Evaluating the Impact of Loyalty Programmes on Customer Retention

Abstract

The current research is based on the analysing the UK retail sector customer retention process. The customer loyalty program is the most important variable for the investigation of this research. The review of literature shows that customer retention is more cost effective for the business than generating new customers. On the other hand the differentiation strategy has been identified as most important value for money approach for the customer retention. The main rational for the current research is the higher level of market competition in UK retail sector where the customer retention has become the most important challenge. The current primary data in the form of survey among the customer has showed that the loyalty program is highly important for the customer to remain within the organisation. Customers are more willing to use the loyalty scheme but the customer service is the main differentiation point that attracts them towards the brand. The recommendation in this research are focused on the loyalty scheme accessibility, usability scope, innovation, value addition and loosening the eligibility for the schemes.

Table of Contents

Abstract

Research Project Title

Problem/ Opportunity/ Issue (Background of the Research)

Literature Review

Research Methodology

Research Aims

Research Objectives

Research Philosophy

Research Approach

Data Collection

Sampling Strategy

Sample Space

Research Limitations

Research Ethics

Findings/ Results

Discussion

Quantitative analysis

Qualitative findings

Recommendations

References

Research Project Title

Evaluating the Impact of Loyalty Programmes on Customer Retention

Problem/ Opportunity/ Issue (Background of the Research)

In a time when the global business environment is characterised by extreme levels of business competition, long term customer retention has become a major challenge for the global business establishments. Customer retention is the only way through which business establishments are able to ensure their continuous and steady market demand for their product and service offerings in the market and this eventually helps business establishments to generate steady business revenues that helps them to sustain their normal smooth business operations in the market (Magatef and Tomalieh, 2015). With the availability of a large number of service providers in the market that are catering similar products and services at similar prices, the modern day customers have a lot of product variety and options to choose from and this has really made long term customer retention increasingly challenging for the modern day business establishments. The aspect of loyalty programmes have gained more prominence in the current business context as it plays a vital role in helping the business to ensure long term customer retention in the market (Meyer-Waarden, 2008). Loyalty programmes are playing a vital role in helping business establishments to improve the consumer buying experience in the market and this is helping them to foster customer satisfaction and impart brand loyalty among their customers. Thus, business establishments are increasingly emphasising on the aspect of consumer loyalty programmes and are coming up with different kinds of loyalty programmes in the market with a focus on long term customer satisfaction and customer loyalty in the market (Bhakar et al., 2015). This research will shed light on the diverse aspects of customer loyalty programmes in the market and how it invariably helps the business establishments to ensure long term customer retention in the market. The literature review would mainly deal with the diverse literature pertaining to retention marketing and this would help in understanding how the aspect of consumer loyalty programmes have an impact on the consumer buying behaviour in the market. 

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Literature Review

The aspect of customer loyalty can be considered to be the consumer attitude or behaviour towards a specific brand of preference as compared to all the other available brands in the market. Magatef and Tomalieh, (2015) are of the opinion that the customer loyalty is the product/ result of long term relationship development that has been undertaken by an organisation in the market and the aspect of customer retention reflect the continuity of the relationship that an organisation has been able to create with their customers. Customer retention is all about managing the customers and their buying experience in the market and this invariably helps an organisation to earn good reputation and goodwill in an increasingly competitive industry sector. Meyer-Waarden, (2008) has described that the aspect of consumer retention is extremely important for any business as the costs of acquiring new customers for an organisation are much higher than retaining the existing consumers by maintaining strong and effective personal relationships with them.

Loyalty programmes can be considered to be structured marketing efforts on the part of business establishments that are mainly focused on maximising the consumer demand for the products and service offerings in the market. It involves rewarding the customers certain benefits and privileges for their continuous faith and preference in the organisation. Bhakar et al., (2015) have described that the customer loyalty programmes helps the business establishments to showcase their gratitude towards their customers. Business establishments are able to demonstrate how much they value and care for their customers and they are offering the extra benefits and privileges as a token of appreciation towards their customers. Liu and Yang, (2009) have stated that the loyalty programmes enables the business establishments to encourage their customers to continue buying their products and services from them and this eventually helps the business establishments to retain their customers for the long haul. This helps business establishments to ensure a continuous market demand for their products and services, thereby enabling them to tackle the market competition with their business rivals in an effective manner (Dorotic et al., 2012).   

