Effect of Loyalty Cards on Customer Loyalty
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Published: Tue, 06 Mar 2018
Background of the topic:
The purpose of this dissertation is to analyze and investigate the effect of the loyalty cards on customer loyalty and how does it helps large organizations to achieve its goals. When shopping in supermarkets there is one experience that everyone has, when customers finish with their shopping and get to a checkout, the assistant will ask the customers, whether they have a clubcard. This will continue every time whenever those customers without a clubcard shops in the future, the assistant will keep on asking them for a clubcard unless they get one for themselves. Now there is a question that will come across every customer’s mind, what is a clubcard and why does every company insist them and every customer to be a part of the clubcard family? Now people become curious and they want to get a clubcard too. The assistant says to fill up a form with the customer’s general details like name, address and contact details and the day customer fills the form, next day they will receive a clubcard. Impressive, now why companies offer clubcards to their customers, how do companies benefit from these schemes they provide for their customers? Background of this research title is concerned with the highly competitive market where retail giants have to survive and maintain their competitive edge to always stay ahead in the race or even to survive the downfall whenever necessary. Unlimited majors are taken and a huge amount of time and money is spent to attract customers who bring revenue to the company. Having a large number of competitors around, it is very difficult to have a competitive advantage. Basic mean for this subject matter is to identify the purpose and importance of relationship marketing, and its benefits to make strategic decisions. Loyalty cards can significantly boost business profits whilst simultaneously building customer loyalty. Studies show that loyalty cards are one of the most cost effective ways to build brand loyalty and improve customer retention. Loyalty cards are used by all the major retail and supermarket chains as a vital tool to improve profitability, but one does not need to be a national high street store in order to run a profitable reward card scheme. One of the reasons the supermarkets are taking business away from independent retailers are the incentives offered in their loyalty card schemes. The loyalty cards market in the UK is one of the most significant in the world and forms the backbone of marketing and customer retention planning. With over 85% of UK Households possessing loyalty cards it is really a case where companies can afford not to offer a loyalty card service to their customers. There are different companies who offer loyalty schemes for their customer and give customers shopping vouchers after they spend certain amount of money through those loyalty cards. Main objective behind loyalty cards is to keep customer loyal with the company by offering them discounts and gifts on their shopping so they spend more money in their shops and markets. Most common example of loyalty card is Tesco club card, Sainsbury nectar card and other such cards offered by different companies in the country. But most of the people wont understand the idea behind those loyalty cards that how they work. The success of the Tesco Clubcard has been well documented, in 2002 a Market and Opinion Research Poll found that Tesco’s Clubcard had been more successful than the programmers offered by rival supermarkets (Smith, 2004).
Rationale: Why is this study being done??
Tesco got a huge amount of success with its loyalty schemes unlike its competitors. The reason behind this study is to find out why Tesco was so successful with their Loyalty cards, Tesco Club cards, as they are named, and how it played a very important role in maintaining their customer’s loyalty, which is very important for any business today. The theory behind this concept is Relationship Marketing, and how it was used by Tesco to grow its business. Background of this research title is concerned with the highly competitive market where retail giants have to survive and maintain their competitive edge to always stay ahead in the race or even to survive the downfall whenever necessary. Unlimited majors are taken and a huge amount of time and money is spent to attract customers who bring revenue to the company. Having a large number of competitors around, it is very difficult to have a competitive advantage. Basic mean for this subject matter is to identify the purpose and importance of relationship marketing, and its benefits to make strategic decisions. Companies offer such countless schemes for their customers to retain and maintain customer loyalty for their store. There are many other factors behind these loyalty schemes where companies benefit. Loyalty card schemes are not only beneficial for the customers, but are equally beneficial for the companies as well.
Significance: How does the study contribute??
