Tuesday, January 26, 2010

Do Loyal Customers Really Market the Company?

This is a continuation analysis of the research by Werner Reinartz and V. Kumar. Details of the research can be found in the two preceding blogs. The final claim that the researchers examine is that loyal customers market the company more than the non-loyal customers.

The idea that loyal customers are "apostles" as described by the NPS philosophy, is one that is believed by many to be "gospel" (sorry about that pun). Often companies use this concept to justify loyalty investments believing that loyal customers are similar to sales people but with more gravitas. Hence, this is probably one of the most important claims to examine because of its financial impact.

The researchers found that "the link between customer longevity and the propensity to market by word-of-mouth was not that strong." To measure the passive word-of-mouth, the customers were asked whether they would name the company when asked to recommend a company. This was followed by asking whether they ever spontaneously told friends and/or family about positive experiences with the company. Then the customer was called and asked if they felt loyal to the company, how satisfied they were and would they consider changing to another company. The researchers also measured how often, how much and how many different items were purchased to determine a quantitative measure of loyalty using the RFM measure.

The results from the survey indicated that customers who exhibited high levels of both behavioral and attitudinal loyalty were 44% more likely to be active marketers and 26% more likely to be passive word-of-mouth marketers. However, the researchers concluded that loyalty cannot be based purely on the basis of purchasing behaviour. They believe that measures should include the attitudinal survey as well.

Their final conclusion was that companies need to judge customers by more than just their actions. The attitude of the customer maybe the strongest influence in word-of-mouth marketing.

The bottom line is that loyal customers do indeed market the company but maybe not market as dramatically as expected. The apostles may be a little more blurry and difficult to define than we imagined and not as easily identified.

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