Critics of service quality and satisfaction monitoring generally advocate the monitoring of loyalty or repeat purchases (e.g. Reichheld et al., 2000). Loyalty has two important advantages – it measures behaviour, or conative attitudes, and it can be derived from internal data.
Measuring behavior
So far, the monitoring of attitude variables has been considered. It should be noted, however, that the measurement of attitudes such as satisfaction and perceived quality has not been found to be a reliable or accurate predictor of customer behavior (Boulding et al. (1993). Although they can provide useful general information on relationship performance and the diagnosis of problems, many researchers argue that information on customers’ past behavior provides a firmer foundation for future planning (see for example Reichheld et al., 2000; Shaw and Reed, 1999).
Internal records
Provided the supplier captures the data necessary to identify the customer at a later date, loyalty can be monitored without additional customer surveys. That is not to say that the monitoring of loyalty is either cheap or easy. Reichheld (1993) suggests that it is more difficult than implementing satisfaction surveys. However, the fact that loyalty monitoring can be built into sales data means that customers need not be troubled by requests to complete satisfaction or quality surveys.
Measures of loyalty
Loyalty can be measured in a number of different ways, the relevance of which will depend on the nature of the product and its market:
Length of relationship: according to the theory of the relationship life cycle, relationships become more profitable as the relationship lengthens. It is also reasonable to assume that a customer who has remained loyal for a significant period of time will do so in the future. Loyalty measured in terms of time is therefore a good indicator of relationship value. However, it should be remembered that time is not a definitive indicator of either profitability or customer satisfaction – the customer may be exploiting, or being exploited by a one-sided relationship.
Share of customer: this measure is used in direct consumer marketing as a measure of loyalty, assessing the extent to which the customer uses competitors’ products alongside that of the supplier. Although useful as a performance indicator, this measure offers little diagnostic information.
Commitment: commitment is an important indicator of loyalty. Suppliers can look for evidence of commitment in the volume of ongoing business a customer places with the organization, and its willingness to invest in the relationship.