researchers have used both attitudinal and behavioral measures to define
and assess customer loyalty. From an attitudinal perspective consumer loyalty is a specific desire to
continue a relationship with suppliers and provider. Wahab et al (2011) quoted Oliver, (1997) and
Dimitriades, (2006) who defined customer loyalty. According to Oliver, customer loyalty is “A deeply
held commitment to re-buy or re-patronize a preferred product/ service consistently in the future.”
According to Dimitriades ‘‘loyal’’ are defined those customers who hold favorable attitudes toward an
organization, recommend the organization to other consumers and exhibit repurchase behavior.

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For brand loyalty Srinivasan (2002) cited Keller (1993), who suggested that loyalty is present
when favorable attitudes for a brand are manifested in repeat buying behavior.
Srinivasan (2002) quoted definitions of different researchers for customers’ brand loyalty as:
“The preferential, attitudinal and behavioral response toward one or more brands in a product
category expressed over a period of time by a consumer.” (Engel & Blackwell 1982)

Loyalty is a biased behavioral purchase process that results from a psychological process. (Jacoby,
1971)

Brand loyalty is “a favorable attitude toward a brand resulting in consistent purchase of the brand
over time.” (Assael, 1992)

Sondoh (2007) cited Oliver (1997) defined customer's loyalty as:

"A deep held commitment to re-buy or re-patronize a preferred product/service consistently in

the future, thereby causing repetitive same-brand or same brand-set purchasing, despite situational
influences and marketing efforts that have the potential to cause switching behavior" (Oliver,
1997).

Murat & Cevdet (n.d) with citations quoted definitions of several researchers. So according to
Jones and Sasser (1995), customer loyalty is defined as a feeling of attachment to or affection for a
company’s products, services and people. Loyalty is a long-term commitment to repurchase involving
both repeated patronage and favorable attitude. In a business context loyalty can be defined as a
customer’s commitment to do business with a particular organization, purchasing their goods and services
repeatedly, and recommending the services and products to other people.

Durukan & Bozaci (2011) stated that customer loyalty, which is defined as preferring a specified
company in repurchases, plays a critical role to be successful in today’s competitive business environment.
Durukan & Bozaci (2011) narrated that loyalty is generally expressed with some kinds of words like
sincere devotion, fidelity and friendship. Consumer loyalty is defined as the tendency or behavior of
preferring same firm in repurchases, which has attitudinal and behavioral dimension. In other words it can
be defined as consumer’s desire and action to prefer a specified firm when it comes to purchasing.

Jandaghi et al (2011-a) defines loyalty as: “it is a strong commitment to superior services or goods
repurchase in future to acquire the same brand despite of marketing efforts by potential rivals and their
impacts. McCain et al (2005) wrote that loyalty has been defined as repeat purchase behavior led by
favorable attitudes or as a consistent purchase behavior resulting from the psychological decision-making
and evaluative process.

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About Behavioral and attitudinal definition Sondoh (2007) wrote that behavioral loyalty has been
considered as repeat purchase frequency or proportion of purchase, whereas attitudinal brand loyalty
included "stated preferences, commitment or purchase intentions of the customers". Most of these
behavioral definitions above are criticized, arguing that "all of these definitions suffer from the problem
that they recorded what customer did, and none tapped into the psychological meaning of loyalty". The
composite definition of loyalty emphasized two different approaches of loyalty: the behavioral and
attitudinal concept. A conceptual definition of brand loyalty is: (i) biased (i.e. non-random), (ii)
behavioral response (i.e. purchase), (iii) expressed over time, (iv) by some decision-making unit, (v) with
respect to one or more brands out of a set of such brands, and is a function of psychological
(decision-making evaluate) processes.

Benefits of Customers Loyalty

After visiting the literature Dharmalingam et al. (2011) are of the opinion that it is better to look
after the existing customer before acquiring new customers. The advantages of customer loyalty are:
 The service cost of a loyal customer is less than new customers
 They will pay higher costs for a set of products; and
 For a company, a loyal customer will act as a word-of-mouth marketing agent
The most research on customer loyalty has focused on brand loyalty; on the other hand, a limited number
of researches on customer loyalty have focused on service loyalty. Customer satisfaction is influenced
by the quality of service & product and price as well as the situational and personal factors.

Cheng, et al. (2011) revealed that for the service industry, the cost of developing a new customer
is at least 5 to 9 times the cost to maintain an old customer. If the customer loyalty can be increased 5%
effectively, then 25-85% profit can be increased. Therefore, if the service industry wants to reduce the
expenditures on money and time cost, it shall focus on maintaining customers, not obtaining new
customers. It will bring a long-term or short-term profit by maintaining a long-term relationship with the
customer. It can be seen that the importance of customer loyalty establishment on the service industry
operation cannot be understated. If the food service industry can keep the customer and make him/her a
loyal customer, then it will also be able to bring long-term operating efficiency.

