Customer Loyalty Schemes in Automotive Sector
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The creation of customer loyalty in the automotive sector
Marketers push for brand loyalty, across all product ranges, from toothpaste to larger purchases such as a new car. Within the automobile industry there is little product differences in each segment, as partnerships, coalitions and takeovers bind manufacturers together.
Each manufacturer is striving to obtain brand loyalty, not only at the point of purchase, through servicing the vehicle, supply parts and encouraging repurchases. This adds value to the organisation, and increases profits.
Loyalty schemes have been a success in supermarkets and other retail outlets, can this form of marketing be transferred to the automotive industry.
This paper sets out to review the current literature of the subject, discuss what loyalty schemes the automotive industry offers its customers, and to focus on one Manufacturer Volvo.
Volvo have in the last decade turned around flagging sales, this was achieved through placing a higher value on their customers, who responded by increased usage of their service departments.
The ultimate obtainment for marketers would be for complete brand loyalty, across all product ranges, from toothpaste to larger purchases such as a new car. Although without any brand loyalty, organisations could not survive. So is it possible to increase brand loyalty through schemes that target the consumer?
One of the hardest areas to increase brand loyalty is the automotive industry. Manufacturers are constantly offering discounts, free insurance, sales and other packages to attract new customers and to resell to existing consumers. Consumers expect a good service and deal as it will be their second largest purchase (a house being the first).
The result of partnerships, coalitions and takeovers in the automobile industry has bonded manufacturers together. This has left very little product differentiation, with more marketing on the brand than product. Manufacturers have to look for different methods to attract customers.
Each manufacturer is motivated to obtain brand loyalty, not only at the point of purchase, through servicing the vehicle, supply parts and encouraging repurchases. This adds value to the organisation, and increases profits. The added value can be the emotional tie the customer has with the brand.
Customer loyalty is not a new notion, although it is now the focus of many PR actioners, retaining existing customers is more important than attracted new. If you lose your core customers a higher level of resources is required to maintain the same level of sales. Therefore it’s vital to maintain loyal customers to utilise economies of scales.
Loyalty schemes have been a success in supermarkets and other retail outlets. Some schemes involve several brands collaborating to give the consumer a choice of where to spend. The question is can this form of marketing be transferred to the automotive industry.
This paper sets out to review the current literature of the subject, discuss in general what loyalty schemes the automotive industry offers its customers, and to focus then on one Manufacturer Volvo.
Volvo was chosen for this research as an example of using customer loyalty as a change agent to turn the organisation around. Brand loyalty is very strong with Volvo, although this did not correlate with the dealerships.
Volvo has introduced methods to increase loyalty with their dealerships. They have taken loyalty a step further and strengthen all supply chains
Volvo traditionally had a strong brand recognition, but went sales went into decline the organisation had to re-focus on core values. The methods that Volvo used to build the brand and to increase customer loyalty will be discussed, comparing them to the literature.
We are loyal to brands; our degree differs as to how we value the closeness of the product. Can this be influence by strong marketing tactics? With such a large purchase as a vehicle can the manufacturers sway our opinion, or do we remain loyal to what we know and trust?
This chapter discusses the research methods used for the project and the justification for the choice of methods. It discusses methods that were not used, with justification of why they were not included. Included is a critique of methods selected, and with hindsight identifies any changes that would have enhanced the research.
This paper evaluates brand loyalty within the automobile industry. Selection of the topic was stimulated and formed out of all manufacturers offering loyalty schemes; therefore could they individual schemes succeed. The nature of the research was discussed with colleagues and fellow students this not only added practical ideas and suggestions, it opened new avenues of thought. This was the discussed with lecturers sounding out ideas, gauging opinions and clarifying the question. Focusing in on the question was obtained by employing relevance trees, narrowing the research area. This gave direction tithe research, although with reviewing the literature this changed several times (Buzan, J. 1995).
Next, a research proposal was compiled, with the benefit of organising ideas and setting a time-scale for research. Theoretically, the proposal would highlight any difficulties with the research question and access to data. Creating a time-scale would focus on targets and meet deadlines in the completion of the paper.
The literature review, discussing theories and ideas that exist on the topic formed the foundation of the paper. The findings from the research are then tested on theories for validity (Saunders, M. et al1997). The literature review was challenging, there is very little academic research specifically on the topic area, although is a lot of research in the wider markets for example Supermarket loyalty schemes. Journals and books were the back bone for the review, together with internet sites.
Tertiary data sources, such as library catalogues and indexes were used to scan for secondary data. This produced journals and newspaper articles, books and Internet addresses. With the amount of literature, it took time to sort out relevant material to the research. Narrowing down the search Bell’s (1993) six point’s parameters was applied. Applying key words that were identified in the first search produced relevant and up-to-date material (Bell, J.1993).
A limitation on the literature search was the amount of time to read all articles and books on the subject. Whilst reviewing the literature references to other publications were followed and reviewed. Bells checklist on identifying the relevance of literature found was a practical method to reduce the amount of reading (Bell, J. 1993).
Ethical considerations in research fall into three categories, during design, collection, and reporting of the data. These areas were carefully considered at all stages of the research (Oppenheim,A.1996:84). The data sought throughout the research should remain within the scope of the project (Saunders, M. et al 1997).
Case studies of organisations that through varying factors have use customer loyalty schemes to improve market share have been reviewed and compared to the literature. The case studies discuss the organisations strategy in the use of the data they have collected. This information was gathered from secondary data and their web sites.
To produce primary data on brand loyalty within the automobile industry proved to be a vast task, taking a lot of time to produce results. Internal and external operations of several organisations would have tube compared to reach any level of validity. Instead it was decide to review previously published case studies, interviews and surveys. This was then compared to the literature review.
Other methods of data collection were considered and rejected. Focus groups would have offered free flowing information. This could have been facilitated with discussion led by the researcher. The idea was rejected due to the limited resources.
