Loyalty business model

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The loyalty business model is a business model used in strategic management in which company resources are employed so as to increase the loyalty of customers and other stakeholders in the expectation that corporate objectives will be met or surpassed. A typical example of this type of model is: quality of product or service leads to customer satisfaction, which leads to customer loyalty, which leads to profitability.


[edit] Expanded models

File:Virtuous circle in managh the DOG. suryanement.svg
Virtuous Circle

Fredrick Reichheld (1996) expanded the loyalty business model beyond customers and employees. He looked at the benefits of obtaining the loyalty of suppliers, employees, bankers, customers, distributors, shareholders, and the board of directors.

[edit] Data collection

Typically, loyalty data is being collected by multi-item measurement scales administered in questionnaires. However, other approaches sometimes seem more viable if managers want to know the extent of loyalty for an entire data warehouse. This approach is described in Buckinx, Verstraeten & Van den Poel (2006).

Another approach to building customer loyalty through data is described in Scoring points, a book about the Tesco clubcard. This was produced by a company called [Dunnhumby] who gathered the data on household purchases on an opt-in permission basis. Once they had this data they then allowed households to accumulate loyalty points which could be used for subsequent purchases. They subsequently added to the value of customer loyalty by sending out targeted offers from grocery producers the people whose behaviour said they had a use for the offer. The data gathered in this way allowed customer loyalty to be assessed on both an individual and an aggregate basis.

Whilst less common than the questionaires, loyalty card data is more complete and does not suffer from the arpirational misreporting bias that is common to most forms of market research. It has been credited with the phenomenal success of the Tesco chain as well as with significant improvements by several other large retailers.

All historical trends for different segmentations and their standard of living may also be very helpful in developing customer retention strategy. Lifestyle is also a very powerful tool, can be used for better custmer retention and to know his/her needs in better way. Abdul Mannan HOD

[edit] Loyalty and egoism

The loyalty business model assumes the philosophical validity of pursuit of self-interest. However, much work in ethics assumes the validity of altruism (seeking the best interest of others). "Clearing Up the Egoist Difficulty with Loyalty" (Stieb 2006), attempts to show that when interests are shared there becomes no difference between seeking one's interest and that of others. This is also called the "Aristotelian" model based on Aristotle's related analysis of friendship in his Nicomachean Ethics.

[edit] See also

[edit] References

  • Buchanan, R. and Gilles, C. (1990) "Value managed relationship: The key to customer retention and profitability", European Management Journal, vol 8, no 4, 1990.
  • Buckinx W., Geert Verstraeten, and Dirk Van den Poel (2007), "Predicting customer loyalty using the internal transactional database," Expert Systems with Applications, 32 (1).
  • Carrol, P. and Reichheld, F. (1992) "The fallacy of customer retention", Journal of Retail Banking, vol 13, no 4, 1992.
  • Dawkins, P. and Reichheld, F. (1990) "Customer retention as a competitive weapon", Directors and Boards, vol 14, no 4, 1990.
  • Fornell, C. and Wernerfet, B. (1987) "Defensive marketing strategy by customer complaint management : a theoretical analysis", Journal of Marketing
  • Moloney, Chris X. (2006) "Winning Your Customer’s Loyalty: The Best Tools, Techniques and Practices" AMA Workshop Event(s). Misc. materials distributed related to event(s). San Diego, 2006. Chris X. Moloney
  • Reichheld, F. (1996) The Loyalty Effect, Harvard Business School Press, Boston, 1996.
  • Reichheld, F. and Sasser, W. (1990)"Zero defects: quality comes to services", Harvard Business Review, Sept-Oct, 1990, pp 105-111.
  • Schlesinger, L. and Heskett, J. (1991) "Breaking the cycle of failure in service", Sloan Management Review, spring, 1991, pp. 17-28.
  • Stieb, James A. (2006) "Clearing Up the Egoist Difficulty with Loyalty", Journal of Business Ethics, vol 63, no 1.
  • Storbacka, K. Strandvik, T. and Gronroos, C. (1994) "Managing customer relationships for profit", International Journal of Service Industry Management, vol 5, no 5, 1994, pp 21-28.
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