The Impact of Customer Loyalty on Company's Performance

This thesis explores the relationships between customer loyalty and business performance. The main questions that research aims to answer is does customer loyalty lead to higher performance indicators. Earlier theory and empirical evidence have mainly supported the interconnections between these two components, however contradicting results have been found. This work has examined a lot of past papers, and it provides clear definition of customer loyalty and explains how it can be measured. Also, it provides some improvement techniques and introduce real-life example of customer loyalty improvement – the Tesco Corporation Case Study. With the help of past research, this paper discovers Key Performance Indicators, and choses some of them, such as Net Profit Margin, Revenue Growth Rate and Returns on Equity (ROE) as dependent variables for the research. This work is focused on both aspects of customer loyalty, attitudinal and behavioral, and choses for explanatory variables several indicators of loyalty, such as the Net Promoter Score (NPS), the Churn Rate Ratio, the Number of Average Repeated Purchases and the Repeated Purchases Rate. The data for the research was provided by real company, LLC Kenguru chain-store, which operates in the DIY (do-it-yourself) market and has stores in different parts of Russia. During the internship in this company, the decision was made to perform a real research and investigate the impact of customer loyalty metrixes, which were never counted by the target company before. The data consists of time-series in 2016-2018 years. The main problem with series is possible non-stationarity, so all variables were checked in advance using Augmented Dickey-Fuller tests. The OLS regressions were performed in order to investigate significance of chosen paraments and to explore the impact of customer loyalty on business performance. The obtained results were contradicting: one-factor models show significance of such variables as the NPS and the Repeated Purchases Rate, while expanded model with control variables show insignificance of loyalty indexes. There are no unambiguous conclusions from performed research, as long as there are a lot of factors, which have influenced on the results, beginning from industry specific factors till the incompleteness of the model. The detailed discussion of the results and potential problems, such as multicollinearity and omitted variable bias, which lead to limitations of the research will be presented later on this thesis.