The Social Economic and Environmental Impacts

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Sep. 2005, Volume 4, No.9 (Serial No.27)
China-USA Business Review, ISSN 1537-1514, USA
Customer Loyalty and Cyber-marketing Ideaistic Evolution
Hong Peng* Zhihao Chen** Zhongnan University of Economics and Law
Abstract: Customer loyalty has already aroused the extensive attention of the marketing area, but it has been
ignored by numerous enterprises in cyber-marketing. Therefore, establishing online customer loyalty and emphasizing
the cultivation of loyalty is a new subject for enterprises during their cyber-marketing implementation. Customer loyalty
is on the basis of customer satisfaction, but customer satisfaction does not mean that the customer has higher loyalty.
Customer loyalty is the key factor to improve enterprises’ competitiveness, and it is the foundation stone of enterprise
development and the most important source of enterprise long-term profit. Internet has both positive and negative
influence on customer loyalty. We should cultivate customer loyalty from customer relation maintaining, customer
relation management, virtual experience and so on in the Internet environment.
Key words: cyber-marketing
customer loyalty customer satisfaction
1. Introduction
In the early 90s of the 20th century, the rapid growth of Internet has formed and dominated the “Internet
Economy” within almost the whole 90s. The nearly crazy e-commerce upsurge has become logos, entering a new
steady developing period after the Internet foamy wreckage in the year 2000. From the technical oriented first
generation e-commerce to the second generation, this is oriented by commerce (Laudon & Traver, 2002). Under
such a background, more and more scholars consider that traditional marketing conception should be applied in
the Internet environment and should be extended and evolved.
In 1996, the author of The Loyalty Effect, Frederick Reichheld, on the basis of thorough research on such trades as
software, advertising agent, etc, issued research report Zero Loss: The Coming of Service Industry Quality Period in
Harvard Business Review. Reichheld pointed out that, when the enterprises’ customer retention ratio increases by 5%,
their profit increase will reach 25%-85%. At the same time, the service cost that is provided for old customers is less
each year. This conclusion caused the extensive concern of the marketing industry. Before and after this conclusion,
such as sale promotion cost for new customers is 6 times higher than that for old customers, the success probability for
promotion to new customers is 15% while it is 50% for old customers, etc, the verdict discovered by enterprises and
researchers which is almost accordant with game theory, has been taken as principle in the marketing area.
However, when more and more enterprises gradually understand that they shouldn’t only focus their attention
on developing new customers, many cyber-marketing enterprises stress attracting new customers as their
emphasis for Internet business. They are wild about the technique for attracting new customers and always
emphasize the customer increase rate. They provide various kinds of interests to attract new customers while
*
Hong Peng, female, Ph.D. candidate and associate prof. of School of Business Administration, Zhongnan University of Economics
and Law; Main research field: E-business; Address: School of Business Administration, Zhongnan University of Economics and Law,
No.114 Wuluo Road, Wuhan, Hubei, China, Postcode: 430064.
** Zhihao Chen, male, associate prof. of School of Business Administration, Zhongnan University of Economics and Law; Main
research field: E-business and Cyber-marketing; Address: School of Business Administration, Zhongnan University of Economics
and Law, No.114 Wuluo Road, Wuhan, Hubei, China, Postcode: 430064.
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Customer Loyalty and Cyber-marketing Ideaistic Evolution
ignoring the maintenance for the customers already exist, needlessly to say how to cultivate customer loyalty.
Therefore, establishing online customer loyalty and emphasizing the cultivation of loyalty is a new subject for
enterprises during their cyber-marketing implementation. This paper just does some probes on this issue.
2. The Connotation for Customer Loyalty
Customer loyalty is usually defined as the behavior of repeatedly buying the same brand or product. But this
is just the superficial description, the more profound definition for loyalty is that, a kind of responsibility for
buying the same product or service in the future, which makes customers buy the same brand even when they are
facing other brands marketing or under the circumstance that is possible to change the product brand. Although
customer loyalty does have relation with repeat buying, it is not equal to repeat buying (Jacoby & Kyner, 1973).
The three factors that determine the customer loyalty are product’s superior quality, personal pursuit and
sustain and influence by colony culture. Based on the depth of customer loyalty, it can be divided into four
administrative levels, namely perceived loyalty, sensibilities loyalty, intent loyalty and behavior loyalty.
