University of California
Type of paper: Thesis/Dissertation Chapter
Customer Loyalty in a Business To Business Context
Customer loyalty is considered to be a powerful tool for most organizations in ensuring that they gain a competitive advantage in their respective industries ( Lam, Shankar, Erramilli, & Bvsan, 2004, p. 294). Customer loyalty is necessary for ensuring that organizations remain profitable while also achieving growth through reaching out to new market grounds. The importance of customer loyalty in the world of economics has developed gradually as an area of study especially business to business (B2B) environments. This is due to the need to study and identify factors that ensure customer loyalty is maintained and even increased, according to Haghkhah et al., (2013, p. 156).
Haghkhah, et al., (2013, p. 156) further noted that increased competition for customers in the market signifies that business ought to react even faster and more specific to the demands and wants of clients in order to win their loyalty. For this reason, marketers in most organizations tend to focus on customer retention techniques and also to lay an emphasis on increasing their loyalty levels. In order to achieve this, B2B has offered vast opportunities to ensure that most organizations achieve their objectives of customer retention and loyalty. Thus, the latter shows the importance of understanding customer retention and loyalty as an important area of the research study. Customer loyalty is viewed as a behavior of repetitive buying and further developed moving forward with factors such as antecedents, consequences, and factors. This has led the researcher to gain an interest in conducting further research on customer retention and loyalty, therefore, this research paper will be on the various ways and techniques that organizations can implement in order to increase customer loyalty in a B2B context
According to Haghkhah, et al., (2013, p. 157) a high rate of loyalty in a B2B environment is a competitive advantage to the seller due to the client’s willingness to pay a higher price for goods and sensitive since they start becoming less price sensitive as a result of trust that has been gained. This means that the income generated is likely to increase and remain stable to move forward
Customer loyalty is viewed as a strategy that aims at ensuring customers gain behaviour of repetitive purchasing from the same company. Customer loyalty in a B2B environment achieves a mutual reward that benefits both the customer and the organization. It is usually considered as ways of gaining competitive advantage by an organization over its competitors. Various companies have applied the strategy of maintaining customer loyalty since it is considered cheaper in regard trying to gain new customers in order to increase their revenue base.
Čater.T & Čater.B (2010, p. 1322) view customer loyalty based on activities such as contract renewal, making recommendations to clients and increasing patronage in a business to business environments. They further note that these factors will likely influence the level of loyalty to clients of an organization. In other research, customer loyalty in a B2B environment is based on the experiences of the client, the future expectations that a client may have about the organization and the frequency at which a customer buys goods and services from the organization( haghkhah, Abdul Hamid, Ebrahimpour, Roghanian, & Gheysari, 2013, p. 158). Further, (Čater & Čater, 2010) notes that in order to influence the loyalty of clients in a B2B context, and then the organization has to understand the behaviour of the client and the attitude of the client.
2.1 Limitations and Gap in Literature
The field of customer loyalty is one that has much information, but very little attention has been given to business-to-business scenarios. Most previous research has mainly focused on the customer’s point of view (Mascareigne, 2009). This could be because most view customer retentions as a behavioral factor. (Ranaweera & Prabhu, 2003) In any economy, businesses have to transact to perform their daily operations. Some businesses, such as audit firms, exist to serve other businesses. Extensive research on this area could aid other businesses to learn the dynamics of customer loyalty amongst themselves. A major limitation that was also experienced in the research was the over generalization of the research based on a B2B context. Since different businesses have different operations and strategies, some aspects may works for a certain sector that may not necessarily work for another. For example, concepts that may be used to increase customer loyalty in the banking sector, may not work in the manufacturing sector.
According to Buttle (2008, p. 267) commitment is defined as the relationship that exist between the two firms and is likely to be terminated at a reasonable future date. In a B2B environment, the commitment shared by the two firms is usually on a mutual agreement. Doma (2013, p. 72) notes that commitment between two firms is usually bonded by trust among the two firms. The level of trust that is usually shared by the two or more firms that conduct business affects their commitment framework. The more a firm is committed to another increases the level of loyalty shared by the two firms.
Moorman & Rust (1999, p. 183) in their research notes that commitment is usually the level of effort that is put by firms in ensuring a valuable relationship enjoyed by the two firms is maintained in the long term. The relationship usually has economic benefits for the two firms in their bid to ensure they remain profitable in their operations. For this reason, there exists a belief among organizations that the relationship has economic benefits; thus efforts are put in maintaining it. However, according to Hennig-Thurau (2004, p. 463) states that many scholars tend to argue that there is no major difference between loyalty and commitment. That school of thought has been dismissed by Morgan & Hunt (1999, p. 24) who argued there is a difference between loyalty and commitment. They, however, noted that the two are related, with a commitment being an antecedent of loyalty. This means that commitment is a factor in B2B environment that will increase the level of loyalty. This also meant that the existence of commitment had a strong positive impact on the level of commitment. Shabbir et al. (2007, p. 280) in their research demonstrated that commitment is an antecedent of loyalty. They argued that commitment in the B2B environment, it played a central role in ensuring that loyalty is always maintained and even increased to higher levels.
