Customer loyalty programs are
attempts to bond customers to a com-
pany and its products and services by
Line offering incentives—such as airline
(5) frequent flyer programs or special
credit cards with valuable benefits—to
loyal customers. In support of loyalty
programs, companies often invoke the
“80/20” principle, which states that
(10) about 80 percent of revenue typically
comes from only about 20 percent of
customers. However, this profitable
20 percent are not necessarily loyal
buyers, especially in the sense of
(15) exclusive loyalty. Studies have dem-
onstrated that only about 10 percent
of buyers for many types of frequently
purchased consumer goods are
100 percent loyal to a particular brand
(20) over a one-year period. Moreover,
100-percent-loyal buyers tend to be
light buyers of the product or service.
“Divided loyalty” better describes
actual consumer behavior, since
(25) customers typically vary the brands
they buy. The reasons for this
behavior are fairly straightforward:
people buy different brands for dif-
ferent occasions or for variety, or a
(30) brand may be the only one in stock or
may offer better value because of a
special deal. Most buyers who change
brands are not lost forever; usually,
they are heavy consumers who simply
(35) prefer to buy a number of brands.
Such multibrand loyalty means that one
company’s most profitable customers
will probably be its competitors’ most
profitable customers as well.
(40) Still, advocates of loyalty programs
contend that such programs are bene-
ficial because the costs of serving
highly loyal customers are lower, and
because such loyal customers are less
(45) price sensitive than other customers.
It is true that when there are start-up
costs, such as credit checks, involved
in serving a new customer, the costs
exceed those of serving a repeat cus-
(50) tomer. However, it is not at all clear
why the costs of serving a highly loyal
customer should in principle be differ-
ent from those of serving any other
type of repeat customer. The key
(55) variables driving cost are size and
type of order, special versus standard
order, and so on, not high-loyalty
versus divided-loyalty customers.
As for price sensitivity, highly loyal
(60) customers may in fact come to expect
a price discount as a reward for their
loyalty.
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Q33:
The primary purpose of the passage is to
- question
the notion that customer loyalty programs are beneficial - examine
the reasons why many customers buy multiple brands of products - propose
some possible alternatives to customer loyalty programs - demonstrate
that most customers are not completely loyal to any one brand of product or service - compare
the benefits of customer loyalty programs with those of other types of purchase incentive programs
Answer:
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Q34:
Missing!
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Q35:
Missing!
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Q36:
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