Outstanding quality of the product is the basis of actualizing the loyalty. If customers are not interested in the
products, loyalty cannot be a reasonable target for them to pursue. That is to say, it is impossible to form loyalty
without satisfying product. But outstanding product or service is just the least requirement to realize customer
loyalty. As a matter of fact, the representation of the product only forms the most superficial perceive loyalty.
Only when customers ratify the product with their geist, further loyalty like sensibilities and intent loyalty comes
into being. Just as Kotler (2001) pointed out, customers’ joviality creates a kind of appetency against products and
services, it is not only a kind of rational preference, but also high degree customer loyalty thereby forms. To
obtain the sensibilities, intent and behavior customer loyalty, it needs other factors’ support.
Non-competing area
High
The monopoly under control or
a few substitutes
Brand assets occupying a leading
position
Powerful loyalty scheme
Loyalty
Degree
Local telephone
Aviation
Hospital
High competition area
PC
Staple goods or low difference
No difference for customers
Automobile
Low
1
Perfectly unsatisfied
Figure 1
2
3
Satisfaction
degree
4
5
Perfectly satisfied
The Relationship between Customer Satisfaction and Customer loyalty
Action loyalty as the highest level, can be realized only when the colony the customer is affiliated with, like
family, stratum, also sustain using the product. Or else, customers will not repeat buying even if they are “heart
loyalty”. As you can see, the relationship between product representation and customer loyalty is not as
consanguineous as the customer satisfaction. If enterprise cannot satisfy one of the above customers’ expectations,
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Customer Loyalty and Cyber-marketing Ideaistic Evolution
the intrinsic condition for realizing loyalty is destroyed.
From the definition of customer loyalty, we also can see that customers’ future behavior (repeat buying or
changing brand) is related with loyalty. Kotler (2001) and other persons traced out the relationship between
customer satisfaction and customer loyalty within the different industry markets (see Figure 1). We can see that
when satisfaction degree is higher, loyalty degree is higher under various kinds of situations. But in intensive
competing industries like mobile, PC industry, there’s no enormous difference between not so satisfied and
comparatively satisfied. But between customers who are satisfied and those who are perfectly satisfied, the loyalty
degree has enormous difference. Even lower just a little from the perfect satisfaction line, the loyalty degree will
down a lot. But for those monopoly market or seller’s market, loyalty will keep on the relatively high level
whenever customers are satisfied or not. It seems that this is the ideal condition for protected or ruling industries
or enterprises, but these enterprises will finally pay tremendous expenses for customer’s dissatisfaction.
3. Marketing Ideaistic Evolution
3.1 From Customer Satisfaction to Customer Loyalty
In the marketing area, it is known to all that customer satisfaction is the necessary condition for customer
loyalty. We can say that customer loyalty develops from customer satisfaction. Customer satisfaction theory, as the
marketing Bible, comes of the 60’s in the previous century. It has formed a set of relatively maturate and perfect
theoretical system after developing for full 40 years. Its achievements are not only applied in the enterprises’
marketing activities, but also used in the national customer satisfaction evaluation system and gradually filtered in
the whole country economic circulation system.
Enterprises achieved remarkable performance after they implemented the customer satisfaction marketing
tactic. But some problems also gradually appeared during the implementation, many enterprises found that it
cannot be the fundamental function for upgrading enterprises’ competitiveness. American mobile industry made a
Stat., they found that 85%-95% of customers claim that they’re satisfied with the products, but only 30-40% of
them choose to buy the original brand or type. Some enterprises in other industries even encountered that
customers whom they had tried their best to satisfy choose their competitor’s product in the next transaction.
Some enterprises also found a kind of unable balance relation between customer satisfaction and enterprise
performance and competitive power, this phenomenon is named “customer satisfaction trap” by Reichheld.