Sharma, et al. (2006, p. 77) in their study note that commitment is the situation whereby there is a desire to make a relationship stronger with another person or even group due to familiarity or even friendship has that has been developed over time due to the personal interaction that has occurred between the two over a period of time(Eakuru & Mat, 2008, p. 125). Therefore, commitment should be as a result of identifying the values that are shared commonly between two organizations. It is crucial to note that the customer will retain a relationship with another party due to the positive effect they have with the supplier.
At times, a client may be forced to continue staying in a relationship with another party due to lack of valuable options that may be available to them (Fullerton, 2005, p. 1388). However, most relationships are maintained with a commitment as a result of the benefits that both parties will benefit from (Brandi, 2001, p. 67).
When commitment is the guiding principle of B2B environment, and one organization performs poorly in comparison to the incumbent organization, then due to the level of commitment shared the partners are unlikely to switch to other options (Stephan , 2002, p. 20). This makes a commitment an underlying factor that will help in influencing the level of loyalty in a B2B environment (Stephan , 2002, p. 33). Akin (2012) gives an example, in comparing the loyal between customers with low loyalty and customers with high loyalty and explains that customers with high loyalty will be not be swayed by discounted prices from other suppliers. Therfore, the higher the level of commitment that will be shared between organizations an increase in loyalty levels between the organizations will be experienced. If the level of commitment is increased through activities such as contract renewal and making of recommendations to the other organization, it will in turn increase the level of loyalty enjoyed by the two firms.
Therefore, if organizations want to increase the rate of exit by their clients, then they have to build a relationship that will be founded on a commitment. Commitment will in turn increase the level of loyalty in a B2B environment. This will ensure that the future of the organization is maintained as it will continue making profit. In a study conducted by CITATION Gus05 l 1033 (Gustavsson & Lundgren, 2005) they give an example whereby airline companies use their frequent flyer programs as a means to enhance repeated purchase through provision of economic incentives to ensure that they increase and also maintain loyal among their clients.
2.2 Theories and Methodologies
A common principle that has emerged from the total quality management (TQM) movement is that the decisive path, to retaining customers, is to satisfy their needs (Colby, 2013). The theory holds that if by identifying what customers expect and by meeting these requirements and expectations, these customers are less likely to opt for the services given by a competitor. Past research conducted by Colby (2013) has shown a positive relationship between satisfaction and loyalty. In other words, if a client is satisfied with the services offered by a business, the client is bound to be loyal to the business.
Other studies have also identified a positive relationship between service quality and customer loyalty (Van Es, 2012). However, a certain level of satisfaction does not always guarantee the desired loyalty. In a certain survey, Colby suggested four indicators of customer loyalty and this include; demographics, past behavior, perception of gain or loss of switching to a different brand and attitudes towards openness to new brands. Studying these four indicators can give a better understanding of customer loyalty. For instance, if a business expects to save on costs by transacting with another business, then they are most likely to be loyal to that particular partnership.
The attitudinal approach takes a view of purchase behavior and tends to explain in terms of values, beliefs and attitudes. Deterministic theory entails the logical relationship between variables and researchers in this field are responsible for identifying which variables affect customer loyalty. It appears to be acceptable to most cognitive researchers that attitude comes before behavior in a scenario that involves repurchasing a product and is very important because attitude comes before a choice. The behavioral approach holds that internal processes cannot be measured and, therefore, have no place in research (Bennet & Bove, 2002). Understanding customer loyalty in a B2B scenario is a long term relationship regardless of the importance of the transactions. Both methods may differ in views but can be both used to understand the concept.
Although customer loyalty research has evolved over the years, most of this research uses a logical empiricist paradigm(Paavola, 2006). Information about customer loyalty has been derived mainly from cognitive psychology, with theories about attitude forming most of the work. Current theoretical framework could, therefore, bring a new perspective into the loyalty research. Paavola (2006) uses the social constructionism paradigm to examine the notion of customer loyalty critically. The study gives a detailed description of customer loyalty that is based on the social reality of customers. The results imply that different types of loyalty should be taken into considerations when making managerial implementations. Categorization can also be very beneficial when it comes to future loyalty research.
Most theories, which are associated with loyalty studies, deal with issues such as loyalty programs, customer satisfaction, customer value, service quality and social bonds (Jacobsen, Olsson, & Sjovall, 2004). A model constructed by Jacobsen, Olsson and Sjovall (2004) shows that social bonds have the most significant effect on customer loyalty with companies in the banking sector. The study shows that the most important factors, in maintaining customer loyalty in the banking sector, were social bonds and personnel. This is because, banking services are very similar and to survive in such as market, strong competitive personnel are required to make the right connections. The same study revealed that monetary benefits are not a significant factor in that area of business.
