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Case Study of Customer Retention in Tesco

In today’s outrageously competitive world of marketing, the most important danger that the retailer organizations encounter, is the scarcity of purchaser / buyer / customer. Every organization in this competitive world in anxiously drawing policies to draw a larger number of customers to its market through various marketing strategies. Alongside drawing the newer customers to the market through means of advertisement, or promotions, the firms are more than interested in retaining their existent customers with them. Here emerges the concept of “customer retention”.

Customer retention refers to retaining an individual’s, any firm’s or any retailer’s customer. Retaining one’s customers is basically derived from the idea of keeping the customers intact with the organization. If the organization fails in keeping the customers active with it, it is expected to lose the customer base, and hence lead to shrunk profit margins for the organization. However, it is advisable to enhance the customer base by means of attracting newer customers to the organization through means of proper advertisement, promotions, schemes and discounts etc. The relative study of customer retention and attracting new customers can enhance the vision about the usefulness of these techniques. The research in the recent past has shown that attracting new customers appears to be five times more expensive as compared to the retention of the existing customers of the organization. This fact solicits for the necessity of studying the customer retention and draw new policy options for the organization in order to maximize its profits with the help of enhancement and retention of its customer base.

An organization is said to have retaining its customer if the customer under study remains intact with it. In other words, the loyalty of the customer leads towards the customer retention for an organization. There are various determinants of the customer retention. For instance, if a customer under surveillance returns to the organization within a specified period of time, it may be regarded as the retention of that specified customer. In some text, customer retention is also viewed as the number of times a specific customer visits the organization within an already specified period of time. It is not necessary that a customer visiting the organization second time within the specified period would add to the sale volume of the organization. The customer may visit for securing the after-sales services for the product purchased by him on any of his previous trips to the organization. However, it bears the probability for the firm to be gaining positive results from the second trip of the customer, as it is an opportunity for the firm to establish a positive impact on the customer by allowing him the services that he requires on priority basis and with diligence. Though it would cost the organization in the beginning to bestow free of cost services or cheaper services to the customer, but it would eventually yield positive results for the organization. As a positive relation with the customer would enhance the probability of the customer to return to the firm for his future purchases or refer the organization in his social circle with the reference of the quality products, and the quality after sales service that the firm provides to its customers. Hence it is evident that in any case, the customer returns to the firm, the probability of the firm increasing its customer base and its sales volume rises. It is with the help of this customer retention that the firms can gain access to the variegated social structures through the means of referral system.

Thus, we may say that customer retention can not only work as a processor for enhancing the customer base, but it can also be used as a proxy to advertisement for the advertisement. Retaining a customer through the means of quality service and quality products would eventually lead towards a positive impact in the sales and customer volume of the organization. Therefore the basic aim behind the study of customer retention is not only to expand the profit margins of the organization, but also the reduction in costs through means of reduced advertisement expenditures and decrease in the cost of attracting newer customers.

This study focuses on the customer retention of the TESCO plc (Public Limited Company). TESCO plc is one of the world’s leading organization in the field of global grocery marketing, along with general merchandising. Scattered in a mix of 14 countries, TESCO has an established chain for retailer products. This study lays its emphasis on relating the concept of customer retention with the TESCO plc in order to lead the organization to a swelled customer base and increased sales volume for the organization. In case customer retention is established successfully in the organization, it is expected to help increase the profits of the organization manifold. Because it is a submitted phenomenon that, “If you want your customers to do something for you, you have to do something for them”.

1.4 Overall research aims:

The overall objectives of the research are to establish a policy for the retailer organizations through which these could be able to enhance the overall performance of the firm. The policy would include resolutions for the attitude adjustment of the employees towards the customers of the organization. It would educate the desired dimensions of attitudes to be adopted by the field staff in order to retain a customer for future correspondence with the organization. Moreover, the monetary benefits are among the most keen approaches that a private or a semi-government organization refers to through the means of enhanced sales volumes of the organization. However, for public organizations, the idea of customer retention does not have much feasibility as far as monetary approach is concerned, as these organizations focus on social benefits for the common public, rather than the monetary benefits for the organization.

Therefore, we may summarize the general / overall aims of this study as:

Establishing a policy for the retailer organizations to enhance the overall performance of the firm.