The aim of the research is to identify the impact of the Tesco Clubcard on customer loyalty. This will contribute to contrast customer perceptions of the Clubcard, staff and “feeling valued” to identify which factor has the greater impact on customer loyalty to store. The paper is useful to both practitioners and academics in the fields of relationship marketing and loyalty. The research provides some initial insight into consumer perspectives in the value of loyalty cards. Tesco has succeeded with the strategy of loyalty cards, but its competitors did not. Retailers like Sainsbury’s and ASDAs who are the competitors of Tesco, did not manage to promote their business using their loyalty cards as Tesco did. Tesco got a huge amount of success with its loyalty schemes unlike its competitors. Tesco has been known for their best customer service where as its competitor, Asda have been known for their best value and low competitive prices. Now why has Tesco chosen such a marketing strategy to attract customers and increase revenue? The reason behind this study is to find out why Tesco was so successful with their Loyalty cards, Tesco Club cards, as they are named, and how it played a very important role in maintaining their customer’s loyalty, which is very important for any business today. The theory behind this concept is Relationship Marketing, and how it was used by Tesco to grow its business. Tesco has chosen a marketing strategy where they need to gain customer’s faith and trust to maintain a good relationship with them. Hence they need to know everything about their customers individually. How will they keep a track of each and every customer they have? There are many strategies to know your customers and Tesco uses such strategies to have a good track of their customers. The best way to do this is by the method of loyalty cards. Companies can know much more about their customers through loyalty cards. This study will show how Tesco collects data of their customers and use that data to improve their customer service in order to gain customer satisfaction.
Aims & Objectives:
The aim of the research is to investigate the influence of the Tesco Clubcard on customer store loyalty. In 1995, Tesco introduced the loyalty Clubcard that was to offer, “Benefits to regular shoppers whilst helping the company discover more about its Customer needs”. The main aim of this research will be to compare the Loyalty schemes of Tesco Clubcards with its competitors like Sainsbury’s and ASDA, and find out why Tesco’s Clubcards were a huge success unlike Sainsbury’s Nectar and Asda loyalty cards did not succeed in promoting their business. The study also focuses on the need of customer loyalty and what steps were taken by Tesco to retain and maintain its customer loyalty.
A glance at the major and successful organizations around the globe shows that their success is partly due to their ability to apply the theory of relationship marketing. In the contemporary business arena, all organizations, large or small improve their effectiveness and efficiency by applying this theory, thus improving their customer service and customer relations which play a very important role for any business organization. This study shows the brief idea of the Relationship Marketing and how it has been used by the retail giant, Tesco to gain their customer’s loyalty and retain it for a long time. Tesco is the company on which this whole study has been based on. At the first there is some information and idea has been explained about Relationship Marketing and how is plays a vital role in company’s marketing strategies. It also discusses about the benefits of the relationship marketing and how it is used by the company to achieve its aims and objectives. This will later on continue with the main topic, that is, the success of Tesco’s loyalty cards other than its competitors. It will discuss the concept of the loyalty cards and the different strategies used by Tesco and even its competitors to get a competitive edge in the surviving market. The later part of the study also shows how Clubcards are beneficial for the customers as well as the company. Then research methodology is identified that how the research will be conducted, it includes that how the research will designed means the ways through effective data can be find out.
In this discussion outcomes from the previous research will be demonstrate to provide the clear understanding to the topic. In this chapter views of different authors and researches will be quoted to support the research. It will include the work of researchers who have worked on this matter and have reached to some conclusion. As a literature review chapter it will consist of basic definitions of customer loyalty, customer relationship, loyalty cards and the most important one relationship marketing. This chapter will also explain these theories and how are they applicable for the strategies used by the companies to achieve their goals and success.
