Customer Loyalty and Customer Relationship

Management

Nurainun

University of Malikussaleh, Aceh, Indonesia

Abstract. This is a conceptual article that aims to explore the role of customer

loyalty in customer relationship management. Satisfaction is the beginning of

loyalty that must be managed by the company. Because satisfaction provides a

positive experience that will lead to loyalty. Loyal customers will be of value to

the company (in terms of profit). Customer relationship management is an

important concept in modern marketing today. The concept of CRM includes all

aspects of acquiring, keeping and growing customers. Customer relationship

management (CRM) is a combination of people, processes and technology that

seeks to understand the company's customers, so that it can be used as an

integrated approach used to manage customer relationships and focus on

customer retention and relationship development so that it becomes a long-term

relationship. Therefore, this concept can bridge the marketing strategy and

information technology that aims to capture customer value.

Keywords: Customer loyalty ꞏ Customer relationship management ꞏ Technology

Satisfaction

1 Introduction

The study in this article is a literature study that discusses the role of customer loyalty

in managing customer relationship relationships (CRM). In this literature study the

author will focus on managing customer relationships in the service sector. The concept

of CRM itself is not a new concept. The concept of CRM first emerged from the

relational marketing concept developed by Parvatiyar and Sheth in 2001, which added

information technology attributes as part of CRM. This is due to various changes in the

business faced in particular with customers and the total quality philosophy associated

with efforts to minimize costs. So the focus of CRM is how to select customers

selectively which will benefit the company. Therefore, the CRM model consists of four

components namely relationship formation, management and leadership (management

and governance), performance and evolution. Parvatiyar and Sheth have assumed that

satisfaction and loyalty are part of performance in the concept of CRM [1].

Therefore, finding and retaining the right customers is the core of success for many

service companies. Loyal customers will be of value to the company (in terms of profit).

In a study conducted by Reichheld and Sasser [2] stated that the profit provided by a

customer is different for each different industry. Customers will be more profitable if

they increasingly use a service product from the company. There are four things that

can create incremental profits (for the laundry industry, credit card, auto servicing,

Nurainun, .

Customer Loyalty and Customer Relationship Management.

DOI: 10.5220/0010520300002900

In Proceedings of the 20th Malaysia Indonesia International Conference on Economics, Management and Accounting (MIICEMA 2019), pages 539-546

ISBN: 978-989-758-582-1; ISSN: 2655-9064

539

distribution industry), namely the first profit generated from increased purchases; the

second, profit is obtained from reducing operational costs, which is the profit obtained

because customers need less information and assistance from the company so that the

company can reduce operating costs. And make fewer mistakes in the involvement of

operational processes so as to increase greater productivity; third profit from referrals

to other customers, positive word of mouth is free advertising for companies that make

companies can save expenses; fourth, profit derived from the premium price, satisfied

customers will not be price sensitive, different from new customers who often expect

promotional prices.

So maintaining loyal customers is the most important thing that must be done by a

company. If a company knows how much it costs to lose a customer, then they will

conduct an accurate investment evaluation to retain that customer. So it can be stated

that customer relationship management may be an important concept in the current

marketing concept. CRM is the overall process of building and maintaining profitable

customer relationships by delivering superior customer value and customer satisfaction.

The concept of CRM includes all aspects of acquiring, keeping and growing customers.

The important thing that must be done by the company is how to treat customers who

have different needs with different treatments so that the company can reach loyal

customers.

2 Literatur Review

2.1 The Concept of Customer Loyalty

To understand the concept of customer loyalty must begin with customer satisfaction,

Lovelock [3] states that the basis for true loyalty is customer satisfaction and service

quality, which are key in the service process. So customer satisfaction and customer

loyalty have inseparable relationships. Although satisfied customers sometimes do not

have loyal behavior. According to the researchers, satisfaction consists of several

levels, namely the first level is completely satisfied, that is, having very loyal behavior,

the second level is satisfied, that is, the behavior that is easily moved to competitors,

and the third level is dissatisfied, which is very disloyal behavior. Therefore, the

relationship between satisfaction with loyalty consists of three main zones, namely

defection, indifference and affection. The defection zone occurs at a low satisfaction

level. Customers will switch to another brand unless the cost of switching to another

brand is expensive and there is no other alternative. The indifference zone is found at

the intermediate level of satisfaction; in this zone the customer will move to another

brand if there is an alternative. Affection zones occur at the highest level of satisfaction

where customers have high attitudinal loyalty and they do not look at other alternatives

[4]. To reach the affection zone is not easy, but companies can use various programs to

increase customer loyalty, especially those related to service quality. Because customer

loyalty is not obtained by giving a membership card or becoming a member of the club

but is obtained by meeting the expectations of the customer. Researcher in his study

have also proven that getting new customers requires greater costs and retaining old

customers can generate profits and reveal a close relationship between customer

retention and profitability in various industries [2].