Attitude adjustment towards the customers to retain the customer base of the organization.

Monetary stability of the private, semi-government organizations.

Social uplift of the society through means of enhanced quality and improved service.

1.5 Specific research objectives:

The specified objectives of the firm include the designing of the policy for customer retention for the organization under study i.e. TESCO plc. The study would help in establishing various means and provisions through which the TESCO plc would be able to maintain a high customer base for the organization. Moreover, this study would draw the probable outcomes of implementation of customer retention policies in TESCO plc. Alongside, the study would produce evidence for the validity or ineffectiveness of the idea of customer retention for the retailer organizations through means of observing the financial and social aspects of the implied policies.

In essence, the specific research objectives can be framed as follows:

Designing customer retention policies for TESCO plc.

Maintain a high customer base for the organization.

Monetary and social benefits for the organization.

Effectiveness of the policies of customer retention for the retailer organizations.

1.6 Significance of the Research:

In the competitive market, the race for attracting more and more customers is the phenomenon under spotlight these days. It has already been discussed that drawing more customers is strongly correlated with the idea of maintaining the existent customer base of the organization, because it is the retained customers that act as an element of advertisement for propagating the positive aspects of the organization in their social culture. Therefore, this study can work as a landmark in the field of retail marketing as it will pour light on various dimensions of retentions of customers along with the effectiveness of the concept of customer retention.

1.7 Research assumptions or Research Hypothesis:

We draw the research hypothesis on the basis of the specified objectives of this study. The case under study is the nature of causation of customer retention towards the sales projects of TESCO plc in lieu with the sales volume, customer base, per annum profits and the cost of advertisement for the organization.

The hypotheses of the study are defined as follows:

Customer retention would enhance the sales volume of the TESCO plc.

Customer retention would enhance the customer base of the TESCO plc.

Customer retention would reduce the costs of advertisement for the TESCO plc.

Customer retention would increase the per annum profits of the TESCO plc.

1.8 Summary Of Research Design And Methodology:

The four core elements of customer retention are generally seemed as; action, reaction, feedback and repeat. This means that the corporation needs to initiate action / policy such as discounts for the repeating customers, loyalty cards and promotions for the customers having to visit the organization time and again, maintaining record of the frequent customers and sending them thanking notes for their cooperation with the corporation and trust on the organization, sending wisher / small gifts / or birthday cards to the special customers etc. These are the ideas that would yield a positive impact of the organization over the customer. These are known as extra-purchasal benefits, that are not directly associated with the purchasing of the customers, but their retention to the organization.

These leads to the second stage of the study of customer retention, i.e. reaction. The reaction may consist of more frequent visits by the customer, higher than before purchasing value by the customer, seeking more favours by the organization in shape of further discounts or services on other commodities, attraction of more customers introduced to the organization by the target customer etc. This reaction has to be very minutely observed by the researcher / observer, as it is this reaction that sets path for the future policy making.

The research tools proposed to be used for observing the reaction of the customer, in response to the action undertaken by the organization, are:

The most important tool of primary research to be used in this study is direct observation, i.e. the researcher would adapt to the real environment and observe the behaviour of the customers, for which the action has been initiated by the organization. This will require the researcher / observer to be well equipped and well trained with the surveillance techniques so that he may not miss any important observation, because that would have a direct impact on the effectiveness of research.

The target customers will be differentiated demographically by the researcher / observer in order to maintain the responses of the customers based on different demographic features associated with the customers.

After observing the responses of the target customers, the third stage of customer retention prevails, i.e. feedback. The second tool of primary research to be used in this research is ‘personal interviewing’ of the target customers. The sampling technique that suits this study the most is the ‘random sampling technique’. The samples selected through random sampling technique would then be interviewed to collect the information regarding the policies implied by the organization.

It is proposed to use a ‘coded close – bounded interview performa’ for interviewing the target customers. It would help in collecting primary data over the reactions of the customers. The interview Performa will be designed to extract information from the customer regarding the attraction / promotion offered to him / her by the organization on extra – purchasal basis.