What does it mean for an organisation and its customer to have a relationship with each other? What kind of a relationship would they have with each other? Do customers have relationships with enterprises that do not know them? Is it necessary that the companies know their customers or the other way around? What kind of a relationship would that be if both the parties are unaware of the relationship they have? Can the enterprise be said to have a relationship with a customer it does not know? Is it possible for a customer to have a relationship with a brand? It can be said that customers would know the products but not the company. Experts have studied the nature of relationships in business for many years, and there are many different perspectives on the fundamental purpose of relationships in business strategies. It can be said that the only aim of the company is not only to gain maximum profits out of their customers or having the greatest market share or the rank the company is. Instead, to be successful in the era of interactivity, when it is possible to deal individually with separate customers, the business objective must include establishing meaningful and profitable relationships at least with the most valuable customers, and making the overall customer base more valuable. Technology plays a very crucial role in maintaining this relationship between companies and customers. In short, the company strives to get a customer, keep that customer for a lifetime, and grow the value of the customer to the organisation. Relationships are the crux of the customer-strategy enterprise. Relationships between customers and enterprises provide the framework for everything else connected to the customer-value business model. This is the same model used by Tesco in order to gain a competitive advantage in the most competitive markets in the world. The exchange between a customer and the enterprise becomes mutually beneficial, as customers give information in return for personalized service that meets their individual needs.
Because we are talking about relationships between businesses and their customers, it is important that we agree on a few of the elements that make up a genuine relationship. And while dictionary definitions are not bad as starting points, the most important issue for us to consider is how well our own definition of relationship helps companies succeed in the “customer dimension” of competition. Let’s list some of the distinct qualities that should characterize a relationship between an enterprise and a customer. First, a relationship implies mutuality. In order for anyone to consider a relationship, both the company and its customer have to participate in and be aware of the existence of the relationship. This is the most common factor which is needed to be realized by both the parties. This means that relationships must inherently be two-way in nature. Second, relationships are driven by interaction. When the company and the customer interact, they exchange information, and this information exchange is a best tool for building the relationship. This, of course, also implies mutuality. But interactions don’t have to take place by phone or in person or on the Web. An interaction takes place when a customer buys a product from the company that sells it. This is where the customer and the company are in face to face for a reason which builds up this relationship. Every interaction adds to the total information content possible in the relationship. This leads to the third characteristic of a relationship: It is iterative in nature. That is, since both the customer and the company are interacting mutually, the interactions themselves build up a history, over time—a context. This context gives a relationship’s future interactions greater and greater efficiency, because every successive interaction represents that the company and the customer is growing into a healthy relationship than before by communication and a benefit for both the parties. The more that company communicates with its customer, the less they need to say the next time around to get their point across. Another characteristic of a customer relationship is that it will be driven by an ongoing benefit to the customer and the company. The customer’s convenience is one type of benefit, for the customer, but not the only one. Participating in a relationship will involve a cost in money, time, or effort, and no customer will engage for long in any relationship the company won’t be more beneficial for that customer, of it that customer is not getting more benefits that before. However, precisely because of the context of the relationship and its continuing benefit for the customer and the company, each party in a relationship has an incentive to recover from mistakes. Relationships also require a change in behavior on the part of both, the customer as well as the company, in order to continue. After all, what drives the ongoing benefit of a relationship is not only its context, its history of interactions, developed over time, but also the fact that the customer’s and the company’s current and future actions reflect that previous context. This is an important characteristic, because companies sometimes mistakenly believe that interactions with a customer need is always the same, the communication from the company’s side, cannot deliver same behavior pattern to every customer. In other words companies need to have relationships with their customer individually because the behavior of every customer is not always the same, which can result in different kind of relationship pattern with the company. But unless the company’s actions toward a particular customer are somehow different, there is a possibility of miscommunication and can ruin the relation between that customer and the company, which will be no ongoing benefit for the customer, and as a result the customer might not continue the relationship. Every relationship is different. Relationships are constituted with individuals, not with populations. This means relationships are with the individual customer and not the whole segment of the customer population of the company. As a result, a company who wants to engage its customers in relationships must be prepared to participate in different interactions, remember different customers and their behavior or spending habits, and engage in different behaviors toward different customers.(Peppers .D, & Rogers. M 2004)
During the last few years there has been a growing interest in studying the economics and markets of long-lasting customer relationships where customer relationships play a vital role for every company. This kind of relationship can help to increase revenue for the company which can be a long term process and a continuous growth of the relationship between the organization and the customer. Heskett introduced the concept of market economies, which means achieving results by understanding the customers behavior instead of by concentrating on developing scale economies. (Heskett, J.L., 1987)
A mutually satisfactory relationship between the company and its customers makes it possible for customers to avoid significant transaction costs involved in shifting from one company or a service provider which can be beneficial for both, the customer and the company. However, customer retention is not enough. Some long-lasting customer relationships, where the customers are obviously satisfied with what they get, are not profitable even in the long run, as Storbacka says. There is clear evidence that from a profitability point of view intelligent relationship building where company can be beneficial to the customer as well as themselves in the long run, then only such a management make sense.