The major limitation of the study lies in its relatively small sample size and the limited coverage. This was mainly attributable to the limited time and other resources available for the study.
5.0 Literature review
This chapter will review and discuss all the relevant published material on brand loyalty. This starts of wide to gain insight into brands and the theory that has driven brand loyalty.
Kotler (2000) described a brand as a “name, term, symbol, or design (oar combination of them) which is intended to signify the goods or services of the seller or groups of sellers and to differentiate them from those of the competitors” (Kotler (2000) cited in Groucutt, J etal 2004:275). The brand is part of the products tangible features, it’s the verbal and physical clues that help the consumer identify what they want and to influence choice (Groucutt, J et al 2004).
The actual word “brand” is derived from a Norse word which means to “burn”. It is assumed that this means to imprint ideas or symbols on product. This then gives the product identification and leaves lasting mark on the consumer (Groucutt, J et al 2004).
Because product features are easily imitated brands have been considered a marketer's major tool for creating product differentiation. Even when differentiation based on product characteristics is possible, often consumers do not feel motivated oracle to analyse them in adequate depth. Therefore the combination of brand name and brand significance has become a core competitive asset in an ever-growing number of contexts. Brands incite beliefs, evoke emotions and prompt behaviours (Aaker, D. (1991) cited in Kotler, Pand Gertner, D. 2002:249).
The brand in the automobile industry is of great importance, purchasing vehicle is a status indicator for the consumer. Manufactures brand their vehicles to attract the target audience; the next step is retaining the customer to the brand. This is not just for repurchase, there is great value in retaining the customer to the brand through out the life of their purchase (Kottler, P et al . 2005).
5.0 Global Brands
There are very few car manufactures products that are not a global brand. Their appeal can span in a multitude of markets. Each manufactures portfolio is designed to attract a wide audience.
The rapid development of telecommunication and strong consuming capability of youth have created common demands, tastes and values globally in last two or three decades, which thus has driven international marketers to increasingly focus on the importance of global brands. In recent years, global branding has not only taken root, it's in full bloom. As Peter Doyle (1998:165) said: "Brands area the heart of marketing and business strategy The purpose of marketing is to create a preference for the company's brand". The trend towards global branding, moreover, is accelerating rapidly. Successful global brands are powerful to obtain a number of benefits.
Consumers are willing to pay a premium price for global brands; they imply credibility, high quality and up-to-date global trend. To the consumers, brand choice somewhat reflects a certain lifestyle, taste, image or even social status beyond the product. If they feel the brand fits into this category, they'll not only prefer it, but are also willing to a higher price for it. Consumers perceive added values, it’s the "the subjective beliefs of the customers" (Doyle 1998:168).
Global branding can benefit the organisation by considerably cut costs, not only because of "the significant scales of economy it achieved"(Aaker 2000:306) in terms of new brand development, packaging and manufacturing, but also because with global reputations can enter new markets at lower cost than new national brands: if you move into a Newmarket with a brand that is already global in scope, it reduces the cost of introductory and follow-up marketing programs.
Suppliers and distributors obtain a comparatively stable marketing environment and can obtain higher profit, with less risk by trading as business partners with global brands. Therefore companies that market global brands posses’ powerful trade leverage, in bargaining with for efficient service and lower costs, they have more options on choosing its suppliers and retailers.
Although there are many advantages to a global brand, each area has tube considered as an individual market. Firstly, culture and custom difference can lead to market difference, which enhance the difficulty of growth of global brand. To meet the different preference of consumers in different countries, global brand may have to adjust its marketing strategy accordingly and customise products. Secondly, localisation and increase in nationalism to some extent may resist the marketing development of global brands. Thirdly, the political factories considered as another main barrier to global brand. Last but not least, along with the technology improvement and product innovation, the rise of local competitors is becoming an inevitable threat to global brand.
5.3 Brand Building
Once a brand is established it requires nurturing, to bring out the full potential and add value to the organisation.
Kashia (1999) believes that powerful brands are built over time through a conscious management effort. This is achieved through strategic decision making and appropriate actions. All brands “need tube based on values and attributes that are permanent and, purposeful and fundamental to its strategy” (Kashia (1999) cited in Groucutt, Jet al 2004:285). Therefore by creating such values in an organisation it will provide direction and a future for the brand.
A brand with strong “brand equity” is a valuable asset to an organisation. This asset is difficult to measure; although it has emerged as key strategic asset. A powerful brand enjoys a high level of consumer awareness and loyalty, with the organisation benefiting from lower marketing costs relative to revenues. Consumers expect more outlets to carry strong brands; therefore the organisation has more leverage when bargaining with retailers. This all adds to the “brands equity”, which needs to be managed by the organisation (Kotler, P. etal 2005).
This brand asset management is a concept that is closely related to positioning, since certain brands are central to a company's current and future performance. They need to be managed, enhanced and protected as assets. This allows brand names like Coca-Cola, Sony, Intel and Disney to extend into new product categories, and produce product variants and services (Kotler, P. 2004).
Brand asset management is an area of increasing importance to marketers today, particularly as organisations move toward attempts to communicate ever complex and intangible messages, as part of brand management strategies (Davis, 2000; Goodchild and Callow, 2001). Brand managers are concerned with how to develop a better understanding of the appropriate relationship between brand equity and customer loyalty, particularly in relation to the multitude of known variables to customer loyalty (Davis, (2000) Goodchild and Callow (2001) cited in Taylor, S. et al 2004:219).
It is vital that marketers position the brand correctly, and consider the fit with its attributes, values, culture, benefits, and personality. For example Mercedes suggests that it attributes are “well engineered and well built, it is durable, high prestige, fast and expensive”. These attributes tell the consumer the benefits and values that are placed in the product. These attributes represent the German philosophy and culture, which reassures the consumer the high value of the product. The personality of the product is wealthy, well-built and reliable (Kotler, P. 2005).
