Customer Loyalty -- a Critique

Customer Loyalty -- a Critique

The authors of Zero Defection: Quality comes to service articles found out that defection has a considerable impact on the profitability of the company. The rates of defection are not just a principal precise indicator of changes in profits by passively showing where the profits are headed but also provide useful information on the specific cause of customer's exits. The authors found out that the sales generated by the customers are incremented over the time that they stay with the company as was the case of the auto service company. The authors also state that the customers who are long standing are more willing to pay more for the service or products. A loyal following will make it easy for a premium charge to be imposed on these customers (Reichheld, & Sasser, 1990).

The authors of The Mismanagement of customer loyalty argue that managing of the longstanding customers is not cheaper than those who are short-term customers contrary to the popular argument. Actually the significant correlation found between the cost and customer longevity is that the presumed longstanding customers and the customer loyalty were more expensive. The authors also claim that higher prices are not paid by loyal customer than the recent ones for the same amount or type of goods. This is because they are more familiar with the products hence savvy when choosing the cheapest goods. The final argument is that the customers who are loyal do not market the company more than the recently discovered customers. They believe the profit loyalty link is weaker because of the methods used by most companies in deciding whether the relationships of the customers should be maintained. They consider customer loyalty measurement using RFM isn't effective (Reinartz, & Kumar, 2002, p. 90).

Pros and Cons of the findings

The authors of Zero defection: Quality comes to service found out that there was tripling of the profits generated by one customer from in the fourth year than in the first year and this shows the advantages of loyalty because it leads to increased profits. All this profit is lost whenever the customer defects from the company. This increased profitability with loyalty is also evident in the credit card finding. The customer who is newly acquired generates only the base profit when using the card at first but after the second year, there will be improved economics. The usage increases as they become more familiar with the services. The disadvantage of these findings is that the profitability puzzle does contain many pieces and a direct association with loyalty is never definite (Ranaweera, 2007, p.115).