MIICEMA 2019 - Malaysia Indonesia International Conference on Economics Management and Accounting

540

Although it is understood that customer satisfaction and loyalty have a very close

relationship, it is also understood that the relationship is asymmetrical. It can be said

that loyal customers are usually satisfied, but this does not necessarily translate into

satisfaction. However, satisfaction is an important step in the formation of loyalty and

becomes less significant when there are other mechanisms that influence [5].

Satisfaction is defined as pleasurable fulfillment, that is, consumers feel that

consumption can meet needs, desires, goals and so on, which is called pleasurable

fulfillment. Because the concept of satisfaction is felt by consumers as a pleasant or

unpleasant thing. To be able to influence loyalty, satisfaction must occur frequently

(cumulative satisfaction) so that individual satisfaction episodes can be added up or

mixed together [6]. While loyalty is a strong commitment to repurchase or consistently

re-patterning the product or service used in the future, which causes repeated brand

purchases despite situational influences and marketing stimuli that have the potential

to cause behavioral changes [5].

This has been explained by Schiffman and Kanuk [7] that loyalty is a commitment

from a customer to a product or service that is measured by repurchase or attitudinal

commitment. Loyalty can occur in two forms, namely behavioral and attitudinal

loyalty. Behavioral loyalty is explained when a consumer makes a repeat purchase of a

product or service but does not have a pleasant attitude towards the product. This occurs

because there is no comfort, habits or because of other obstacles [8]. Attitudinal loyalty

is defined as consumer predisposition of a brand as a function of psychological

processes, including attitudinal preferences and commitment to the brand [9].

Loyalty to an object such as a brand, shop, service or company is shown through a

favorable tendency towards the object. These tendencies can be behavioral or

attitudinal. In service industry and marketing, behavioral loyalty is seen as retention of

a brand [10]. Dick and Basu (1994) in East et.al [10] stated that customer loyalty is seen

as the strength of the relationship between the relative attitude of individuals with their

repetition patterns. What is meant by relative is that alternatives are available because

they can motivate behavior. As mentioned earlier, that customers do not become loyal

suddenly but there are things that cause them to become loyal. Companies need to create

value for customers so they remain loyal. Research results suggest that relationships

can create value for individual customers through factors such as inspiring greater self-

confidence, offering social benefits and providing special treatment.

Oliver [5] introduces the four phases of the loyalty model, which implies that the

different aspects of loyalty do not arise simultaneously but are more sequential over

time. This model expands the cognitive-affective-positive sequence of Dick and Basu,

by including observable behavior. At each stage of loyalty, different factors that

influence loyalty can be detected. The stages are (a) cognitive loyalty. Is the first phase

of loyalty. An information attribute of a brand is available to consumers which indicates

that the brand can be chosen. Loyalty is based on brand belief. Consciousness

(cognition) can be based on prior knowledge or on the information of recent

experiences. If the transaction is routine then satisfaction does not occur, only limited

to performance. If satisfaction occurs, then become part of the consumer experience

and start at the beginning of the affective; (b) affective loyalty. The second phase is the

development of loyalty. Favorite or attitude towards the brand that is developed based

on the accumulation of satisfactory usage. This reflects the pl

easure dimension of the

definition of satisfaction which is pleasurable fulfillment. Commitment that occurs in

the phase is called affective loyalty and encoded in the consumer's mind (consumer's