Within the Motor Industry it is difficult to extend products without inexpensive development and launch of a new vehicle, although continual research and development are vital to maintaining market position. Many manufacturers have extended their brands by introducing for example clothing, toys, consumables and sporting equipment. These are retailed mainly through their network of dealerships, utilising economies of scale. These items are inclusive to them, adding value to the products(Johnson, G & Scholes J 2004).
The emerging literature suggests that customer brand loyalty is generally considered the ultimate desirable marketing-based outcome from strategic marketing activities (Chaudhuri, (1999) Gwinner et al.,(1998); Kumar, (1999) Mittal and Lassar (1998) Reichfeld and Schefter,(2000) Strauss and Friege, (1999) Kotler (1999) have all published article that point to loyalty as the ultimate attainment in marketing. This assertion is largely based on the growing influence of the relationship marketing orientation on marketing theory and practice (Taylor, S. et al 2004:219)
5.4 Brand Loyalty
Brands have a personality and speak for the user. They enhance the perceived utility and desirability of a product. Brands have the ability to add to or subtract from the perceived value of a product. On one hand, consumers expect to pay lower prices for unbranded products or for those with low brand equities. On the other hand, they pay premiums for their treasured or socially valued brands. Brands have equity for both customers and investors. Brand equity translates into customer preference, loyalty and financial gains. Brands are appraised and traded in the marketplace. Brand equity has been pointed out to include many dimensions, such as performance, social image, value, trustworthiness and identification (Kotler, P and Gertner, D. 2002)
The four types of brand loyalty are characterised as (1) No loyalty: No purchase at all, and a complete lack of attachment to the brand, no social influences to be even cognitively loyal to a brand. (2) Covetous loyalty: No purchase but, unlike the case of 'no loyalty', the individual exhibits a very high level of relative attachment to the brand as well as a strong positive predisposition towards the brand, which is developed from the social environment. (3) Inertia loyalty: An individual, although purchasing the brand, does so out of habit, convenience or for some other reason, but not as a consequence of emotional attachment to the brand or a real social motive. (4) Premium loyalty: An individual exhibits a high degree of relative attachment tithe brand, a high instance of repeat purchases, and appears to be highly influenced by social pressure. Premium loyalty is characterised by the greatest degree of consumer attachment to the brand, and in this case the consumer purposefully seeks to purchase the particular brand, while attempting to overcome obstacles (Gounaris, S. and Stathakopoulos, V. 2004).
Chaudhuri and Holbrook (2001) proposed a model of brand loyalty that suggests that purchase loyalty tends to lead to greater market share, while attitudinal loyalty leads to higher relative brand pricing. Morgan (2000) suggests that the term "loyal can be interpreted indifferent ways, ranging from affective loyalty ("what I feel") to behavioural loyalty ("what I do")”. Thus separating loyalty into emotional and actionable (Chaudhuri and Holbrook (2001) and Morgan(2000) cited in Taylor, S. et al 2004:221).
There are different levels of trust that affect brand loyalty, they are(1) calculus-based trust, the consumer believes it is in the service provider interest are not to suffer the loss of reputation and profits(2) Knowledge-based trust, as the name suggests, is based on knowing the service firm well and being able to anticipate its actions. Effective two-way communication is important for knowledge-based trust to develop because it ensures that the parties exchange information about their preferences and approaches to problems. (3) Customers with identification-based trust have full confidence in the service company and believe that it will act in their best interests. The service provider has in-depth knowledge of customers' needs and desires, and customers perceive that their desires are fulfilled, and they shared values (Liljander, V. and Roos, I. 2002)
In terms of brand purchase expectations, the implicit assumption is that a satisfied customer will remain "loyal" to the brand (all other factors being equal). In the modern automotive marketing environment, this is indeed a fair assumption to make. The degree of price competition at the retail level is so intense that, when factoring in discounts, rebates and low interest finance rates, price parity inevitably results.
Furthermore, the growing oligopolisation of the manufacturing industry (e.g. Ford owning/controlling Jaguar, Mazda,Volvo and Aston Martin) and co-operation between manufacturers (e.g.Ford/VW, Ford/Nissan, GM/Toyota) has resulted in few, if any, sustainable product differences (Liljander, V. and Roos, I. 2002)
Is brand loyalty resistance to change? The literature accepts that commitment is central to relationship marketing. There is a link between commitment, trust and loyalty. Pritchard et al. (1999) define commitment as “the emotional or psychological attachment to a brand”. They argue that resistance to change is the root tendency of commitments well as the primary evidence of commitment, and that resistance to change is a key antecedent to loyalty (Pritchard et al. (1999) cited in Taylor, S. et al 2004:221).
5.5 Relationship Marketing
Organisations should build a stronger relationship with their profitable customers. There are five different levels of relationship marketing that can be practiced. The basic level does not really involve building a relationship, for example it is when a car salesperson smiles and sells you a car and waves good-bye as you drive it off the lot. You never see him again; if you need service you talk to someone in the service department. Very few auto dealership systems succeed in building such a strong bond between the dealership and the client that the client keeps buying from the same dealership (Kotler,P. 1992:52).
Reactive marketing is the next level of relating. At this level, as the salesperson wave’s good-bye to the customer, he says, "By the way, if there’s any problem, please call me. You don't have to call the service department; I am responsible for your satisfaction" The employee has taken on some of the responsibility of managing the customer’s needs(Kotler, P. 1992:52).
A higher form of relationship is accountability. At this level, the salesperson calls the new car owner within two weeks of the sale and asks how he likes the car, and if there is any way the car could have been better. Those salespeople often get an earful. The customer might say, "I wish the door had a pocket for maps. I wish there was a rear window wiper." At that point, the dealer should ask, "How much would it have been worth to you if the car did have a map pocket in the door and rear window wiper?" That type of information will help the automobile manufacturer continuously improve its product (Kotler, P. 1992:52).
