Customer Loyalty in E-Commerce Outlets Term Paper

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Much marketing research has been done on analysing customer behaviour and retention. As a consequence, it is crucial for online companies to create a loyal customer base, as well as to monitor the profitability of each segment (Reinartz and Kumar, 2002)

Definition of customer e-loyalty

Customer loyalty has been defined 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 behaviour" (Oliver, 1999). This general definition appears to apply to e-loyalty as well. Another briefer and more specific definition is provided by Anderson and Srinivasan (2003), who define e-loyalty as "the customer's favourable attitude toward an electronic business, resulting in repeat purchasing behaviour" (p. ____).

Since it is considered difficult to gain loyal customers on the internet without directly contact (Gommans et al., 2001), satisfaction with the merchant and their services may be even more important online than offline. Therefore, Shankar et al., (2003) and Van Riel et al., (2001) stated that E-satisfaction directly and positively affects e-loyalty.

In China, trust is proposed as the most important factor of influencing loyalty. The rust concept has been studied in a number of disciplines, and various definitions have been proposed (Lewicki et al., 1998). Trust is consistently related to the vulnerability of the trustor (Bigley and Pearce, 1998; Singh and Sirdeshmukh, 2000). In terms of increased spending (Gefen, 2000), and intentions to purchase (Pavlou, 2003) or repurchase (Pan et al., 2002). Lack of trust is frequently cited as a reason for not purchasing from online merchants (Lee and Turban, 2001).

E-commerce's effect and advantage today.

The research on the effect of e-commerce is based on the main e-commerce channel-internet. Worzala et al. (2002) suggests that in 2010, 50% of the retail stores in America would be closed because half of all purchasing will occur online. For marketers, e-commerce then provides a new market space through which to provide customers with product purchase opportunities and delivery processes in addition to their traditional brick-and-mortar marketplaces.

The research views about e-commerce benefits and advantages were expressed by Kotler (2000) and Skyrme (2001):

24-hour, 365-day opening

Lower costs

Efficiency gains

Extended market reach

Quick adjustment to market conditions

Convenience and information

Streamlined process

The increased use of the internet has suggested that there may be many advantages to both suppliers and customers in using e-commerce in a web-based environment.

The link between Web benefits and customer loyalty

As the Web becomes a more mainstream and increasingly larger proportion of the population become Web users, Windham (2000) mentioned that the more complex the challenge of establishing and maintaining customer loyalty becomes - because the target market is rapidly growing more diverse and competition is fierce. Meeting e-customers' expectations by delivering what they perceive to be the advantages of shopping online is a critical component of creating web customer loyalty. Online consumers become accustomed to the way a site is designed and how it works. This is an important aspect of convenience and time efficiency according to the Pulse of the Customer research on Benefits of Online Shopping. Once a site has become familiar, a set of consumers settles in as loyal customers (Windham, 2000).

From an international marketing perspective, then, it becomes increasingly important to tailor a Web site to satisfy these unique expectations, a view that is support by the essay, "Customer/Brand Loyalty in an Interactive Marketplace," by Schultz and Bailey (2000). According to these authors, "The interactive marketplace changes traditional marketing theory.

Every marketing organization wants to develop loyal customers: customers that buy consistently over time, generally at regular prices, commonly ignoring the pleas and platitudes of competitors. Everyone knows customer loyalty is good" (p. 41). Given the opportunity and armed with recent innovations in data capture and management techniques, international marketers feel they already possess relatively effective techniques of developing and measuring customer loyalty; in this regard, measures of customer satisfaction represent such a measure. "A satisfied customer," they say, "at least according to research, tends to remain more loyal to the brand or the product than an unsatisfied customer. Behavior is another. In the short-term, marketers can measure various forms of customer behavior. Customer consistency (i.e., the number of times a customer buys in a certain time period) and longevity (i.e., the time period over which a customer buys the particular product or brand) are two examples. Both have received widespread attention" (p. 41). Despite these findings and suppositions, though, a fundamental problem remains. Bailey and Schultz suggest that satisfied customers, at least those who claim satisfaction in various research situations, often drift away from the company or the brand; furthermore, the same concepts applies to customers who have exhibited brand or company loyalty through their purchases over time. "Sometimes they simply stop buying. No apparent change in life-style, economic level, personal situation, or other factors seem to explain the shift in purchasing behavior. Loyal today, gone tomorrow" (Bailey & Schultz., p. 41).

The problem becomes more complex given the impact of the internet, world wide web, and e-commerce. Those systems provide a plethora of new suppliers, new brands, and new offerings. When customers were restricted in the brands or products offered to them, marketers found developing brand or company loyalty was a relatively easy task. "It simply wasn't practical or possible for consumers to shop a wide variety of outlets or geographies. As a result, many tended to become brand and channel loyal over time. In many cases, the limited distribution facilities available commonly offered the same assortment of brands and product lines" (Bailey & Schultz, p. 41). As a result, while retail alternatives in many markets declined because of concentration and consolidation, customers frequently became "brand loyalists" simply because their choices were limited or were continuously being otherwise reduced (Bailey & Schultz, 2000).

The new electronic communication and marketing alternatives and opportunities, however, exploded the alternatives available to customers around the world. Given these profound changes in the marketplace, a review of previous studies concerning brand and customer loyalty will help to define a new approach for the 21st century marketplace (Bailey & Schultz, 2000). Much of the basics of brand loyalty seem to stem from research conducted initially by the Chicago Tribune in the late 1940s and early 1950s, based on consumer diary panel data that recorded consumer household purchases. Initially reported in Advertising Age in a series of articles in 1952-1953, that data was subsequently published in the Harvard Business Review in 1956; the work to that point was congruent with what was known about market segmentation that was regarded as a best practices approach at the time, starting first with Twedt's work on the "heavy-half" theory and progressing through Haley's "benefit segmentation"; as a result, most of the early work in customer or brand loyalty was focused primarily on how customers actually purchased or "behaved" in the marketplace (Bailey & Schultz, 2000).

By the mid 1960s, though, the majority of the research concerning brand loyalty was focused on the underlying economics involved in the provision of relevant information such as the cost and ability of consumers to search for information about alternatives and to understand brand choices. In this regard, Bailey and Schultz cite Farley's (1964) work on "Brand-Loyalty and the Economics of Information" as a seminal representative sample of that line of thought. During the early part of the 1970s, Jacoby and Kyner (1973) examined the issue of brand loyalty as it related to repeat purchasing behavior and suggested that psychological factors could help explain why loyalty developed in some cases and not in others. According to Bailey and Schultz, Jacoby and Chestnut (1978) then published what has become the basis for contemporary thought concern how consumers relate, decide, and purchase brands exhibiting customer loyalty; this philosophy, promulgated in their book, Brand Loyalty: Measurement and Managemen, remains a guiding force among many international marketers, and much of the studies since that time regarding brand loyalty have been the result of efforts to effectively represent basic consumer behavior; in other words, how consumers truly evaluate alternatives and go about making their purchase decisions. Howard (1963) and Howard and Sheth (1969) developed extensive models to explain the process. Their work has often been used as a way to explain why and how customers make purchase decisions and become brand loyal, switchers, or something else (Bailey & Schultz, 2000).

By the 1980s, with the availability of supermarket scanner data, the research focus shifted to consumer choice and behavior modeling, again, using primarily observable consumer purchase behavior. Goading and Little (1983) approached the subject as alternative choice models available to consumers. During that same period, direct marketers and catalogers first started to develop very sophisticated approaches using regression, CHAID, CART, and other statistical techniques. At that…[continue]

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