Customer Loyalty and Customer Relationship Management

541

mind) as awareness (cognition) and affect. Conversely cognition is a direct subject to

an idea, affect is not easily issued. The image of brand loyalty is associated with the

level of affect (liking) for a brand. Similarly, cognitive loyalty, this form of loyalty can

change behavior by switching to another brand; (c) Conative loyalty. The next phase is

the development of loyalty at the conative (behavioral intention) stage which is

influenced by repetition of positive influences on the brand. Conative implies a brand's

specific commitment to repurchase. So that it can be said conative loyalty is the first

loyalty that has a strong commitment in the definition of loyalty. This commitment is

the intention to repurchase (intention to rebuy) and more the same motivation. Actually

consumers want to buy back but similar to the interests of other products, this desire

can be anticipated but not realized into action. (d) action loyalty. The study of the

mechanism by which intention is turned into action is called action control in the

sequence of action control interest is motivated in previous loyalties which are

transformed into readiness to act. This action control paradigm proposes that the

interest must be accompanied by an additional desire (attitudinal desire) to overcome

obstacles that prevent action. Action is perceived as an outcome that needs to be

involved in both levels of loyalty. If this involvement is repeated, then the action of

inertia develops which then facilitates repurchase.

2.2 The Concept of Customer Relationship Management

Customer relationship management (CRM) is a combination of people, processes and

technology that seeks to understand the company's customers. CRM is an integrated

approach to managing customer relationships with a focus on customer retention and

relationship development. Many companies today are trying to rebuild relationships

with customers who still exist to encourage customer loyalty for the long term

(customer lifetime value). Because the longer a customer is in a company or uses a

brand, the greater the profit obtained by the company. The study results state that the

success of a CRM system can exceed sales, marketing and customer service [11].

Kotler and Keller [12] define CRM as a process that is carried out carefully in

managing detailed information about individual customers and customer touch points

for all customers to maximize loyalty. The customer's touch point is any time when a

customer faces a brand and product, from actual experience to personal or from mass

communication to casual observation. For a hotel, for example the customer's touch

points are reservation, check-in and check-out, room service, business service, laundry

service, facilities service and so on. CRM makes the company provide satisfying

services for real time for customers by using effective information about customers.

Clay and Maite [13] also mentioned the same thing that CRM is a concept that aims to

create long-term profitable relationships with customers, and this concept bridges

between marketing strategies and information technology. Capossela [14] states that

customer relationship management is looking for the most effective way to focus on

marketing efforts that can generate profits. The development of technology helps

companies to reach customers to the fullest. The availability of internet and web

networks allows companies to easily establish relationships with customers [15].

So, to create maximum benefits from CRM, it really depends on the right

management. A consistent CRM will provide many benefits, including increasing cross

sales, reducing customer dislike, high levels of satisfaction and loyalty, reducing

MIICEMA 2019 - Malaysia Indonesia International Conference on Economics Management and Accounting

542

procedure costs, ie being able to form close contacts and relationships with customers

in terms of technology, informative and social, offering competitive profitable for the

company as well as forming learning relationships with each customer that provides

opportunities for companies to find new products or services for their customers, loyal

customers will provide references for potential customers, the cost of acquiring new

customers is more expensive than retaining existing customers. CRM can help reduce

these costs. increased customer loyalty increases the level of staff loyalty [16].

The problem faced in CRM is that CRM has different meanings for different people,

for some people assume that CRM means direct e-mails. As for the others is mass

customization or product development in accordance with customer needs. So the

question arises what should be done by managers to find out about their customers and

how information about these customers can be used to develop CRM. Winner [15]

developed a basic model of effective customer relationship management that can be

used by managers, which consists of seven basic components, namely: creating a

customer database, analyzing the data base, selecting customers, targeting customers,

namely determining the means to reach customers the target. relationship marketing is

building relationships with target customers, personal issues, metrics that are used to

measure the success or failure of a CRM program.

In the CRM basic model there is relational marketing, which consists of three parts,

namely data base marketing, interaction marketing and network marketing. In a

marketing database, the focus remains on the transaction but includes information

exchange. Marketers base their information technology, usually in the form of a data

base, to form relationships with target customers and maintain customer patterns

throughout time. Technology is used to (1) identify and build a database of potential

and current customers, (2) deliver different messages based on customer characteristics

and preferences, (3) explore each relationship to oversee the cost of acquiring

customers and the lifetime value of purchases that are generated. In interaction

marketing, close relationships often occur in face-to-face interactions between

customers and representatives of suppliers. Although service is important, value is

added by people and social processes. Included in interactions are negotiation and

sharing of views. This type of relational happens in many local service markets, from

the bank community to the dentist where buyers and sellers know one another. In

network marketing, a person becomes a good networker when he can put an individual

in contact with other people who have the same interests. In the context of B2B

marketers develop a network of relationships with customers, distributors, suppliers,

media, consultants, trade associations, government agents, competitors and even

relationships between customers and customers [3].