This information collected through direct observation and personal interview methodology would then be de – coded and analyzed and the results would then be interpreted as per the definitions of the variables. This would yield results about the research conducted and the researcher / observer would be in a position to state the policy recommendations. These policy recommendations would include the final clause of the process of customer retention i.e. repeat. It will pour light on various aspects of the actions taken by organization in the first step and will help in designing the policy options for implementation in future, i.e. whether these actions taken by the organization would yield any positive results for customer retention or not, and whether these actions should be repeated or not.

1.9 Relevant Literature/secondary source:

Customer retention is relied upon two determinants; customer value and after-sales service. It depends on the organization how does is cater these two elements to psychologically force the customer to visit the organization again for his next purchasal. The customer value refers to the idea of valuing the customer through the means of extra-purchasal services, i.e. the services not directly associated with the purchase that the customer is making. For instance, keeping the promises made to the customer upon his purchasal would lead to a sense of satisfaction in the customer which would eventually enhance the probability of the customer to return to the store for his future purchasing. Similarly, the attitude of the staff towards the customers and their willingness to help along with their behaviour to make the customer feel important. As far as the other determinant of customer retention, the after-sales service, is concerned, Konosuke Matsushita, the founder of Panasonic, is of the view that:

“After sales service is more important than the assistance before sales; it is through such service that one gets a permanent customer”.

Hence, the more the focus on after sales service, the more the customer retention is expected to behold, and the more expected revenues the corporation would generate.

The relevant literature available for further studying on the issue concerned consists of:

Barlow et al; Emotional Value: Creating Strong Bonds with Your Customers; Berreneet-Koehler Publisher Inc, 2000.

Churchill, Craig F; Banking on Customer Loyalty; Journal of Microfinance; Vol-2; No.2.

Doyle, Meter; Value Based Marketing; Wiley, 2000 England.

Kotler, Phillip; Marketing Management; Ninth edition; Prentice-Hall,Inc. 1997.

Porter, Michael E; Competitive Strategy; The Free Press, 1998, NY.

Wilson, Kim; Exodus: Why the Customer Leaves; Microbanking bulletin, April 2001.

1.10 Anticipated research problems:

The research involves studying the consumer / customer behaviour over a considerably large period of time, say three months or so. Because, customer retention has been defined as the consecutive trips of the customer over a specified period of time, hence, it has to be observed that how many trips does a customer pays to the organization over a specified period of time. This requires managing a research team for a long period.

Moreover the research is mainly associated with observations made towards the behaviour of the customers, the attitude of the staff of the organization, the demographic impact of the incoming consumers etc., therefore, it will initially be difficult to evade from the observer biasness. However, observer biasness could be taken care of through the means of provision of proper guideline defined for the observer / researcher.

The underlying research problem is related to a real market environment. Therefore simulation is not a probable solution for the research and it has to be conducted in a real environment. Hence, the first and foremost problem lies in seeking permission for surveillance by the authorities of TESCO plc. Moreover, there is a strong cooperation needed amongst the surveyor / researcher and the field staff and administration section of the corporation, without which conduction of research would merely by probable.

Most important of all, the identification of the customers, visiting the organization, is a difficult process. It may so happen that a customer visits the organization in a different get-up, or he / she visits the organization after a long period of time and the observer is unable to recognize the customer. This would create biasness in the estimates about the customer retention, as there will be missing values in the sample collected against the variable of returning customers.

Upon person to person interviewing, the customers may hesitate to answer to certain questions, which may lead towards defection in random sampling. However this problem could be tackled through the means of non-response methodology and these samples could simply be deleted from the study on the basis of non-responsiveness of the respondents.

1.11 Research time plan:

The proposed time frame for the research is approximately four months. The division consists of fifteen days of pre – observation preparation for the researcher / observer. Three months are designated for the observation purposes. Fifteen more days are proposed for the post – observation compilation of data and analysis purposes.

1.12 Personal Learning Objectives:

This study will help the researcher to expertise in following aspects:

This study would have a direct impact on the researcher’s knowledge of customer behaviour.

The researcher would expertise in using the two basic tools of research methodology i.e. direct observation, and personal interviews.

The researcher would have a chance to examine the market environment of TESCO plc.

Student Name:

Tayyab Ahmad

Pgdms 2009/10

HO100851

Signed:

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