Part Two. Consumer Loyalty and Satisfaction

Coca-Cola Company

            According to Coca-Cola’s Annual Report (2002), the Coca-Cola Company in

2002 achieved worldwide unit case volume growth of five percent; the growth rate

was 4.5 percent. Cash from operations was a record $4.7 billion, a 15 percent

increase over 2001. Reported earnings per share were $1.23 after a reduction of

$0.54 resulting from accounting changes and several other items, including $0.11 per

share impact from stock option expense.

            Supported by strategic investment and innovation, brand Coca-Cola products

achieved 3 percent volume growth in North America, led by the introduction of

Vanilla Coke and the continued rollout of diet Coke with lemon. Vanilla Coke brought

in eight million new consumers who were not drinking

Coca-Cola; in addition, diet Coke with lemon attracted over three million consumers

to diet Coke.

            Such a pace of innovation around the Coca-Cola  brand is unprecedented. It

was nearly 100 years before the company launched the first extension of Coca-Cola
—diet Coke, in 1982. It took another ten years to build diet Coke into a worldwide

brand. It’s now the number-three soft drink in the world, and number-two in some

markets.

            Responsibility for the world’s most beloved and valuable brand requires

extreme care in how, when, and why we extend it. The company does not risk

consumer loyalty to the brand or seek an artificial bump in volume by spinning out

product after product to chase the latest fad. By staying close to the brand’s identity,

Coca-Cola has created new products such as Vanilla Coke, diet Vanilla Coke, and

diet Coke with lemon. These products have lasting appeal that are expected to

generate equally lasting value for share owners. Further, the quality and reliability of

Coca-Cola products, the unparalleled brand appeal and distribution, combined with

valuable consumer insights and strong customer relationships have generated

sustained profitability for Coca-Cola, Fanta, Sprite and our other carbonated soft

drinks for many years.

            Over the past three years, Coca-Cola has grown internally and through

strategic acquisitions to become the world’s largest producer of ready-to-drink juices

and juice drinks. Outside the United States, its share of sales for the sports-drink

category is one of the largest in the world. Across 70 countries, POWERADE grew

25 percent and increased its share of the category. Moreover, the company has been

successful in strategically building a water business that enhances our offerings to

our customers. Together with Dasani, which grew volume 40 percent last year as the
number-two bottled water brand, we have become one of the leading players in the

water category in North America, both in terms of share of sales and dollar value.

            Coca-Cola is a classic example of a brand with long-term consumer loyalty.

Coca-Cola has revolutionized the way people think about soda. Through proper

brand building and the introduction of related offerings such as Diet Coke, Fanta, and

Sprite, the Coca-Cola Company made worldwide impact. It catapulted beverage

sales to more than one billion servings per day. What separate Coke from other

brands are its name, identity, and loyal following--all of which are marketing

creations. The company's comprehensive business strategy revolves around the fact

that the Coca-Cola brand is the core, and that consumer demand drives all.

Consumer Loyalty

            A better appreciation of the underlying forces that influence the loyalty of

customers--particularly their attitudes and changing needs—helps the Coca-Cola

Company develop targeted efforts to correct any downward migration in their

spending habits long before it leads them to defect. Such an appreciation also helps

the company improve its current efforts to encourage other customers to spend

more.

 
            Differentiating and measuring degrees of loyalty is an evolving craft.

Companies first tried to measure and manage their customers' satisfaction in the

early 1970s, on the theory that increasing it would help them prosper. In the 1980s,

they began to measure their customers' rates of defection and to investigate its root

causes. By measuring the value of the customers themselves, some companies also

identified high-value ones and became better at preventing them from defecting.

These ideas are still important, but they are not enough. Managing migration--from

the satisfied customers who spend more to the downward migrators who spend

less--is a crucial next step.

            Service delivery is an interactive and dynamic process, that from the

consumer's point of view is much more than a passive exchange of money for a

particular service. Characteristics of services often require customers to be actively

involved in helping to create the service value -- either by serving themselves or by

cooperating and often working collaboratively with service personnel (Claycomb, Inks

& Lengnick-Hall 2001). In high-contact systems customers can influence the time of

demand, the exact nature of the service, and the quality of service (Lovelock &

Young 1979). If consumers somehow become better customers -- that is, more

knowledgeable, participative, or productive -- the quality of the service experience will

likely be enhanced for the customer and the organization (Bowers, Martin & Luker

1990).

 
            Organizations that capitalize on customers' active participation in

organizational activities can gain competitive advantage through greater sales

volume, enhanced operating efficiencies, positive word-of-mouth publicity, reduced

marketing expenses, and enhanced customer loyalty (Reichheld & Sasser, 1990).

Customers who actively participate in organizational activities can directly increase

their personal satisfaction and perceptions of service quality (Bowers, Martin & Luker

1990).

Brand and Consumer Loyalty

            More businesses are considering the importance of building and managing

brand names because of the intense competition within the globalized economy,

emerging trends in marketing, brand extension, acquisitions, and many other

activities that cause confusions in the business (Laforet & Saunders, 1999).