From a customer perspective, a well-implemented CRM system can offer customer

integration that delivers customization and personalization. That is in every transaction,

obtain relevant customer account details, customer preferences and transactions in the

past or record service problems that can improve customer service and value.

Meanwhile, from a company perspective, CRM systems enable companies to

understand, segment and even implement warning systems that signal that customers

will move. Strategies that can be used to detect lost customers are analize customer

defections and monitor declining accounts, address key churn drivers, implement

effective complaint handling and service recovery procedures, i

ncrease switching costs

[3].

Customer Loyalty and Customer Relationship Management

543

The five key processes in the strategy that must be emphasized so that CRM can

run well are (1) strategy development, which involves evaluating business strategies

(including mentioning the company's vision and mission, industry trends and

competition). Business strategy is usually the responsibility of top management. Once

determined, the strategy must be a guide for customer development strategies including

choosing target customers, customer base tiering, designing loyalty bonds and churn

management; (2) value creation translated into business and customer strategies into

specific value propositions for customers and companies. Value created for customers’

needs to include all benefits received through multilevel priority services, loyalty

rewards, customization and personalization. The value created for a company needs to

include acquisition, reduction of customers and retention costs and increase welfare;

(3) Multichannel integration. Most service companies interact with customers through

many channels. And this is a challenge for companies to provide the same service in

every channel; (4) Information management. Service through many channels makes the

company must be able to gather information about customers from all channels and

integrate it with relevant information. So that information can be used; (5) Performance

assessment. There must be a performance evaluation by giving three important

questions. First, does the CRM strategy create value for key stakeholders namely

customers, employees and shareholders. Second, whether marketing objectives and

service goals can be achieved. Third, the CRM process itself can meet the company's

expectations [3].

Besides that, marketers must understand the antecedents in the CRM system, so that

the CRM system can run wel

l.Therefore, one of the antecedents in the concept of CRM

is to focus on customer lifetime value (customer orientation). This focus on customers

is seen from how long an individual is a customer of a company that is calculated based

on customer lifetime value. The concept of customer lifetime value is explained as the

net present value of the expected profit flow as long as the customer continues to make

purchases. The concept of a customer's life value has evolved and made smart marketers

see opportunities to differentiate potential profits for each market segment they serve.

Marketers focus on retaining customers and improving business costs less than getting

new customers. For example, such a level of service from independent credit cards such

as platinum, gold and classic. By providing levels at each of these credit card levels,

customers have received different services. So the company can provide satisfying

services for every level. Moreover, relational customers do not care if they pay a

premium price for each service used, in contrast to transactional customers who are

very sensitive to price and often look for promotional prices when they want to buy a

product or service. So that from the lifetime value it can be seen that a customer's

retention rate is the rate at which consumers will continue to be customers in the future.

Retention rates can be used to measure loyalty. The next antecedent of CRM is the

development of technology, especially the internet, which causes marketers to gather

information and deal directly with customers at a low cost (reduce operating costs). For

example, the costs incurred to send a letter to customers using physical mail and

electronic mail (e-mail). So with the development of these technologies, the concept of

CRM can develop. With the development of this technology, marketers can create

loyalty programs that can bind customers, gather information about customers, send

messages that value customers (recognition and appreciation) [12].

MIICEMA 2019 - Malaysia Indonesia International Conference on Economics Management and Accounting

544

The same thing was stated by Capossela, according to Capossela [14] some

antecedents of CRM are the concept of customer lifetime value, which is an elaboration

of the development of the Pareto principle. The Pareto Principle states that eighty

percent of the organization's revenue will be generated by the twenty percent of

customers that will still be received for decades. Each lifetime value (LTV) calculation

requires three factors to consider: margin, retention rate and discount rate. With this

LTV analysis, a company can identify customers who have the greatest value and

benefit the company. Then a decision can be made to see which customers have high,

marginal prospects and which do not benefit the company. This analysis can also help

promotional strategies that can increase company profitability efficiently. In addition,

other antecedents of CRM are customer acquisition cost (CAC), split-run testing (A /

B) and RFM (Recency, Frequency and Monetary). Customer acquisition costs are part

of implementing customer lifetime value that can determine customer acquisition costs

accurately. The cost of getting new customers is rarely free and not every customer

needs the same costs, because every customer is unique. The customer acquisition cost

ratio is used to determine whether the customer is retained or looking for new

customers. CAC is defined as total sales and marketing costs divided by the number of

new customers.

