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Customer Loyalty in a Nutshell

Updated: Jul 18, 2022


So, you are getting customer complaints. All businesses get them, but how do you turn a complaining customer into a loyal one? I wish I could say it was easy, but it is not. However, there are some useful tips and a couple of things that are no-nos. A research study by Morgeson III, Hult, Mithas, Keiningham, and Fornell helped this writer see the light.


Customer Complaints


Most marketers will agree that the stakes are high when resolving customer complaints in today's competitive market. Technology has not helped matters. With the speed of light, one complaint can be circulated among millions of consumers, and before you know it, everything explodes—in other words, it gives word of mouth a whole new meaning.


This type of negativity can travel in all sorts of directions, but what is essential is knowing that a complaint from one upset customer can create a whole bunch of unwanted publicity. This fact ends up hurting your company financially—Just look at Chipotle or United Airlines.


Management Complaint Systems


Not all complaint management systems are the same and having the right one can save a company lots of money. What is the most interesting takeaway from this article is that many studies on customer complaint and loyalty "focus on a small cross-section of consumer industries." These studies create problems because it is not an accurate measure of reality. Thus, leaving large gaps in knowledge about complaint and loyalty issues.


Thus, many factors affect customer complaints and loyalty:


I. Observable Factors

  • Industry

  • Customer Firm

  • Product/Service - low price versus high price

  • Customer Segment

II. Unobservable Factors


  • Consumer power

  • Switching costs, and barriers

  • A reservoir of consumer goodwill


III. Economic factors

Economic growth can affect customer complaints and loyalty. If you are a monopoly and the economy is lagging, customers will complain more about necessary items. However, customers are unlikely to defect because they need the item, so monopolies can forego complaint management systems for the most part.


IIII. Loyalty


On the other hand, in a growing economy with a competitive marketplace, things can take a different route. Take for instance luxury goods. These companies need to be concerned because consumers can shift easily to a competitor.

The faster the economy grows, the higher the chance of failure in recovery and loyalty. This link is partly due to a more powerful consumer who has lower unemployment, stronger income growth, more consumer spending, and stronger consumer confidence. All this implies is that the consumer has power, making it easy to switch between competitors. Hence, increasing disloyalty, and defection, so complaint management during these periods is utmost.


Customer complaint and loyalty vary amongst industries, and competition plays a crucial role in managing it—the more competitive, the better to have a sound complaint management system. Also, what works for one industry will not necessarily work for another, so trying to copy a firm’s complaint management system outside your industry is not a good idea.


Three customer firm factors influence the recovery-loyalty relationship.

  • Customer satisfaction

  • Reliability

  • Customization

Customization


If the customer is satisfied and consumer goodwill is not breached, then loyalty is obtainable. Also, customization plays a role. Customization is a “customer’s pre-experience perceptions of the product/service’s abilities to meet personal requirements” (Morgeson III, Hult, Mithas, Keiningham, & Fornell, 2020). These consumers have lofty expectations and expect personalized attention. Thus, the incentive to maintain a great relationship with customers is necessary. Reliability must be there as well. Reliability is defined as "customer's pre-experience perceptions of the probability of a lack of failure with the product/service" (Morgenson III et al., 2020). If customers have a terrible experience, in other words, promises or expectations are not met, then there will be a negative response to the recovery-loyalty relationship.


Product/service is defined as a basic product or service that must be purchased out of necessity regardless of income, or a low-cost good that can be substituted for a luxury item. For higher income customers, luxury goods can be replaced for a lower price good or the luxury item can be easily switched to another luxury item.


Because these customers are better off financially, their previous purchases are not seen as detrimental to them and will not be affected by the recovery process. Unless an item is a necessity, then the situation is reversed. Having a good and reliable complaint management system for these factors is a plus. Finally, service firms need an excellent complaint system more so than manufacturers.


The customer segment has four factors that the authors of this article studied that affect the complaint recovery-loyalty relationship.

  • Income

  • Gender

  • Age

  • Region of residence

As far as these factors go, the researchers had little evidence from previous studies to go by, so they researched the literature, and this is what they found: income based on customer satisfaction does not influence loyalty for wealthier customers. Mainly, because there is little or no barriers to switching. Thus recovery-loyalty relationship will be more challenging to obtain.

Women vs. Men


There is more positive recovery-loyalty among women than men. With age, the older, the better, probably based on customer experience. Finally, there is no evidence of any recovery-loyalty amongst regions of residence. The research results in this study show that region of residence has no moderating effect on the recovery-loyalty relationship, which was intriguing.


Complexity


This research project's findings stipulate that most companies set their cost estimates too low when planning their complaint management systems. Industries vary widely in the percentage of customer complaints, and the "characteristics of the economic sectors and industries can dictate the importance of complaint recovery to their customers” (Morgenson III et al., 2020). Also, complaint management systems designed to enhance financial performance are overly complex, almost too complicated for front line customer service representatives to manage on their own.


Thus, “Decision support systems need to be implemented that consider economic factors (the affect and expectations of customers), industry factors, and the relative profitability of customers’ (Morgenson III et al., 2020). This will help customer service representatives to better assist the complaining customer. Self-service and digital communication are on the rise and may be beneficial in some industries because customers like convenience. What’s more, customer perception of the handling of complaints will vary widely across industries.


At Moe's Groupwww.moesgroup.org, your product success is our number one priority. If you are interested in customer loyalty, review our website and submit an inquiry here: Moesgroup.org . Or give us a call HERE and one of our specialists will assist you.

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