Still, a higher level is proactive, where the salesperson will call the customer from time to time and say "The manufacturer has developed product that will help you save fuel, it's something we can add to your engine and it will reduce your fuel costs." Customers get a sense that the company still is interested in their needs. Partnerships are the ultimate form of relationship marketing. They involve actually living with the customer and are mostly confined to business-to-business relationships (Kotler, P. 1992:52).
Each level requires more cost, so it is important for organisations to determine when it is worth going to the next level. Two dimensions that are particularly critical are the margin that the firm makes on the business and the number of customers making purchases. For example, allow-margin business with many customers, for example selling toothpaste would operate at the basic level. The organisation has so many customers for that product and makes so little per unit that it would not be cost-effective to develop a high-level relationship (Kotler, P.1992:52).
There are five levels of response for each customer service and retention tool. Those levels vary within companies; an organisation might be reactive with respect to technical assistance, accountable with respect to service and basic in terms of value-added. The important thing is to know where your competitors stand, what is their profile with respect to relationship investments, and what things should you do to be superior to the target market.
5.6 Service Quality
The organisation has to decide and implement which level of value-added service it will offer its customers. This experience of the customer will reflect in brand loyalty.
Relationship marketing strategy will decide the level of service customer will receive. For example on the basic level technical assistance might be a owner’s manual, yet on the reactive level perhaps help line, at the level of accountability, perhaps an occasional visit to the customer to see if the customer is using the product correctly and efficiently(Kotler, P. 1992:52).
Training of employees would appropriate at the proactive level. This can offer the customer a higher level of service, making them feel valued by the organisation. Many manufacturers offer in house training to the employees within the dealerships. This not only trains employees to a similar level of customer service skills, it reinforces the brand. The customer’s experience of the brand is uniform across the manufacturer’s network (Kotler, P. 1992:52).
Frequently organisations move from one strategic initiative to another with little consideration of their natural progression. This has been the case for many companies that have moved from an emphasis on quality in the 1980s, to customer satisfaction in the early 1990s, to customer loyalty and retention today. Managers proclaim that they have moved beyond quality and customer satisfaction to focus on what really matters, namely loyalty and profitability. Although it is argued that there is “no such thing as moving beyond quality and satisfaction. They are essential building blocks toward building loyalty and a valuable business organisation.” (Gustafsson, A. and Johnson, M. 2002:249).
The service quality perceived by the customer varies across the spectrum. Relationship benefits are perceived advantages that the regular customer receives over and above the core service. These are rewards; the individual has gained over time by being a regular customer. The benefits tie him or her to the company by making it unattractive to switch providers. They may take the form of loyalty programmes, which are offered to all customers, or benefits that can be customised to individual consumers (Liljander, V. and Roos, I. 2002)
This then becomes a relationship benefit, but only when it is not offered to any customer who enters the dealership, regardless of relationship length. However, companies may believe that they are offering benefits, but only customers can tell if they are experiencing any. Therefore the level of service received is subjective (Liljander,V. and Roos, I. 2002)
5.7 Customer Value
Customer value management (CVM) has become a major focus in current marketing, as value marketing has become a slogan among marketing practitioners. Sinha, I and DeSarbo, W. (1998) defined this as “in the marketplace, value often is defined as quality at the right price" and is seen as more important to consumers than quality, because value is quality that the consumers can afford (Sinha, I and DeSarbo, W.1998:236).
Zeithaml (1988) reports considerable heterogeneity among consumers in the integration of the underlying dimensions of perceived value. They define the perceived value as a trade-off of "higher order abstractions," such as perceived benefits and sacrifice, which are formed from both intrinsic and extrinsic product attributes, including texture, quality, price, performance, service, and brand name (Zeithaml(1988) cited in Sinha, I and DeSarbo, W. 1998:236). Zeithaml 1988:236)
There is a strong link between relationship marketing and customer value, the higher value placed on the customer will reflect in their purchasing choices. True and spurious relationships are the extreme points on a continuum. At the lower end, customers may be behaviourally committed to the service but satisfaction is only latent. At the higher end, customers are more manifestly satisfied and more affectively committed to the service (Liljander, V. and Roos, I. 2002)
Berry (2000) proposed three relationship levels of customer perceived value. These are based on financial, social and structural bonds. Financial bonds, such as loyalty programmes, are considered the weakest form and may only lead to spurious relationships Social and structural bonds are more closely related to true customer relationships. According to Berry (2000), “structural bonds offer value-adding problem solutions that are not dependent on individual service representatives, and which are difficult for competitors to copy” (Berry (2000) cited inLiljander, V. and Roos, I. 2002:598)
5.8 Customer Loyalty
Customer satisfaction can be considered the central determinant in all phases of the contact chain. Multi-dimensional recording of customer loyalty reveals clear differences in the interactions first with brand loyalty and, second, with dealer loyalty. In contrast to the opinion widely held in practice, customers in the automotive sector definitely do not perceive the brand and the dealer as one unit. The results obtained are so fundamental that they can be translated into implications even by internationally operating companies (Huber, F and Herrmann, A 2001)
The relationship between the purchase intention and customer satisfaction has been widely investigated (for example, Oliver 1980;Bearden and Teel 1983). The evidence suggests that there is a strong positive relationship between the two. Several of these studies indicate that higher levels of satisfaction lead to greater customer loyalty (Yi (1991); Anderson and Sullivan (1993) Boulding, Staelin,Kalra, and Zeithaml (1993) all cited in Dervaraj, S. et al 2001:425)
Consumers who purchase higher quality vehicles expect to receive higher quality service, therefore the assumption is made that poor service will lead to greater dissatisfaction among those that purchase the higher quality vehicles. Conlon, et al (1997) observed that “customers who purchase higher quality rated vehicles are more likely to use dealer facilities to maintain their vehicles” (Conlon, et al(1997) cited in Dervaraj, S. et al 2001:425)
An explanation for such behaviour is that there is a correlation between the perception of vehicle quality and the perception of the quality of service at dealer facilities. Therefore, high customer expectations of service quality can lead to better service performance which, in turn, this positively influences customer satisfaction with service. Therefore in the higher end of the industry there is greater loyalty (Dervaraj, S. et al 2001:425)
Oliver (1999) suggests that “ultimate customer loyalty is a function of perceived product superiority, personal fortitude, social bonding, and their synergistic effects. His arguments generally support the assertion that measures of loyalty that are constrained only to repurchase considerations fail to capture the richness of the loyalty construct “ (Oliver (1999)cited in Taylor, S. et al 2004:219).