The next antecedent is the key to direct marketing success, the concept

of testing. Marketing directly tests every variable that can be used as an effort to achieve

optimization of merchandise choices, value propositions and elements of promotional

material. The term used by marketers to do testing is split-run testing. On the internet

it can be used to test product features such as web page design, navigation and value.

The last antecedent is recency, frequency and monetary analysis. RFM analysis is

carried out to predict customer behavior and also investigate the most successful

promotional programs in the market segment.

3 Conclusion

Customer relationship management has become a mantra for companies, through the

CRM system that is built, the company can focus on marketing efforts to generate

maximum profits. The company will focus on serving customers who will benefit the

company. If traditionally the marketing managers focus on getting new customers that

cost a lot, then with this CRM concept the manager can cut the costs of marketing

communications such as advertising aimed at consumers at large and more focus only

on the intended customers.

With this CRM concept, managers must be able to understand consumer behavior

better so that it can change the satisfaction felt by consumers into customer loyalty.

Technological developments such as the internet and web sites have helped companies

to improve relationships with customers, through these web sites companies can inform

new programs for loyal customers. And through technology development the company

can also identify which customers are truly loyal and not just satisfied.

The CMR concept consists of people, processes and technology. only by integrating

these three aspects will make CRM successful, if the company only focuses on one

aspect such as technology or only on people, but does not take into account the process

then CRM cannot run properly. so the company does not achieve maximum profit

instead it costs money for the provision of technology.

Customer Loyalty and Customer Relationship Management

545

References

1. Minami, and Dawson, J, “The CRM processes in retail and service sector firms in Japan:

Loyalty development and financial return,” Journal of Retailing and Customer Services, 15

(5) 375-385, 2008.

2. Reicheld, F.F and Sasser, W. Earl. Jr, “Zero Defections: Quality Comes to Services.”

Harvard Business Review. 1990.

3. Lovelock, Christopher. H and Wirtz, Jochen Services Marketing: People, Technology,

Strategy, Global edition, Pearson, 2011.

4. Jones, T.O and Sasser, W. Earl. Jr,” Why satisfied customer defect, “Harvard Business

Review, 1995.

5. Oliver, R.L, “Whence consumer loyalty?” Journal of Marketing, Vol.63, special issue,

pp.33-44, 1999.

6. Oliver, R.L, Satisfaction: A behavioral perspective on the consumer. 2

edition, Taylor &

Francis, 2010.

7. Schiffman, L. G. and Kanuk, L. L. ‘Consumer Behaviour’, 4th edn, Prentice-Hall, New

Jersey. 1991.

8. Fitzgibbon, Christopher and White, “Lesley The role of attitudinal loyalty in the

development of customer relationship management strategy within service firms,” Journal

of Financial Services Marketing, Vol. 9, No. 3, pp. 214-250, 2005.

9. Jacoby, J. and Chestnut, R. Brand Loyalty: Measurement and Management, John Wiley &

Sons,New York.1978.

10. East, Robert. Gendall, Philip. Hammond, Kathy. Lommak, Wendy, “Consumer Loyalty:

Singular, addictive or Interactive.” Australasian Marketing Journal. Vol 13 No.2, pp 10-

26,2005.

11. Yu, Larry. "Successful Customer-Relationship Management." MIT Sloan Management

Review, vol. 42, no. 4, 2001, p. 18.

12. Kotler, Philip and Keller, Lane. Marketing Management. Global edition. Pearson, 2012.

13. Clay, D. and Maite T.), “A New Customer Relationship Management Approach: Enterprise

360”, Database: MasterFİLE Premier, Lodging Hospitality, Vol. 55, Issue 6, 1999.

14. Capossela, Frederick. L Successful customer relationship management: antecedent and

imperatives, ICEB2004, Beijing, 2004.

15. Winer, S. Russel. A Framework for Customer Relationship Management. California

Management Review, 2001.

16. Dugyu dan Kimaci, Sevean. (2012). Customer Relationship Management and Customer

Loyalty: A Survey in Sector Banking. International Journal of Businesss and Social Science,

2012.

MIICEMA 2019 - Malaysia Indonesia International Conference on Economics Management and Accounting

546