Before 90’s of the 20th century, although it was widely considered in the academe that satisfaction degree is
related to loyalty degree, some scholars had realized the deficiency for customer satisfaction for a long time. In
1986, Deming pointed out that “it is not enough to make customers be satisfied”. With the transition from seller’s
market to buyer’s market and grown up of e-commerce, more and more scholars find that the relation between
satisfaction degree and loyalty degree is not as direct as beeline. Zones and Sasser (1995) considered that “only
make customers be satisfied and have the right to choose in many ways, which is not enough to maintain their
loyalty for the enterprise and brand”. Reichheld’s research (1996) indicated that 65%-85% of customers who
claim they’re satisfied or perfectly satisfied will be lost and turn to other brand. Stewart (1999) pointed out that it
is wrong to consider customer satisfaction in certain degree will consequentially lead to customer loyalty. Neal
(1999) also considered that it is wrong to conceive customer satisfaction will lead to customer loyalty, which is
approbatory by enterprises and academe circle during the past 10 years. Because most loyal customers are satisfied
while satisfied customers are not always loyal. Oliver (1999) investigated which aspect of customer satisfaction effect
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Customer Loyalty and Cyber-marketing Ideaistic Evolution
related with loyalty and loyalty effect was resulted in which factors of satisfaction. After deepen research on the factors
of forming customer loyalty, he pointed out that satisfaction is the necessary stage to form loyalty, but satisfaction is not
so important after the loyalty formed, whether customers will be loyal or not, it is rest on the other factors after
satisfaction formed. Oliver also pointed out that 90% of the satisfied customers is possible to betray. Marketing master
Kolter (2001) also admitted: the high satisfaction degree cannot guarantee the customer loyalty. Some scholars like
Buttle (1991), Reichheld (1993), Mitchell (1998), Naude & Buttle (2000) approved that customer satisfaction is not
equal to loyalty from the angle of relation marketing. On the contrary, unsatisfied customers may become loyal
customers. These conclusions make the satisfaction research and relation marketing research that is supported by
customer satisfaction face new subjects almost at the same time. Therefore, deep customer loyalty research is attracting
more and more scholars and being paid attention to by more enterprises.
3.2 Customer Loyalty Is the Footstone of Enterprises’ Growth and the Headspring of Profit
According to the marketing theory, for the growing market, supply cannot meet the demand. At this time,
enterprises can gain more profits. While for an almost balanced market, enterprises and customers almost possess
the same status, only those who can win more customers, gain more profits. But for shortage market, it is not
necessary for an enterprise to provide services for all customers; only providing services for the core customers
can gain the same abundant profits.
However, under the circumstances of market economy’s increasingly matures and gradually coming into
being of buyer’s market, many important problems that enterprises face are not only the market occupation rate,
but how many loyal customers they possess. Many enterprises start to pay more attention to customers’ feedback
and enterprises’ competition target has changed from the quantity of market share (market occupation rate) to the
quality of market share (quantity of loyal customers).
Customer loyalty has an important meaning for enterprises’ survival and development. Cost must be paid to
obtain new customers; this cost will be more expensive under the supply exceeding demand market. But their
contributing to enterprises is very meager. In some trades, new customers are even unable to contribute to
enterprises in a short time. Comparatively speaking, loyal customers (old customers) create overflow value upon
the enterprises: loyal customers will generally be the “disseminator”of the products and services; they’ll try to
recommend to others, this kind of public praise marketing is most welcomed by enterprises. Most loyal customers
generally accept a certain markup for the price just because of convenience of shopping (Frederick, 2000). Loyal
customers can often obtain higher values like unique products and emotional demand during the relation
maintenance with enterprises. Therefore, they’re not so sensitive about the price like new customers and they’d
like to accept higher price for the products and services than that for new customers.
We can say that, the quantity of loyal customers determines enterprises’ survival and development. Customer
loyalty is the key factor of upgrading enterprises’ competition ability and the footstone for enterprises’ development
and main headspring for enterprises’ long-range profit.
4. Cyber-marketing and Customer Loyalty
After experiencing an explosive growth period, the first generation of e-commerce that had started by using web
advertisement to promote the products since 1995, was eventually ended with the crash of the network concept stock
in April, 2000. Based on the first generation of e-commerce which takes experimenting, capitalization and high
competitiveness as its characters, the second generation of e-commerce, which started in 2001, has stressed the
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Customer Loyalty and Cyber-marketing Ideaistic Evolution
commerciality which should have been paid attention to during the first generation. Such misunderstanding ideas as
“rewriting all business rules of traditional economy” and “rooting out traditional marketing channels and intermediary”
have been corrected, and then e-commerce enters into a new stage of steady development.