According to Kuusik (2007), the factors, trustworthiness, satisfaction, importance of relationship and image are important factors that play a role in the different levels of customer loyalty. Traditionally, most research has focussed on either the influence of individual factors on loyalty or the nature of different levels of loyalty. It is important to not only view loyalty through behavioural criteria, but also attitudinal criteria as well. Behavioural clients could be divided into; forced to be loyal, functionally loyal and loyal due to inertia (Kuusik, 2007). For instance, in a B2B context, when a certain company is a monopoly, getting supplies from them is the only logical answer, and this forces a company to be loyal by force.
Businesses can be loyal by inertia due to the importance of a certain process. If the process is of low importance, then there is practically no need to get another partner. This can happen in situations where the transaction is routine such as trash- pickup. Functionality loyalty is gained from when organizations have to partner with other organizations because they have an objective reason to be. Research has shown that inertia is a situation opposite to loyalty CITATION Aki12 l 4105 (Akin, 2012). For example, a business may select another business since they require minimal effort to reach them.
Dahlgren (2005) used multivariate data analysis techniques to build a link between dimensions of brand loyalty and to capture the different levels of customer loyalty. The result showed several differences in the loyalty dimensions. In a similar study, Kuusik (2007) uses a LOGIT regression model to determine the significant factors that affect customer loyalty. The model comprises of various factors that affect customer loyalty. The study reveals that image, satisfaction, importance of relationship and trustworthiness are the most significant factors in loyalty research.
According to East et al. (2005) the definition of loyalty is useful if they can be used to predict phenomena such as search, retention, and recommendation. The authors establish that combination measures of customer loyalty often act as poor indicators of consumer loyalty as compared to other singular indicators such as recommendations. Apart from viewing these combinations to be of limited value, the research also establishes that there is no form of loyalty that always predicts different loyalty outcomes and a general concept of loyalty should be abandoned (East, Gendall, Hammond, & Lomax, 2005). For instance, instead of using indicators such as loyalty programs and money rewards, researchers should either look for retention of customers and any recommendation given by them.
2.3 Identifying relationships between ideas and practice to increase loyalty in a B2B context
Various ideas have been drafted in order to increase customer loyalty in a B2B context. For example, from the above review, it is noted that identification of the company’s prospects and acting on them will help in increasing the loyalty. However a company can deliver on all the needs of their clients, but the delivery of their services will influence the level of loyalty moving forward. If when delivering all the needs of their client, and they produce a poor delivery service, then this will likely lead to a decrease in loyalty level. For example according to Akin (2012) factors that help increasing the loyalty of customers is high-level service quality delivered by firms that will lead to a high level of customer satisfaction.
In another scenario, companies tend to try and find ways in which they can influence the frequency at which their clients access their websites for information. However, research indicates that half of the customers get information from their website. The lack of companies to invest and provide websites that are easy to access and provide the necessary information to their clients will lead to a decline in the level of loyalty. For this reason, there is a clear distinction between the ideas developed to increase loyalty and the practices a company will adopt.
From this literature review, it can be shown that various researches have tried to establish the existence of a positive relationship between loyalty and aspects such as service quality and customer satisfaction. Some studies have employed the use of correlation analysis to investigate this relationship. Correlation research allows a researcher to determine whether a relationship between variables exists, it allows one to define the extent of the relationship between the variables (Gall, Gall, & Bord, 2005). Qualitative and quantitative research methods both have their benefits and drawbacks. For instance, when the correlation between two variables has been established, it still does not tell the researcher what should be done, but rather what can be done. Qualitative methods, as used by Paavola (2006), can also bring out knowledge that is not familiar with other researchers. The results can also be influenced by the researcher’s personal biases. However, some of these studies tend to cover wide areas that may take long periods of research.
The benefits of customer retention have been recognized by many researchers (Feihua, 2011). In the business to business scenario, certain aspects of retaining a customer bring out themselves than conducting business with the ordinary customers. For instance, paying attention to the ordinary, like attending meetings on time is not a necessary, but a crucial habit to consider. In a B2B relationship, the parties are more defined, and this is based on the assumption that both parties are seeking common benefits in the relationship (Oy, 2010). In a normal business to customer relationship, the dissolution of the relationship ends up in the consumer leaving the services of the provider. In the B2B setup, the end of the relationship is thought in terms of a process while in switching is thought as just as a change in the relationship. In customer loyalty research, perhaps it would be of vital importance to consider the industry in which the research is being conducted on. In industries where the businesses provide similar services, social bonds could be the prevalent factor that promotes consumer loyalty between businesses. In other industries, where the services offered are different, probably loyalty programs and monetary rewards could be the way to win customer loyalty.
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