(Storbacka, K., 1993)
The whole point of a relationship is to keep your customers, and simultaneously grow new customers. So what is customer loyalty? Those who’ve tried to answer that question have approached it from two different directions: attitudinal (what Barnes calls “emotional”) and behavioral (what Barnes calls “functional”). Although each of these two definitions of loyalty is valid, they have different implications and lead to very different prescriptions for businesses. The attitudinal definition of loyalty implies that loyalty is a state of mind. Customers are loyal to a brand or a company if they have a positive, preferential attitude toward it. They like the company, its products, or its brands, and they therefore prefer to buy from it, rather than from the company’s competitors. In purely commercial terms, the attitudinal definition of customer loyalty would mean that someone who is willing to pay a premium for Brand A over Brand B, even when the products they represent are virtually equivalent, is loyal to Brand A. But the emphasis is on willingness, rather than on actual behavior, per se. In terms of attitudes, then, increasing a customer’s loyalty is virtually equivalent to increasing the customer’s preference for the brand. It is closely tied to product quality and customer satisfaction. Any company wanting to increase loyalty, in attitudinal terms, will concentrate on improving its product, its image, or other elements of the customer experience, relative to its competitors. The behavioral definition of loyalty would mean that someone is willing to pay a premium for Brand A over Brand B, even without respect to the attitudes or preferences that underlie that conduct. By this definition, customers are loyal to a company if they buy from it and then continue to buy from it. Loyalty is concerned with repurchase activity, regardless of any internally held attitudes or preferences. In the behavioral definition, loyalty is not the cause, but the result of brand preference. A company wanting to increase customer loyalty will focus on whatever tactics will in fact increase the amount of repurchase behavior— tactics that can easily include, without being limited to, raising consumers’ general preference for the brand or their level of satisfaction with it. (Peppers .D, & Rogers. M 2004)
Customer loyalty could be termed a “customer’s commitment to do business with a particular organization, purchasing their goods and services repeatedly, and recommending the services and products to friends and associates”. It is a term which is neither easy to gain nor maintain, rather it is vulnerable, where “even if its customers are satisfied with the service they will continue to defect if they believe they can get better value, convenience or quality elsewhere”. (McIlroy, A. and Barnett, S. (2000)
In order to investigate the concept of loyalty, we see the framework of Sopanen (1996) to reveal six different types of loyalty:
(1) Monopoly loyalty, where there are no available choices.
(2) Inertia loyalty, where customers do not actively seek substitutes.
(3) Convenience loyalty, where loyalty is solely defined by location.
(4) Price loyalty: where customers are influenced by the lowest price.
(5) Incentivized loyalty, where loyalty relates to the benefits gained from reward cards and programmers.
(6) Emotional loyalty, where customers are influenced by factors such as brand.
From this we can observe that loyalty programs such as Tesco Clubcard can be considered an incentivized type of loyalty, which can be exhibited by customers, but the strength of this loyalty is often questioned.