If loyalty is essentially an irrational and emotional attachment to product, service or business, then marketers need to focus on elements that create this emotional attachment. In developing a strategy that draws on the irrational attitudes of consumers, brand equity plays an important role. All the elements that contribute to the development of brand equity are difficult to measure, often based on consumer emotions rather than on rational behaviour, and the objective of brand marketing is, in part, to create a generally favourable impression of the product or service without the use of objective or tangible factors. It is this intangible element that gives brands their value since, without such intangibles, brands become worthless (Kotler et al 2005).
The dilemma with subjective measures is that they take marketers back into the territory which they thought they had left behind. Back to the world where we know half our marketing works but not which half. Five decades of scientific marketing has resulted in a situation when crucial concept such as customer loyalty gets defined in terms of elusive consumer emotions and on a (not unreasonable) assumption that consumers will continue to act irrationally from time to time (Tayloret al 2004).
5.9 Types of Loyalty
Loyalty to one brand within the automotive industry does not make consumer loyal to one dealership. The only way of ascertaining the type of loyalty would be from a wider perspective.
The movement from purchase loyalty (repurchase intentions) toward more holistic conceptualisations of the loyalty was highlighted by Keller(1998) who acknowledged that “brand loyalty has historically often been simplistically measured behaviourally simply via repeat purchase behaviours Loyalty extends far beyond repurchase intentions; a good purchase will be discussed with colleagues and friend adding value to the brand (Keller (1998) cited in Taylor, S. et al 2004:219).
New findings from a database of more than 600,000 consumer interviews around the world indicate that if marketers are truly committed to building brand loyalty, they must use their programmes to build consumers' emotional attachment to the brand, not just be content with repeat buying. In doing so, they will maximise and better sustain the financial success of their programmes and may even help the brand become a category leader (Hallberg, G.2004) (Appendix One).
Sheaves and Barnes (1996) discussed that relationship benefits act as bonds that tie customers to the service provider, there appear to be few conceptual differences between relationship benefits and positive relationship bonds. “However, unlike relationship benefits, bonds could also be perceived as negative when they tie customers to a company in negative sense” (Sheaves and Barnes, (1996).cited in Liljander, V. andRoos, I. 2002:597)
Customers with low affective commitment may continue purchasing service because of being "locked in" by bonds. For example, customers who take out additional warranty insurance for their car are forced to follow specific maintenance schedules at an authorised repair shop and cannot switch to any other shop (Sheaves and Barnes, (1996).cited inLiljander, V. and Roos, I. 2002:597)
Therefore, to take full advantage of the loyalty benefits of any loyalty programme, success must be evaluated not only in terms of financially acceptable level of repeat buying, but also by an increasing emotional attachment of programme participants to the brand. Failure to develop this emotional response risks an enormous opportunity cost. Deficient programmes are likely to fall far short of their potential to increase customer retention and are then highly vulnerable to competitive attack (Hallberg, G.2004).
The analysis of over 600,000 consumers confirms the force of emotional loyalty to a particular brand on sales of that brand. The findings show that the greater the emotional loyalty to a brand, the more a consumer buys. It also reveals a correlation that is exponential, not linear. In the early stages of emotional loyalty development, sales growth is usually regular but relatively modest. But at the highest level of emotional loyalty to a brand, consumers will buy at least twice as much as consumers just slightly less attached to the brand, and often thereto four times more. Moving a consumer to the top level usually produces an increase in sales considerably greater than the sum of all previous increases (appendix one).
The analysis reveals that customer retention in the brand franchise is directly proportional to the level of emotional loyalty. The more attached to the brand, the more repurchase intentions. Although this is separate from dealer loyalty. After a bad purchase experience, they maybe loyal to the brand but switch dealers (Appendix one)
Taylor et al. (1997) suggests that marketers should look beyond customer satisfaction and towards “integrated marketing strategies that foster brand equity and trust in the customer base in support of customer loyalty programmes" These programmes can trigger a deeper attachment to the brand when managed correctly (Taylor et al. (1997)cited in Taylor, S. et al 2004:221).
5.10 Loyalty Programmes
The epitome of loyalty programme are the airline frequent flyer programmes, first introduced in the early 1980s, which offer free trips and upgrades on the airline. Since then, many other marketers, ranging from the travel industry to financial services to the grocery business, have followed suit. Judging by their popularity, the general consensus of the marketing community seems to be that these kinds of programmes are an effective tool for building customer loyalty and sales(Hallberg, G.2004).
The central determining factor of customer loyalty for dealers and manufacturers is customer satisfaction (Oliver 1997). Active complaint management anchored in the strategic target system must also be recommended. Barriers to dissuade a customer from making a complaint must be lowered, solutions found quickly and appropriately within the process and the information gained used for a permanent improvement. This will certainly entail a change towards an in-house dealer culture where a complaint is highly valued as a loyalty indicator.