However, as a new thing, e-commerce is a new subject for the scholars of various countries to explore how to
use the successful experience in the traditional economic environment for reference. In addition, after being
spoiled by excessive enthusiasm for quick success and instant benefit during swaddle period, today’s e-commerce
has a lot of deficiencies. Those deficiencies are shown as cyber-marketing only emphasizes on attracting
customer's attention while neglects the cultivation of customer loyalty. This is a great fault. “The price does not
follow the rules of the network, but loyalty does. Without the function of loyalty, it is of no avail even if the best
e-commerce mode has been designed.” (Reichheld, 2000) In a sense, customer loyalty under the environment of
network is more important than that under the environment of traditional market. Especially in the future, with the
improvement of popularization degree of Internet and the slow increase of the number of online customers and
enterprises that launch the cyber-marketing, customer loyalty is significant for enterprises.
4.1 The Reality of Cyber-customer Loyalty
4.1.1 The dualism of customer loyalty under the Internet environment
Internet with the natures of opening, freedom and globalization has offered a wide market for enterprises to
develop cyber-marking, also offered massive option space and convenient option root for customers at the same time.
With the establishment of the online market, the study on online customers also becomes the important subject of
domestic and abroad marketing circle. The earliest research began from studying commodity category that online
customers mostly like to purchase. This kind of research analyzes not only the suitable commodity categories for selling
on the Internet, but also online consumption characteristics and consumer psychology with commodity’s specialty. It
has reached the fact that the customers on the Internet usually have the basic features such as striving for convenience
and pursuing novelty, which are easy to change. More pursuit they’re seeking is the domination power when
shopping---network has just created such ideal environment for them. They like changing continually among numerous
website, moving from a website to another website just by clicking the mouse gently. This cheap diversion cost makes
the scholars infer that online customers have low loyal degree and even not at all.
However, in the research of plenty of practical examples afterwards, the scholars discover that the fact is not
like that. Online consumers are not apt to change and fond of pursuing the novelty and changing the website
continually like what thought originally. On the contrary, they have higher loyal degree than that of customers
under traditional consumer mode. Most of them have very high loyalty to online enterprises which they log-in for
the first time or have good impression on, and it is very obvious in the commercial activities of B2C and B2B
(Reichheld, 2000). Evidently, the influence of Internet for customer loyalty has dualism.
4.1.2 Trust, the most key factor influencing customers’ behavior
The further researches show that main reason for above-mentioned situation is that customers’ shopping
psychology has greatly changed. Firstly, in this virtual space of network, the consumers are unable to get the
experience in person to the real products through organs, such as hands, eyes, nose, tongue, etc. To reduce risk of
shopping, choosing an online shop with high credit is the most important and the most pivotal step for customers
to consume online. Secondly, the consumers make the consumption decision depending on various kinds of
information from cyberspace and the credibility of the website formed in the past trade. But for customers, the
cyberspace is too free to judge the true or false of online information. By contrast, the trust obtained in the past
trade can often influence more upon their consumer behaviors. Thirdly, the openness of online information makes
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Customer Loyalty and Cyber-marketing Ideaistic Evolution
the products’ prices of all enterprises totally visual. Any pricing action on their products would be perceived and
responded immediately by their rivals. The final result is that competition advantage based on price is reduced
greatly. “‘The highest credit online enterprise that I know’ becomes the principal and key factor for online
shopping, whereas ‘favorable in price’, ‘the diversified choice’ and so on withdraw to the secondary status.”
(Reichheld, 2000) Fourthly, in network age, customers are reluctant to spend much time and energy in searching
and comparing information due to the quicken up of working and life rhythm, they prefer to become loyal
customers of some online stores, so that they can reduce the time, energy and physical cost which will be spent in
shopping, as well as the consuming risk. According to this point, online customers have an instinctive preference
for loyalty in order to make the shopping risk lower, and the shopping decisions more reasonable.
