V. Customer Loyalty

Report
This lesson took up the topic of customer loyalty – the degree to which a customer will stay with a specific vendor or brand for repeat purchasing. EC has been blamed for decreasing consumer loyalty, as customers’ ability to compare prices and switch to different vendors has become easier, faster and less expensive. Loyal customers, however, have been found to buy more when they shop from a particular website. Clearly establishing a brand by investing heavily in it, therefore, helps to build loyalty. Amazon and eBay are examples of businesses that have invested heavily in their brands.

Both loyalty and satisfaction are necessary for a business to be competitive and benefit from recommendations. Consumer satisfaction with internet shopping is impacted by beliefs about information quality, system quality and service quality. Research indicates that the most significant factors affecting online sales are frequent content updates; availability of company information; secure, individualized accounts; and a good privacy statement.
Building loyalty and satisfaction toward a successful business also entails an aspect of trust. Kept promises regarding quality and delivery are significant, especially since, in cases of disputes, conflicts caused by culture, or fraud, it is so difficult to have recourse to legal action.

A video on eBay, then, served as an example of the way a brand was successfully established. Investment through advertising contributed to this, as well as the system of feedback to buyers and sellers that is activated by each transaction. eBay uses a simple revenue model, charging a 30p transaction fee for each auction, and taking a 2-3.5% cut from each sale. Its costs are low, as there is nothing to ship or receive except money. Problems with fraud and with being part of the grey economy may pose greater challenges in the future.

Reflection
While i had had some idea about the importance of customer loyalty to the success of a business before this class, i had not realized what a critical factor it is and that repeat purchasers actually represent cost savings. E-Commerce 2006 (p.147) explains.

(I)t costs between five to eight times more to acquire a new customer than to keep an existing one. Increased customer loyalty can bring cost savings to a company in various ways: lower marketing costs, lower transaction costs, lower customer turnover expenses, lower failure costs such as warranty claims, and so on. Customer loyalty also strengthens a company’s market position because loyal customers are kept away from the competition.

A Japanese 2006 study entitled “What Keeps Online Customers Repurchasing through the Internet?” (http://www.sigecom.org/exchanges/volume_6/6.2-Atchariyachanvanich.pdf) also offers insights into this topic. The authors, Atchariyachanvanich, Okada and Sonehara, begin by pointing out that factors affecting the intention of purchasing online have frequently been the subject of studies, while what keeps online customers repurchasing has not. The result of their study is that all five of the variables they set out to investigate, i.e. satisfaction, confirmation, perceived usefulness, customer loyalty and perceived incentives, keep customers repurchasing through the Internet. Perceived usefulness was found to be a significant determinant of repurchase intention, and customer loyalty was nearly as important. Perceived incentives also were significant. The authors reflect, in conclusion, that, while their model explains the repurchasing behaviour of Japanese online customers, it would need validation from respondents of other nationalities, such as Chinese and American customers.

A system of feedback to buyers and sellers, such as the one devised by eBay, also seems to support customer trust and satisfaction, because, perhaps, it introduces a measure of personalization to the exchange process that customers miss out on when they purchase online, as opposed to traditional retail outlets. eBay itself credits its feedback system with building customer loyalty to its website.