The study again confers the central importance of product satisfaction for brand loyalty. The path adopted by the manufacturers towards greater technical and functional quality should therefore be pursued meticulously. Target group strategies to promote loyalty should specially promote an intensive communications process with highly involved customers and the potential to secure the bonds of loyalty with older customers by taking into account their needs for vehicle development and marketing (Huber, F and Herrmann, A 2001)
These programmes should not just be an exercise in sales pushing. Taylor et al (1997) discussed this as “programmes developed on the back of discounting, sales promotions and tactical communications do not create loyal customers”. This does not mean that such programmes are without value since they do contribute to sustaining market share and to keeping the business from the majority of customer who typically act promiscuously in their consumption of our product (Taylor et al. (1997)cited in Taylor, S. et al 2004:221).
Automotive loyalty schemes will be discussed in depth in the next chapter
6.0 Manufactures loyalty Strategies
This is a brief description of what different car manufacturers are offering their customers to forge brand loyalty. These were taken from the manufacturers web sites. Although not all brands have been included, the majority offer similar rewards.
6.1 Driving Programmes
Saab is the latest European automaker to launch a consumer driving program as automotive loyalty programs. Professional race car drivers will instruct drivers, with a ratio of one instructor for every four owners, on how to handle a performance car.
Saab's program joins established efforts by BMW and Volvo. BMW has tonguing programs and a third in development. The Ultimate Driving Experience, in seven cities introduces current and potential owners tithe 3-series line up. The more general Ultimate Drive, in 200 cities, features all BMW products while raising more than $2 million to date for a Breast Cancer Foundation. BMW also is developing a performance-training program for those who buy its M5 performance coupe.
Volvo, looking to broaden its image beyond safety to include performance and style, offered a driving program for its flashy S80models during their fall debut and may reprise the program. These programs are an excellent way to help drive home the brand position outside of advertising.
6.2 Bonus Points
BMW will soon join fellow German carmakers Mercedes and Porsche in issuing an affinity credit card. After a wave of co-branding in the'90s offered rebates from brand names like GM, many have been scrapped, sold or completely revamped. Under those kinds of pressure, BMW will use its planned card launch as more of a device to promote customer loyalty and tap into their typically upscale affinities. Accessories for their vehicles and BMW events will be discounted when using the card.
To maintain momentum, the GM card has to address three local factors. First, in contrast to the U.S., the majority of new cars in the U.K. are sold to companies and then handed out to executives; second, cardholder inertia is much higher than in the U.S.--most Brits can't be bothered to sign up for loyalty benefits; and third, the vast majority of cardholders have a credit card issued by the bank with which they have their primary checking-account relationship.
Responding to the first of these considerations, GM decided that company-car drivers should be able to use their rebate points other than on vehicle purchase, by obtaining vouchers redeemable with a variety of suppliers. GM brought Trust house Forte Hotels, the Next,Currys, and Dixons' High Street chains, and the Burton department-store group into the scheme as merchant partners.
6.3 Owners Magazines
Ford Magazine, published by the BLA Group, is one of the newest customer magazines and was launched earlier this year. The magazine is distributed to 800,000 owner-drivers and company fleet "user choosers”, and plays a major role in the company's customer loyalty programme. Until the launch, Ford was virtually the only major motor company without a retail customer magazine.
Tremendous changes can be expected in the car market during the next five years, and the magazine is going to help Ford maintain its leadership over this period and make an important contribution to Ford’s customer loyalty strategy.
According to Nissan (GB), for every reduction of four years in the entry age to the market there is one additional sales opportunity. If Nissan achieves its objective of reducing the average entry age by 20years, from 45 down to 25, then on this theory a loyal customer could potentially buy five additional Nissan cars in his or her lifetime.
The magazine they have launched was developed with video/audio and literature-based, split into two areas which covered the range of Nissans on offer. The two programmes are the Making Tracks and Fast-track audio loyalty magazines. Making Tracks is aimed at the Nissan family car driver, while Fast Track is for the Nissan sports car or recreation vehicle owner.
For subsequent editions, recipients can choose what type of music they want to hear by ticking the appropriate box on their customer reply card. Drivers have to respond each time in order to stay in the loyalty programme.
6.4 Owners Clubs
Many manufacturers have owners clubs, which attract benefits as well asocial events; these include Volvo, Porsche, BMW and Aston Martin. These clubs show to the owner how they are valued as a customer by the organisation.
6.5 Employee Schemes
Ford amongst other manufacturers offers its employees and relatives heavily discounted new cars, this ensures loyalty from employees. This then increases servicing and parts revenue at dealerships.
6.6 Product Recall
When a problem is met by all manufacturers they will then recall the vehicle for a modification. This viewed by the consumers as a value, the manufacturer cares about them and their vehicle. This has appositive effect on the relationship.
5.7 Customer Satisfaction Surveys
This scheme is run by many manufacturers, with different umbrella names. Renault and Volvo will contact all new vehicle purchase customers and ask them about the level of service they received, product information, experience and recommendations. This makes the consumer feel valued, their opinions matter to the manufacturer.
Some manufacturer extends this survey to used vehicles and service departments. They argue that customer loyalty is just as important in these areas.
7.0 Market Conditions
Current passenger car manufacturers worldwide have to face up to deep structural changes in their volume markets. In Western Europe, the Sand Japan, for instance, demand is falling for the first time after many years of steady growth. Another factor which impacts on these sales territories, which are so important for motor vehicle sales, is that an increasing number of manufacturers are competing to supply market of the same size (Simonies 1996).
