Customer Loyalty
Customer Loyalty by definition is a feelings or attitudes that incline a customer to return to a company, shop or outlet to purchase again, or else to re-purchase a particular product, service or brand. In general, the customer loyalty starts with a purchase, and ends with repurchase. Customer staying longer with the company tends to decrease maintenance cost, less prone to price fluctuation and good reference to other customers. “It costs five times more to acquire a new customer than to retain an existing one” (Pfeifer, 2005). For company to remain profitable it is essential for the company to retain its current customers; In other words take care of current customer base before go after new ones. In today’s global market place competition, it is more effective business strategy to retain customer rather than continuously trying to acquire new customers (Anderson, 2004). Empirical data study from (Hallowell, 1996), illustrates that there is a direct relationship between customer satisfaction to customer loyalty, and customer loyalty to profitability. An estimate of the effects of increased customer satisfaction on profitability suggests that attainable increases in satisfaction could dramatically improve company profitability.
In this age of internet, customers are empowered with different source of information over the various communication mediums (Griffin, 2002). Now, a company must also allow customers to pull the marketing information they want, when they want it and complete the purchase process on their terms. Data from numerous study, suggests that, customers are generally polygamous and are loyal to a portfolio of brands within a product category (Uncles, 2003). This led to believe that consumers are loyal to multiple brands with in a same product space; consumers switch loyalty as and when they see better value from competitor. Yet, most companies have not caught up with this newly empowered customer, and the customer experience has suffered. The customer feels under-whelmed, over promised and undelivered.
Most managers assume there is direct correlation between customer satisfaction and customer loyalty (Griffin, 2002). So why highly satisfied customer are not doing repeat business with the company? Empirical data analysis illustrates that customer loyalty is build by building value for the customers. There are three drivers of customer loyalty (Gustafsson, 2005); calculative commitment, affective commitment and overall customer satisfaction. Customers take short time to go to equally rated companies once they are aware of greater value. An effective customer commitment is a warmer and emotional factor, based on trust and commitment. Many companies using customer satisfaction survey as their customer loyalty index are misleading themselves (Reichheld F. F., 1996). As an example , a car dealer sales may manipulate satisfaction survey to meet its own objective instead creating value for the customer often get its objective met but not repeat business from the customer (Reichheld F. F., 1996). Perhaps the biggest reason for the disparity between satisfaction rating and customer loyalty is the measurement of satisfaction itself. Recent studies confirm that current satisfaction measurement systems are not a reliable predictor of repeat purchase. In a review of customer defecting patterns, it is found that “60-80% of customers who defect to a competitor said they were satisfied or very satisfied on the survey just prior to their defection” (Reichheld F. M., 2000). This lack of correlation between customer satisfaction and repeat purchase may be partly due to the difficulty of accurately and reliably measuring customer satisfaction.

Customer Defection
Customer defection is defined as the rate at which customers stop using product or services of a company, business with higher defection rate will eventually lose customer. Just as customer loyalty has a positive impact on profitability, customer defection can have negative impact on company’s bottom line (Griffin, 2002). Defection by a long-term customer can cause a dramatic loss and affect the bottom line much more quickly than defection by a new customer. However, not always defection occurs just due to customer dissatisfaction; Further, there are six distinct categorizations were found regarding relationship ending based upon three triggers (Robert Gee, 2008). Situational triggers are those that are driven by the customer, for example, increase/decrease in customer income or customer is relocating. A reactional trigger is a company driven reason and can be due to factors such as, customer is dissatisfied by the poor service, default product or denied service. Reactional triggers cause the consumer to “evaluate present performance more closely, which may put customers on a switching path” (Gustafsson, 2005). Finally, influential triggers are competitor driven reasons to induce a customer to defect from the current company, this includes aggressive promotion, price war , change in value of product or service
Various study stressed on the value of "defection analysis" to determine and correct the root cause of defections (Hallowell, 1996), in identifying the reasons why customers defect to competitor, and using that information as an "early warning signal" for improvement. When defection occurs in a company, these failures must be seen as an opportunity to investigate and improve problem areas. (Reichheld F. M., 2000), company who aim for zero defection will eventually see their profit rise. Defection root cause analysis produces measurement of service quality as well as produces data for managers to know exactly where the company is falling short and where to focus his resources.
Identifying defection and defining defection is important aspect of analyzing defection for example (Reichheld F. F., 1996), customer moved completely out their business is clear case of an example of defection but how about customers shifted some of their purchases to competitors. Perhaps defining defections is no longer only loss of customer but also the loss of any portion of customer business to competitors. Another aspect of keeping customer loyal is to identify core customers, giving core customers value services and product offering by the company stay loyal in longer run. Prior research demonstrates that in the face of competitive price threats, developing relationships with customers may be effective in discouraging customer defection. There are three overlapping question for identifying core customers (Reichheld F. F., 1996). First, one is to identify, customers who are the most profitable and loyal. This group of customers pay bill on time, prefer long and stable relationship, require less maintenance and less prone to defection. Second, one is to identify, customers who see greater value of companies product and services. This set of customers finds companies product and services best fit to their needs. Third question is to identify customer who worth more to you than your competitors. These are strategic customers for the company for longer run; however, they warrant extra effort and investments. Identifying core customers based on their need enables managers to deliver on customer expectations (Lindquist, 2006).This idea is also supported by various studies, “organizations must strive to understand and manage expectations” (Gelb, 2006), and overall customer satisfaction builds trust and customer loyalty.

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