Consequently according to Balmer and Wilson (1998), researchers in marketing,

public relations, and corporate communications are concerned with corporate identity

management and the benefits branding bring to the business. Moreover, building

brand names means announcing the identity of a company (Asher, 1997). The focus

in building brand names therefore is to develop an intuitive and memorable image of

the firm, services or products by presenting what is unique and special about the

company.

            When it comes to the buying preferences of today's consumers, a major new

business study reveals that what keeps Americans buying a particular brand has less
to do with pricing and merchandising than with how well the company treats its

customers (Kara, 1998). Conducted for SOCAP by The Center for Client Retention,

the study finds a direct correlation between buying intent and a customer's

experience with a company's consumer affairs department. Specifically, 90 percent of

those consumers who were delighted with their experience say they will continue to

buy the product/service while only 37 percent of the customers who were dissatisfied

with their experience say they will remain brand loyal.

            Underscoring the importance of these "relationship" factors, the study charts

the influence of these attributes on brand loyalty and finds a direct association.

Specifically, 88 Percent of respondents who gave "ability to demonstrate concern and

interest" the highest ranking said they would be very likely to repurchase a

company's products, while only 3 percent would be very unlikely to repurchase. The

reaction to representatives who "show enthusiasm" was the same: 88 percent would

be very likely and only 3 percent very unlikely to repurchase a company's products.

            In fact, the SOCAP study finds that when customers are satisfied with the

way a company handles their questions or complaints, they sometimes become more

loyal than customers who never experience a problem. Another way that customer

service impacts sales is through the "word of mouth" factor, whereby consumers tell

their family and friends about their positive and negative experiences with a

company. In this study, 58 percent of all respondents told others about their

experience with a consumer affairs department, with most telling three or more

people.

Consumer Satisfaction
            In today’s business world, the value and importance of customers is not

something that should be set aside by companies. Marketing plans and strategies

would be incomplete without paying much consideration to the customers.

Customers will and should always be a part of the agenda in any marketing plan of

any company. Because of the implications for profitability and growth, customer

retention is potentially one of the most powerful weapons that companies can employ

in their fight to gain a strategic advantage and survive in today's ever increasing

competitive environment (Lindenmann, 1999).

            Nowadays, companies’ concern does not only evolve around managing

finances and operations. Companies have realized the importance of managing

reputational risk. Business image and reputation are considered as intangible assets

which are as equally important as tangible assets. These assets are founded on the

companies’ relations with their customers. Integrity, transparency, and accountability

are important elements in this foundation. Hence, it is important for companies to be

able to secure this relationship by being able to keep the degree of these three

elements high (Sercovich, 2003).

            The companies’ commitment to further improve on their accountability,

transparency, and integrity should not be considered merely as an effort to serve

Public Relations purposes. Instead, this commitment should be regarded as an effort

to maintain the long-term sustainability of these companies. As the customers

demand for higher standards, any shortcomings on the part of the companies to

deliver would jeopardize the life of their respective company. Hence, it is really

important for companies to not only maintain and protect these intangible assets. It is

also a must that they increase these assets for future benefits (Sercovich, 2003).
            The customer-company relationship is based on a continuum wherein both

“always-a-share” and “lost-for-good” relationships occupy the two extremes of the

continuum. In an “always-a-share” relationship, transactions are arms-length and

discreet. Customers are valuable and at the same time, replaceable. On the other

hand, in a “lost-for-good” relationship, the probability that the customer will purchase

again from the same company is extremely low when the customer decides to

terminate the use of a product due to product defects or problems (Jacobs, Latham,

& Lee, 1998).

            The disconfirmation paradigm has been the dominant model used in

explaining the customer’s satisfaction or dissatisfaction. There are actually 3 possible

reactions that may come from the customer. Two of them are positive reactions while

the other one is a negative one. A customer shows a positive reaction either when

the product is able to perform as what he/she has expected (zero positive index) or

the product is able to exceed its expected performance (positive disconfirmation

index). On the other hand, a negative reaction (negative disconfirmation index) is

expected when the product performs below the expectation of the customer (Jacobs

et al., 1998).

Customer satisfaction refers to the consumer’s positive subjective evaluation

of the outcomes and experiences associated with using or consuming the product or

service. Satisfaction occurs when the product has been able to meet or exceed the

conceived expectations that the customer has (Padilla, 1996). Furthermore, customer

satisfaction may also be considered as the measure of the high degree of quality of

the product (Jacobs et al., 1998).  

particular product (Jacobs et al., 1998). However, it should not be limited to the

traditional concept of quality. In its traditional concept, manufacturers view quality as

inherent in the product or service. Once a product or service has been delivered or

sold, its quality is believed to have been established (Leon & Crosby, 2003).

However, Leon and Crosby (2003) argued that a product’s quality still has some

other dimensions that are under the manufacturer’s control. These dimensions may

still be modified and enhanced even after delivery.