South-East Asian automobile manufacturer and Western Europe, in particular, attractive for expanding their markets because of the comparatively low entry barriers. In addition, the trend induced by changing values, where material factors are becoming less important, is jeopardizing the intangible additional utility which can be achieved through the prestige of a vehicle, thus raising the price sensitivity of consumers, particularly in the higher-price segments of the market(Huber, F and Herrmann, A 2001)
For some time now, many motor vehicle manufacturers and dealers have seen the development of a closer relationship to the customer as absolution to the problems outlined above. Manufacturers and dealers hope that the economic consequence of this will be greater customer loyalty in the long term, e.g. through cross-selling, higher sales, success in achieving the desired price levels and lower costs. A result of higher percentage of loyal customers in the purchaser portfolio is that it reduces the threat that customers will buy elsewhere, thus jeopardizing expected sales, and aggregated will safeguard substantial sales over the customer lifetime (Peppers and Rogers 1996).
Loyal customers are also likely to bring in higher profits in the later phases because, as they climb up the social ladder, they often buy more luxurious vehicles and thus vehicles which are more profitable for the motor industry. This secure share of sales increases in line with the extent to which new customers can be locked in through loyalty-promoting measures during the post-purchase phase (McDougall1992)
When a customer become loyal they tend to make more additional purchases, an important sales factor in the automotive business, which is heavily dependent on vehicle servicing and accessories. It is also very likely that the price sensitivity of demand falls with increasing loyalty and thus competition on the basis of financial conditions is reduced in the loyal customer segment. Additional potential for boosting profits derives from the lower cost of marketing activities, which essentially results from the possibility of producing communications appropriate to the target group and maintaining contact with loyal customers (McDougall 1992).
In 1991 Volvo was struggling for survival, they implemented extensive total quality management (TQM) programmes. This increased commitment from the employees, making them work together to achieve common goals The cars that are produced today are becoming better and better and thus more equal in terms of reliability, durability and such. The key to gaining competitive advantage is to determine what improvements will affect the customers' perception of the car(Gustafsson, A. and Johnson, M. 2002)
Volvo has three different satisfaction studies regarding customers in Sweden that are carried out on a regular basis. These surveys measure customer satisfaction with the dealer, with the vehicle after two months of ownership, and with the workshop or service process. The database that the authors had access to included information on approximately 25,000 individual customers who had bought a Volvo in1993 and a new car again in 1997. The database is unique in that it contains information for some customers on, for instance, whether the second vehicle purchased was another Volvo, whether they used Volvo financing, had Volvo insurance, possessed a Volvo charge card, and how much money they charged to their card (Gustafsson, A. and Johnson, M.2002) (Appendix Two).
This information illustrates a network of relationships in which various quality drivers affect satisfaction with the sales, workshop and vehicle experience. These three sources of satisfaction or benefits then drive the customers' overall satisfaction and subsequent loyalty intentions (or stated loyalty). The customers' actual behaviour, however, is a function of both stated loyalty and overall satisfaction. The aim was to perform the analysis in one step (Gustafsson, A. and Johnson, M. 2002) (Appendix Two).
The level of stated loyalty for the group of respondents who have actually been loyal compared to the ones who have switched. For the carat actually seems to work; respondents who clearly stated that they would buy another Volvo have done that, to a large extent. But it is also found that a high level of stated loyalty for the car dealer does not automatically mean that the respondents actually do go back to the same dealer again. The relationship is not that simple (Gustafsson, A.and Johnson, M. 2002) (Appendix Two).
Performance of the vehicle (very early in the consumption experience)has the highest impact on satisfaction followed by the performance of the personnel and vehicle delivery respectively. The impact of satisfaction on stated loyalty at the time of the survey is 0.410.Typically, stated loyalty should affect subsequent customer behaviours and profit. The loyalty measures in this case are simply collected too early in the purchase consumption repurchase cycle (shortly after delivery). It is difficult for customers to reflect on their future buying plans and state whether they will buy another Volvo. What is interesting, however, is that overall satisfaction even early in the consumption experience has a very significant and positive impact on profit per customer on the next vehicle purchased (Gustafsson, A. and Johnson, M. 2002) (Appendix Two).
It was found that if the Volvo dealers improve their quality one-scale point on each of the four areas in the table (based on one to ten-point performance scales), they gain roughly 4 per cent more profit downstream at the next purchase. They gain most by improving personnel(almost 3 per cent). Although not shown here, it is possible to break this effect down into improvements on specific attributes of the customer-salesperson interaction.
The analysis provides a flavour of the types of impacts that can be determined when survey data and profit per customer data are combined. It must, however, be acknowledged that the results are a snapshot intima of a particular company's customer base. And the customers that the model is valid for are the most loyal customers at a certain car dealer. Nevertheless, among the more interesting points in the case is that the customer data, which are collected up to three years before the sale of the next vehicle, predict significant, positive effects on future profit (Gustafsson, A. and Johnson, M. 2002) (Appendix Two).
Volvo’s brand image is built on safety “an automobile is made by and for people, the basic principle for all manufacturing is and must remain: safety”. This excerpt from the sales manual can be seen as both an early expression of Volvo's mission, and as the embryo of a central core value.
This historical foundation of an organisation's efforts in the area of safety has among other things contributed to the legitimacy of the concept within the organisation. In the formulation of Volvo’s mission, the concept of safety reappears, this time together with the core values quality and concern for the environment: "Volvo creates value by providing transportation related products and services with superior quality, safety and environmental care to demanding customers in selected segments" (AB Volvo, 1998, p. 6).
Based on consumer-perceived quality and achievements, Volvo will distinctly, decisively and consistently sustain and develop its brand position as a recognized leader in safety and be ranked as a leader in terms of environmental care among the world's top producers of automotive and transport products, equipment and systems (AB Volvo,1997, p. 12).
The Volvo brand is based on and summarised largely by the core value of safety. This core value can, as stated earlier, be attributed to the founders and their view of the principles of automobile manufacturing and the role of the car in society.