4.2 Cultivation of Customer Loyalty under the Internet Environment
Make a comprehensive view on enterprises which have started cyber-marketing, we can see that they often
stressed on tactic combination areas like 4P and its service, and it is also a keystone for some enterprises to
upgrade customer satisfaction degree by network’s alternant and communicating advantage. All above are
undoubted, but at the same time, it should be stressed and has the condition to implement the strengthening of
cyber loyal customers and cultivation of customer loyalty. In allusion to the situation of our country and
enterprises, the author thinks the following aspects can be taken measures from.
4.2.1 Focusing on the maintenance of customer relationship
The cost of obtaining a new customer is 4 times more than that of maintaining an old customer, which also
works and may be more applicable in cyber-marketing. At the beginning of customer lifecycle, the cost of obtaining
an online customer is much more than that through traditional mode, for example, the cost of online retailing is
20%-40% more than that through traditional retailing (Reichheld, 2000). One side of the reason is that, the customer
would try to search a more satisfying brand because of low cost of online searching; on the other hand, customers are
difficult to make choice and tend to betray because of network’s tremendous comprehensiveness which keeps
customers in “the immense sea of information”. All of these do not only reduce the loyalty of customers, but also
increase the difficulty of cultivating new loyal customers. Therefore, many enterprises flinched.
Although there are definite difficulties in cultivating the online customer loyalty, enterprises have to make
great efforts to maintain the relation with customers because of the high cost of obtaining new customers.
Enterprises that don’t stress on this will surely lose lots of profit. Contrarily, once enterprises hold the original
customers, and make them become loyal customers, the cost of advertisement and sales promotion will be much
less. For example, the cost of attracting them to repeat purchase will be reduced. In the same way, when a new
product comes into the market, the cost of promotion to loyal customers is far less than that to the new customers.
The purchase quantity of these loyal customers in the future 20-30 months will be more than 2 times of that during
the first 6 months (Reichheld, 2000). Rigby (2000) released a survey report about retail of clothes, food and home
applicant on the Internet. He pointed out that enterprises can rarely keep balance through only once dealing with a
customer. For a food retail enterprise, it has to maintain the customer for at least 18 months to keep the balance.
Moreover, the online food buyer’s consumption from the 31st to 36th month would increase by 23% compared to
that in the first 6 months. Not only for food, has it also existed in other products marketing. Thus it can be seen
that if enterprises’ cyber-marketing implementation makes efforts to maintain the relation with customers, loyal
customers will eventually bring massive profit to enterprises.
4.2.2 Formulating a loyalty sale plan, implementing effective CRM
As one of the three talismans for the enterprise management, CRM is accepted and implemented by more and
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Customer Loyalty and Cyber-marketing Ideaistic Evolution
more enterprises. But considering current application situation of domestic and abroad enterprises, we find rarely
successful instance. The reason is not in CRM itself, but some problems existing in the CRM implementation
process, which will not be discussed in this paper. What I want to emphasize is that CRM strategy for enterprises
is to optimize the management of customers’ resources and maximize the value of customers. It is a long-term
program and a long-term goal by the support of management and information technology. Customer loyalty as an
important part of CRM strategy, its goal accords with the goal of CRM. To establish and upgrade customers’
loyalty, a feasible loyalty marketing plan must be constituted, which is not only the base of loyalty marketing, but
also the base of implementation of CRM strategy.
Loyalty marketing plan is also called frequenter marketing plan, which is a new marketing trend developed
in the late of 90s. It encourages customers’ repeat purchase by using preferential price or any other method;
increasing customers’ shift cost from one brand to another (this cost includes not only the expense cost, but also
the mental and time cost). The implementation of loyalty marketing plan and CRM strategy must be combined
with database marketing. Database should be used to find the gold customers for marketing personnel and
abandon customers with minus profit. Through tools like data mining and so on, we can classify customers to be
managed by the factors such as difference of products, services and the value of customers, etc.
Under the traditional environment, the main methods that enterprises use to establish customer loyalty are
preferential price in frequent purchase and definite concerning for customers. But these methods not only have limited
effect, but also have obvious defect. Because of the obstacle of information communication between customers and
enterprises, enterprises can hardly find out the real need of customers, so it hinders the satisfaction of customers’ need
and cultivation of loyal customers. Under the Internet environment, enterprises could communicate immediately with
vast consumers by various tools of effective information technology, and classify the data of customers and place it on
file by utilizing database. Therefore, enterprises could carry out individuation marketing and provide “one to one”
service, so as to improve the satisfaction degree of customers and form customer loyalty as much as possible.