“As organizations become increasingly customer focused and driven by customer demands, the need to meet the customers’ expectations and retain their loyalty becomes more critical” (Disney, 1999, p. 491). Customer loyalty is one of the fundamental goals of marketing (Selnes, 1993). Not only does it guarantee repeat customers, but it also decreases the need for companies to spend large portions of their budgets on advertising and promotion in order to attract new customers. Mittal and Lassar (1998) identified that customer loyalty is very often thought of as an outcome of customer satisfaction. This explains why customer satisfaction has become an essential concept in marketing and its quest is one of the most important goals for businesses (Webster, 1994)
Relationship marketing is very much interlinked with the notion and practice of customer care. There is no doubt that the development of relationship marketing has had and will continue to have major implications for the marketing managers. Comprehensive accounts of the development, meaning and implications of relationship marketing for the contemporary marketer are given by Lancaster and Massingham. As so often, there are many different views as to the precise nature and hence definition of relationship marketing. So, for example, Groonroos stressed the element of mutual exchange ad trust in relationship marketing as follows. “Relationship marketing is a process including several parties or actors, the objective of which has to be met. This is done by mutual exchange and fulfillment of promises, a fact that makes trust an important aspect of marketing”.
Stone and Woodcock on the other hand put more emphasis on the traditional tool of sales, communication and customer care techniques. Again we see overlap between these two areas. “Relationship marketing involves the use of a wide range of marketing, sales, communications and customer care techniques and processes to: identify named individual customers, create a relationship between the company and these customers, and manage that relationship to the benefit of both the customer and the company”.
Perhaps one of the simplest and yet the most powerful summaries of what relationship marketing is however, is that provided by Buttle. “At its best, RM (relationship management) is characterized by a genuine concern to meet or exceed the expectations of the customers and to provide excellent service in an environment of trust and commitment to the relationship”. Buttle goes on to indicate what is involved in successful relationship marketing and the commitment of the company required to generate this success. “To be successful relationship marketers, companies must develop a supportive organizational culture, market the RM idea internally, intimately understand customer’s expectations, create and maintain a detailed customer database, and organize and reward employees in such a way that the objective of RM, customer retention, is achieved”. This illustrates that relationship marketing has major implications for both how we think about marketing and our approach to the practice of marketing. It affects and includes the provision of marketing information, organizational systems and procedures, and the elements of marketing strategy.
Relationship Marketing refers to Promotional and needs and maintain the relationship. This proposal is concerned with Relationship management and marketing at how it is been used by companies to maintain existing customers, retain lost customers and attract new customers.
Relationship marketing is systems-oriented, yet it includes managerial aspects. A systems approach is well suited as a basis for a general theory of marketing, because it makes it possible to include all relevant actors, environmental influence, and even the process nature of marketing. (Kuhn, T.S. (1957)
The concept of relationship marketing has emerged within the fields of service marketing and industrial marketing. The phenomenon described by this concept is strongly supported by ongoing trends in modern business. Grönroos defines relationship marketing in the following way:
Marketing is to establish, maintain, and enhance relationships with customers and other partners, at a profit, so that the objectives of the parties involved are met. This is achieved by a mutual exchange and fulfillment of promises. Such relationships are usually but not necessarily always long-term. Establishing a relationship, for example with a customer, can be divided into two parts: to attract the customer and to build the relationship with that customer so that the economic goals of that relationship are achieved. (Grönroos, C. (1990)
More businesses are moving toward relationship marketing in dealing with their customers as more customers expect a personalized experience. Considering relationship marketing vs. transactional marketing for http://searchcrm.techtarget.com/generic/0,295582,sid11_gci1253633_mem1,00.html)
Relationship marketing is a marketing strategy that emphasizes customer loyalty, customer retention and long-term customer engagement. Using the relationship marketing approach, an organization aims to develop strong, long-term connections with customers by providing them with information directly suited to their needs and interests. This approach often results in increased word-of-mouth activity, long-term purchasing behavior and a willingness to provide information.
