The Customer Loyalty Pyramid

Citation

Dietz, J. (1999), "The Customer Loyalty Pyramid", Journal of Consumer Marketing, Vol. 16 No. 4, pp. 1-4. https://doi.org/10.1108/jcm.1999.16.4.1.4

The Customer Loyalty Pyramid is a good book for both practitioners and for academics. A fast‐moving and enjoyable book, it provides both theories from recent research and paradigm examples from recent practice. In presenting The Customer Loyalty Pyramid<up>SM</up>, Michael Lowenstein′s purpose is to “present the means to create and sustain a commitment‐based company′′ (p. xxii). The 11 chapters systematically review how the Customer Loyalty Pyramid<up>SM</up>, moving from a satisfaction‐based to a commitment‐based level, can lead to the result the author sees as important in the competitive business world of the late 1990s. The book is divided into the following areas:

1. 1.

   <L LTYPE=″BULLET″>

2. 2.

   <LI>Chapter 1 presents the The Customer Loyalty Pyramid<up>SM</up> concept, where the entire company is focused on optimal customer loyalty.

3. 3.

   <LI>Chapter 2 outlines the Seven‐S Framework: strategy, structure, sytems, staff, style, skills, and superordinate goals/shared values.

4. 4.

   <LI>Chapter 3 presents organization‐wide strategic planning approaches for customer retention.

5. 5.

   <LI>Chapter 4 addresses organizing the organization and organization type around customers.

6. 6.

   <LI>Chapter 5 discusses the differences between various reaction systems, and the proactive/reactive systems of commitment‐based companies.

7. 7.

   <LI>Chapter 6 addresses aligning staff designations and definitions with the rest of the framework.

8. 8.

   <LI>Chapter 7 presents how the style of commitment‐based companies is distinctive from all others.

9. 9.

   <LI>Chapter 8 features training and problem solving because of the author′s theory that most satisfaction‐based and performance‐based companies do little to enhance staff customer‐retention skills.

10. 10.

    <LI>Chapter 9 details the concept of goals and shared values, and shared vision.

11. 11.

    <LI>Chapter 10 explains that embracing and enacting the framework will be an incomplete effort without the user‐friendly total‐quality mechanisms and models to sustain customer commitment. It represents the Kaizen approach to the author′s Seven‐S Framework.

12. 12.

    <LI>Chapter 11 builds on the blueprint of The Customer Loyalty Pyramid<up>SM</up>, based on interviews with senior executives of commitment‐based companies and other materials.

13. 13.

    The author accepts current thinking with regard to customers ‐‐ that customers are “the boss′′ and that the dollars each customer allocates to products or services are available only to the extent that the customer receives optimal value. In addition, the customer “will demonstrate loyalty only to the extent that value is received′′ (p. xiv).

This book is a good review of recent literature on customer service; it also adds value by using paradigm examples of actual companies practicing the principles described. For example, one paradigm example shows how Unisys has defined a process called “Customerize′′ as “the platform for employing their information management capabilities′′ (p. 16).

In relating the The Customer Loyalty Pyramid<up>SM</up> to Kaizen, Lowenstein presents 12 distinctive Kaizen attributes of commitment‐based companies. They include the following: total company involvement in customer retention; active internal communication and listening; strategic improvement, staff proaction, and continuous learning; visible and involved senior management; customer segmentation/fragmentation and individual support; hands‐on research/communication skills training; regular direct customer contact by all levels; customer partnership; formal customer research; full inventory complaint gathering, evaluation, and responsiveness; customer and competitive data used as a foundation for improvement; and internal and external customer teams. By tying Kaizen to The Customer Loyalty Pyramid<up>SM</up>, the author convinces the reader that “customer loyalty is the only proven method of profitably making improvement′′ (p. 182). He seems to cast doubt on the long‐term efficacy of programs that cut costs or staff, or both, without protecting customer loyalty. The entire book focuses on affirming for the reader that the profitability of keeping current customers happy far outweighs that of continually churning your customer base.

Implications for marketing practice include content that encapsulates the state of customer retention theories today. In addition, the book maintains a theme of customer retention while using examples relating to the various parts of the pyramid. The Pyramid starts with “satisfaction‐based′′ (stage 1) companies, which are largely reactive, but maintain most of the market; moves on to “performance‐based′′ (stage 2) companies, which are beginning to understand what is important to customer commitment and make up 15‐20 percent of the market; and, finally, to “commitment‐based′′ (stage 3) companies, the 5 percent of the market constituting “the leaders′′ and concentrating on customer loyalty and retention (p. 8). Lowenstein′s main theme, that of sustained customer value, is supported with many examples of companies such as MBNA, which knows that “it costs $100 to acquire a new customer, but considerably less to keep that customer. Additionally, they have determined that a customer of five years′ duration contributes $100 to MBNA′s profits and a ten‐year customer contributes $300. The bottom line: a reduction in defection rate increases average customer value by over 125 percent′′ (p. 35).

Even in discussing complaints, the author points out the value of handling them well. He quotes British Airways′ Sir Colin Marshall, who says “I ardently believe that customer complaints are precious opportunities to hold on to customers who otherwise might take their business elsewhere and to learn about problems that need to be fixed′′ (p. 85). In addition, the issue of involving all employees in the operation of serving customers is noted by statements such as the following: “employees tend to show empathy toward their customers when the people in their organizations have shown empathy toward them′′ (p. 105).

Lowenstein ends his book with a statement which wraps up the main point of the book: “companies succeed by forming value‐based, strong customer insight and relations, positively differentiating themselves from competition, and creating flexible, intelligent organizations. There′s no better set of rules.′′ This reviewer feels that he has succeeded in putting forth a clear blueprint for creating a commitment‐based organization, or for teaching about them.