Marketing Is Customer Loyalty an Element in the Simulation?


All of the foundations for product loyalty are there except for exit barriers. That is, customers develop loyalty because the design is good, they know the product, and it is easy for them to interact with the company (take delivery, talk to customer support, etc.- what we are calling "accessibility." However, in most branding/loyalty situations, there is also some cost to the customer to switch brands, even if those costs are only psychological (that is, habit). The simulation has no switching costs.

As an aside, it would be trivial to build in switching costs. We leave them out because we want students to focus on the elements that create loyalty in the first place. These elements are scored in the monthly customer survey (published in the Segment Analyses of the Courier). If I consistently score 40, and my competitors score 30, I will consistently generate higher demand.

The simulation is designed so that differentiators have a natural advantage over cost leaders in the high tech segments. Customers will gladly pay for a good design, high awareness and easy accessibility. In the low tech segments, price matters and cost leaders have a natural advantage over differentiators.

We have run many "purist" experiments with the algorithms to balance the simulation. For example, we pit pure cost leaders against pure differentiators in each segment. A pure cost leader, for example, pushes the design to minimize cost, minimizes awareness and accessibility, and compensates with prices near the bottom of the range. A pure differentiator offers an excellent design, maximizes awareness and accessibility, and raises the price to the top of the range. In these situations, the profit potential is good for both types in every segment, but low tech favors price leaders and high tech favors differentiators.