The goal of every enterprise, once you strip away all the activities that keep everybody busy every day, is simply to get, keep, and grow customers. Whether a business focuses its efforts on product innovation, operational efficiency and low price, or customer intimacy, for that firm must have customers or the enterprise isn’t a business—it’s a hobby. This is true for nonprofits (where the “customers” may be donors or volunteers) as well as for-profits, for firms large and small, for public as well as private enterprise. What does it mean for an enterprise to focus on its customers as the key to competitive advantage? Obviously, it does not mean giving up the product edge, or the operational efficiencies, that have been successful in the past. It does mean using new strategies, nearly always requiring new technologies, to focus on growing the value of the company by deliberately and strategically growing the value of the customer base. Companies needed to build comprehensive customer databases. Companies had been maintaining product databases, sales force databases, and dealer databases. Now they needed to build, maintain, mine, and manage a customer database that could be used by company personnel in sales, marketing, credit, accounting, and other company functions. As customer database marketing grew, several different names came to describe it, including individualized marketing, customer intimacy, technology enabled marketing, dialogue marketing, interactive marketing, permission marketing, and one-to-one marketing. Modern technology makes it possible for enterprises to learn more about individual customers, remember those needs, and shape the company’s offerings, services, messages and interactions to each valued customer. The new technologies make mass-customization (otherwise an oxymoron) possible. At the same time, technology is only a partial factor in helping companies do genuine one-to-one marketing. The following quotes about customer relationship management (CRM) make this point vividly:
- “CRM is not a software package. It’s not a database. It’s not a call center or a Web site. It’s not a loyalty program, a customer service program, a customer acquisition program or a win-back program. CRM is an entire philosophy.” (Steve Silver)
- “A CRM program is typically 45 percent dependent on the right executive leadership, 40 percent on project management implementation and 15 percent on technology.” (Edmund Thompson, Gartner Group)
(Peppers .D, & Rogers. M 2004)
Any retailer running a loyalty card scheme could call up customer details and purchase history from incoming phone numbers. In many firms, loyalty cards are used for direct marketing and not much else. Using them to dramatically improve customer service seems a fitting reward for loyalty.
Marketing program designed to enhance brand loyalty by cultivating an ongoing relationship between a marketer and his customer. Successful loyalty programs encourage the consumer to buy frequently, to increase the amount spent each time, and to concentrate all or most of their related purchases on that brand. Most loyalty programs offer perks for membership in a club or program and reward purchases. Rewards may be based on the dollar value of purchases made or on the frequency of purchases. The most well-known loyalty programs are airline frequent-flyer programs that offer discounts against future travel called award miles. Most large supermarket chains now have frequent-buyer clubs that offer no-coupon discounts as well as newsletters and http://www.answers.com/topic/loyalty-program)
A loyalty card program is an incentive plan that allows a retail business to gather data about its customers. Customers are offered product discounts, coupons, points toward merchandise or some other reward in exchange for their voluntary participation in the program. A secondary goal of a loyalty card program is to build repeat business by offering participating customers something that isn’t available to non-participating customers.
Loyalty cards often resemble plastic credit cards but they can also be keychain fobs or stickers. Typically a loyalty card has a barcode or magnetic stripe that’s scanned at the point of sale (POS). The card identifies the customer and sends information about what the customer bought to a database. The information in the database is used to help the retailer understand and influence his customers’ buying habits. According to research carried out by Boston University’s College of Communication, eighty-six percent of American shoppers are listed in a loyalty database; a majority of survey respondents said receiving the card was worth giving up some measure of privacy. Loyalty schemes are necessary for the retailers because it helps them in attracting the customers and when they came to them they try to retain them by offering their services on discounted rates and by offering them further discounts and services. Smith states the importance of loyalty cards and schemes in the following statement “if
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