Tu et al. (2011) with several citations revealed that customer loyalty is a strategy that creates
mutual rewards to benefit firms and customers. One benefit is that firms can increase the revenue. With
loyal customers, companies can maximize their profit because loyal customers are willing to (1) purchase
more frequently; (2) spend money on trying new products or services; (3) recommend products and
services to others; and (4) give companies sincere suggestions. Studies further indicate that customer
loyalty provides a foundation for a firm to examine their marketing strategy, relationship quality
improvement activities, and value creation program. Thus, loyalty links the success and profitability of a
firm. Tu et al. (2011) further argued that with loyal customers, companies could reduce the operating cost
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and acquisition expenses. An improvement of 5 percent in customer retention leads to an increase of 25

percent to 75 percent in profit. It costs more than five times as much to obtain a new customer than to
keep an existing one.
Cengiz & Yayla (2007) quoting many studies argued that it’s a clear fact that, customer loyalty can
lower costs and increase profitability. The cost of recruiting a new customer is said to be five times more
than the cost of keeping an existing customer. The costs of customer retention are in fact less than the
relative costs of customer acquisition, and loyal customers, if served correctly, are said to generate
increasingly more profits each year when they stay with a company. Customer loyalty should be realized
through customer satisfaction, ground on the perceived performance of the service product; therefore
service quality and customer satisfaction are two prerequisites of loyalty. Further, in the last decade
researches on loyalty have emphasized its positive effects on customer satisfaction. Perceived service
quality has also been found to have a positive association with customer loyalty and has even been said to
be a key determinant of service loyalty. Though satisfaction is modeled as the only immediate antecedent
of loyalty, other key drivers of loyalty include service quality and customer expectations.

These benefits are described in Table-1 and Table -2. Table-1 is shows cost of acquiring new
customers as compared to customer retention and Table -2 and showing percentage increase of profit by 5
percent customer retention.

Table-1
Showing Cost of Acquiring new Customers as Compared to Customers Retention
Researcher Name Benefit of Retention of old Cost of acquiring new
Customer as compared to Customer compared to
new customer retaining old customer
Kuusik (2007) 6 - times
Cengiz & Yayla (2007) 5 - times
Tu et al. (2011) 5 - times
Cheng et al (2011) - 5 to 9 times
Jandaghi et al (2011) 15 times
Razavi et al (2012) 10 – times cheaper

Table-2
Showing Percentage Increase of profit by 5 Percent Customers Retention
Researcher Name Prcentage Increase in Prcentage Increases in
Customers Retention Profits
Rigby et al (2003) 5 25-95
Yoo & Jae (2005) 5 25~85
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Li & Green (n.d.) 5 25~85

Sondoh (2007) 5 25–95
Kuusik (2007) 5 60
Cheng et al (2011) 5 25~85
Wel et al (2011) 5 25~125
Tu et al. (2012) 5 25–75
Valenzuela (2012) 5 100
Jandaghi et al (2011) 5 25~85

Conclusion

From the study of above literature it is revealed that customer loyalty originally referred to
repeated purchase behavior but currently there is a distinction between behavioral and attitudinal loyalty
concepts (Gyulavári 2010). However Marshall (2010) is of the opinion that loyalty is much more than just
repeat purchases as oftentimes repeat purchase may be the result of inertia, indifference or exit barriers.
Customer retention improves profitability principally by reducing costs incurred in acquiring new
customers. With loyal customers, companies can maximize their profits. Loyal customers are willing to (1)
purchase more frequently (price insensitivity), (2) try the firm’s new products or services (repurchase
intention), (3) recommend products and services to others (word-of-mouth), and (4) give companies
suggestions (complaint behavior) (Reichheld & Sasser, 1990). Loyal consumers have (1) high purchase
intention (repurchase intention), (2) less price sensitivity (price insensitivity), (3) feedback to the firm
(word-of-mouth, complaint behavior), and (4) do more business (frequent purchase and no switching
behavior). There is a chain of effects and the links in the chain are as follow: Profit and growth are
stimulated primarily by customer loyalty. Loyalty is a direct result of customer satisfaction. Satisfaction is
largely influenced by the value of services provided to customers and satisfied, loyal, and productive
employees create the value. Hence it is concluded that retention of old customers is much cheaper than
acquiring new customers or acquiring new costs customers is 5 to 10 times more than customer retention
as explained in Table -1. Retention of old customers enhances profit as described in Table – 2.

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