The Importance of Brand Loyalty in Business Success

Brand loyalty reflects the connection between a product and a customer's willingness to repeatedly purchase it. A customer is considered loyal when they show commitment to a specific brand, indicating positive sentiments towards the product or company. Loyalty is demonstrated through consistent support for a particular brand, resulting in increased sales for the firm and strengthening the relationship with the organization, making it less susceptible to competitive actions. It is a crucial concept in management for gaining a competitive advantage. Consequently, loyalty plays a vital role in shaping customer experiences, enabling companies to boost sales and expand their market share.

Brand loyalty and Price premium

In general, brand loyalty is measured by customers' purchasing behavior (Newman and Werbel, 1973). Loyalty behavior influences purchasing decisions. Gordon et al. (1993) argue that loyalty to retailers is equally important as loyalty to manufacturers.

It has been argued that customers who have positive experiences with a product are more likely to repurchase, as they perceive value in both the product and the brand. Prospect theory suggests that in uncertain purchase situations, customers make decisions based on perceived probabilities. In a typical service experience, customers are willing to pay more if they believe that the value of the service exceeds or equals the price (Casidy, Wymer, 2016). However, there is always the uncertainty that after consuming the service, customers may find the value to be lower than expected. As uncertainty increases, customers' perception of service value decreases (discounting effect), reducing the impact of satisfaction and loyalty on willingness to pay (Casidy, Wymer, 2016). Conversely, as uncertainty decreases, customers' perception of service value increases (price premium effect), strengthening the influence of satisfaction and building loyalty.

Price premiums are closely associated with loyalty programs; however, it is challenging to evaluate the trade-off between the two. Nonetheless, loyalty plays a role in price premiums by segmenting customers based on price sensitivity levels and offering differentiated products. Specifically, these authors suggest that a customer's willingness to pay a price premium is influenced by loyalty rewards offered by firms. Corporate Social Responsibility (CSR) matters to consumers and affects their purchase intentions, even if it means paying a higher price (Gómez, Consuegra, Díaz, Molina, 2017). CSR is associated with price premiums, as some buyers are willing to pay more for ethically produced products.

Conclusion

In conclusion, brand loyalty plays a significant role in the success of businesses by fostering repeat purchases, strengthening customer relationships, and providing a competitive edge. Loyal customers are committed to specific brands and exhibit positive sentiments towards both the product and the company. This loyalty translates into increased sales and market share while reducing vulnerability to competitors' actions. Customer experiences, satisfaction, and willingness to pay are influenced by the perceived value of the product or service, and uncertainty can impact these factors. Loyalty programs and corporate social responsibility initiatives also contribute to customer loyalty and willingness to pay price premiums. Understanding the dynamics of brand loyalty and its relationship with customer behavior is crucial for organizations aiming to build long-term customer relationships and achieve sustainable growth.