The core value can also be traced to the company's physical products,i.e. the product programme, product development, and product design. Examples of Volvo's track record (Volvo safety features, 1927-1996)are: reinforced passenger compartment (1944), padded dashboard (1956),seat belts for the front seats (1957), forward and rear collision zones(1966), collapsible steering column (1966), seat belts for the backseats (1967), side collision protection (1973), energy-absorbing bumpers (1974), side air bags (1994), and air bags for side windows(1998). Instead of product development steering brand development, brand development generally steers product development(www.volvo.com/group/global)
Volvo now call all customers after a purchase from their dealerships, this includes new and used vehicles and service customers. After the survey they contact their customers through newsletters, personalised letters, offers, websites, announcements of product news, recognition as a valuable customer.
The majority of these customers fall into the completely satisfied category. Although they welcome complaints from customers and treat them with respect, this feedback is valued opinion from customers.
9.0 Findings and Analysis
Volvo identified that they were losing their market share and made strategic decisions to review and implemented policies that would stem their decline. Once the decline had been stopped, the new policies would increase the brand value; therefore increase the market share(5.3).
The introduction of total quality management not only increased commitment from employees it placed a higher value on the customer. The customer is the vital component in any marketing strategy; therefore the information to implement this change would come from the customer. This was an important step in brand building (5.3, 5.5 & 5.7).
Although the brand Volvo was easily identifiable, the strength was in decline. It was important to rebuild the brand and position it within the market. All areas were reviewed to obtain this; the most important was brand loyalty (5.3 & 5.4)
Volvo utilised information it already had in their data base to access customer loyalty. This information proved vital in the turnaround. It accessed the customer value in its current loyalty schemes and allowed the expansion to fit the customer’s needs (5.5, 5.3, 5.7, 6.2, &6.7).
From the information they identified the quality drivers across all sections of the organisation, in relation to customer satisfaction. This not only gave them the information loyalty intentions it assessed actual behaviour (5.8)
From the survey, there was a high level of brand loyalty, they had purchased a new Volvo, but the loyalty to the dealership was lower. The customer is loyal to Volvo, but not to the supplier This could reduce service and parts revenue for Volvo, with customers going to no franchised dealerships for the work on their vehicles (5.4, 5.8 &5.9).
The next stage was to review the performance of the dealerships and the employees. Volvo set targets for their dealers to perform at the higher level of relationship, being accountable. This gave the consumer an emotionally binding experience when purchasing a vehicle. This is implemented across all departments Key indicators are used to access the level of service that is given to the customer (5.3, 5.5).
Training was offered to all dealership in employees that required it, to increase the relationship between them and the customers. Volvo offered incentives to dealerships when they hit the targets on customer satisfaction (5.6, 5.7 & 5.8).
Volvo attack on brand loyalty was multi dimensional; it reviewed andimplemented strategies in every part of the supply chain. This addeddepth to the scheme, the organisation was commited to change (5.5 &5.8).
The product has a high rating with the consumers, which places it as ahigh value brand to the customer. The product has a status value and anemotional tie for the consumer. This then reflects on future purchasesof vehicles and associated products. Volvo’s level of re purchase isamongst the highest in the industry (5.7).
Volvo has strengthened the brand name by reinforcing the core values,the brand trades on safety. This is not only for the vehicle, itextends to the environment. The product is of superior quality (5.3).
Through reinforcing the core values, Volvo has stemmed the decline, andhas now increased its market share. Volvo place a high value oncustomer loyalty, this is reinforced through their loyalty schemes and the customer satisfaction surveys and continual contact with the consumer (6.1, 6.2, 6.3, 6.4, & 6.7).
Feedback from customers is vital in maintaining brand loyalty, evenwhen there are complaining. It is normally only when a customer isattached to a product that they care enough to complain (5.10).
As marketers have long suspected, emotional loyalty does drivebehavioural loyalty. The greatest gains in purchasing and retention areonly achieved when a consumer's attachment to the brand reaches the highest level. So powerful is the effect on sales, the leader in marketshare is usually the brand with the greatest number of emotionally loyal customers.
Therefore, in order to maximise effectiveness, the objective of loyalty programmes must be to develop high levels of emotional loyalty among programme participants, not just repeat buying. High levels of emotional loyalty increase customer retention by helping insulate theprogramme against competitive offerings.
Volvo as a brand has created emotional loyalty amongst its consumers.Without this commitment from loyal customers the turn round in the organisation would not have been possible. Brand loyalty has a directeffect on customers repurchase intentions; this is a strength at Volvo.
It is difficult to build the high levels of emotional loyalty throughconventional marketing communications; a programme that achieves thisobjective may be the most cost-effective method of helping a brand move up the hierarchy of brand leadership. These approaches that have proved effective have included newsletters, personalised letters, owners clubs, websites, and announcements of product news.
Brand loyalty is taking customer service values to a new dimension, and this is key to brand loyalty. The skill of individual employee can havea positive or negative affect on the buying experience of the consumer.This is demonstrated by less dealership loyalty and a higher brand loyalty. Volvo addressed this problem by training employees and targeting standards.
Most automobile manufacturers have loyalty schemes that target brand loyalty. Volvo has demonstrated that by reviewing all functions withcustomer loyalty in mind it is possible to increase customer loyaltyand market share. Therefore not all loyalty schemes are equal; eachmust match the targeted consumer market.
Similarly, the effectiveness of a programme in building emotional loyalty must be a measurement priority. Absolute precision andreplication of the emotional loyalty pyramid classification is lessimportant than a reliable gauge of whether consumer attachment to the brand is being positively affected by the programme relative to non-programme participants. By building this measure into the evaluation process, marketers can better assess the long-term impact of the programme as well as the likelihood of sustaining or even improvingrepeat buying patterns.
Volvo has succeeded it maintaining and increasing brand loyalty byreview all aspects of the supply chain and listening and reacting uponthe opinions of its customer. This multi dimensional approach has beenvital to the success of the organisation. They not only re built the brand, but rebuilt it with added value.
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