4.2.3 Paying attention to the realization of virtual experience
The premise of online shopping is online browsing. In 1999, Frrester’s research on the conversion rate from
online browsing to shopping showed that, more than 98% visits of the e-commerce websites can't result in
purchase behavior. To a great extent, the reason is that online shopping is hard to bring the consumer similar
shopping experience as in realistic business environment. The research of the marketing theories and practices has
already proved that the best way to make consumers obtain the production information is to directly provide the
production experience (Berger & Mitchell, 1989; Marks & Kamins, 1988; Smith & Swinyard, 1988). Consumer
experience is the real value of the product for the consumer (Frank Biocca, 2001). Therefore, one of the important
missions and targets of marketing is striving to provide true feeling as much as possible through various direct or
indirect intercommunions with customers.
Virtual experience will make volume of consumption bought once increase with time and cause cross-purchasing.
This is especially obvious in online shopping. The customers’ purpose is to search a certain goods when they browse
one online shop for the first time. Because they are not familiar with the layout, the function and the business processes
of the website, they depend on the services provided by the enterprise more. With the improvement of familiar degree
of the website, they get rid of this dependence gradually, and have more knowledge of the products which the enterprise
sells on the Internet, then establishes the trust degree for the website. Hereafter, they may regard this website as the first
choice when online shopping. Therefore, the enterprise can realize the more up-selling and cross-selling on these loyal
customers, thus can acquire more profits. With the merchandise knowledge accumulated, websites will gradually
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Customer Loyalty and Cyber-marketing Ideaistic Evolution
reduce related counseling service to these customers and admit more online shoppers. All these directly result in
reducing of the operating cost and improvement of business efficiency.
Therefore, establishing customer loyalty in cyber-marketing should focus on the shopping experience of
cyber-customers acquired and satisfaction and loyalty caused by this. The scholars gave the online shopping
experience a new name: “virtual experiences”. Consumption experience is divided into two aspects of cognitive
behavior and emotion behavior (Hirshman, 1982). Foreign research pointed out that, virtual experiences created
by the online interactive function and multimedia technology have the active influence on two aspects. With the
experience degree increasing, the similar degree will be increased between the middle experience realized by the
information technology and the direct experience brought by the products.
4.2.4 Making use of loyal customers’ public praise effect
Public praise marketing has already been the important marketing method in the traditional market environment.
The survey by Reichheld and Schefter (2000) indicated that public praise marketing has larger influence in the
e-commerce environment, and over half of the loyal customers in the Internet are result of public praise effect. Another
statistical data indicated that, 20% of e-mail customers make use of the acquaintance's “public praise” to discover and
browse new website. “Like attracts like, people of one mind fall into the same group.” There is some similarity between
new and old customers recommend by loyal customers. Mostly their shopping purposes are clear, unlike others who
change the shopping websites frequently. Therefore, customers that are recommended by loyal customers usually have
more value than that attracted by advertisement and reduced price and so on. The huge coverage area of the network
and the ability of convenient information transferring make the information transmission between the customers more
convenient. The influence of “public praise” becomes more deeply and widely, and attracts more people to become
enterprise consumers, even loyal customers.
Through providing some virtual communities such as discussion group and chat room that some consumers
participated in, enterprises can create the conditions and opportunities for developing the public praise marketing.
If enterprises can form the advantage and keep it for a long time in above-mentioned respects, it is very
helpful to set up the stable loyal customers group and improve the loyal degree. In addition, if considering the
function of loyal customers, such as providing the market requirement information, rival information, etc,
customer loyalty is considered as a kind of precious resource and becomes the magic weapon of enterprise
competition in the e-commerce environment.
In a word, the meaning of customer loyalty is prominent and far-reaching for enterprises that implement
cyber-marketing. As a kind of ideaistic evolution in cyber-marketing, establishing and realizing customer loyalty should
become the important tache of enterprises’ cyber-marketing strategy in the future and be taken enough recognition.
References:
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