There are various types of customer loyalty programmes that are being utilised by the modern day business establishments to achieve their business needs and requirements and these include points system, two-tier system, loyalty card programs, gift cards or certificates, frequent buyer programs, paying back money to loyal customers (loyalty payback), extended return policy for loyal customers and bundling of additional products at no extra cost (Demoulin and Zidda, 2008).

The loyalty schemes are a critical factor that determines the consumer buying behaviour in the market and this is the main reason why the business establishments provide a lot of emphasis on identifying and understanding the consumer needs and preferences in the m market while developing and designing their consumer loyalty programmes in the market. Khan, (2012) have described that the modern day consumers are usually sensitive towards the market prices of the products and they want to obtain value for their money. This is why consumers usually have the tendency to settle for cheaper products that do not compromise on the aspect of quality and this essentially enables them to obtain value for their money (Bhakar et al., 2015). This is why the product discounts is one of the most popular and widely used consumer loyalty programmes in the market which helps the business establishments to foster customer satisfaction and brand loyalty among their consumers in the market. The majority of the customers want their products to be affordably prices so that it would help them to maintain their monthly budget. This enables the customers to save their hard earned money and they are able to obtain better value for their money (Meyer-Waarden, 2008).

Mimouni-Chaabane and Volle, (2010) have stated that there are other internal factors that have a far greater impact on long term customer retention as compared to customer loyalty programmes and these include product and service quality. The aspect of product and service quality plays a vital role in helping an organisation to create a loyal consumer base in the market. Product and service quality is an important factor which plays a vital role in shaping up the consumer perception towards the products and services offered by an organisation (Liu and Yang, 2009). It plays a vital role in helping business establishments to distinguish and differentiate their products and services from those that are being catered by their business competitors in the market. Business establishments need to provide the highest amount of importance and emphasis towards maintaining their product and service quality in the market and this would automatically help them to improve their brand image and reputation in the market (Dorotic et al., 2012). Business establishments would be able to attract more new potential customers form the market by ensuring a high product and service quality standards and this would eventually help them to significant increase their customer base in the market. In the words of Magatef and Tomalieh, (2015) better product and service quality would invariably mean more satisfied customers for the product and services offered by an organisation and this would invariably get translated into better and more positive brand reviews for the organisation. Organisations on their part would be able to ensure customer satisfaction and customer loyalty among their clients and this would invariably help them to ensure long term customer retention in the market. Thus, product and service quality would play a vital role in helping business establishments to ensure long term customer retention in the market (Khan, 2012).

There is no reason to downplay or deny the importance of consumer loyalty programs from the context of the modern day organisations but business establishment on their part must provide equal importance (if not greater) to the aspect of maintaining their product and service quality in the market as that would have a crucial impact on their overall brand reputation and goodwill in the market. This would help the modern establishments to attract new customers form the market through would of mouth promotions and enable them to increase their existing customer base in the market (Demoulin and Zidda, 2008). Thus, business establishments would be able to ensure their long term growth and sustainability in today’s highly competitive market.    

Research Methodology

The research methodology portion is a significant part of any research which provides an in-depth understanding about the manner in which the research has been undertaken by the researcher.    

Research Aims

The main purpose of this research is to identify and understand the impact of customer loyalty programmes on ensuring long term retention of customers in the market. 

Research Objectives

The research objectives are as follows:

• To critically review the literature concerning retention marketing by focusing on the aspect of loyalty programmes and customer retention
• To identify how customer expectations are influencing loyalty schemes
• To investigate if other factors for example value for money and customer service have a bigger impact than loyalty programmes on customer retention
• To discuss the implications of customer expectations and make recommendations for retailers with existing loyalty schemes, and those wanting to introduce new schemes based on customer demand

Research Philosophy

The research mainly makes use of a positivist philosophy, thereby enabling the researcher to make use of both the scientific facts and information that is available to them and the common sense judgement and logic that they possess (Blessing and Chakrabarti, 2009).

Research Approach

The research approach applied in this research is positivism. By undertaking a positivist research, the researcher mainly hopes to find out the authenticity and accuracy of the different theories and hypothesis that exist pertaining to the impact of loyalty programs on long term customer retention in the market (Taylor et al., 2015).

Data Collection

The research makes use of both primary and secondary data and so this research can be considered to be a mixed research. The primary data is of qualitative and quantitative nature. The quantitative data has been gathered by organising a survey where the respondents were chosen in a random manner from the general population in UK. The qualitative data has been gathered by conducting a direct face-to-face interview with the store managers of the UK based retail business establishments. The secondary data has been utilised in the literature review section where the researcher has mainly tried to evaluate the diverse literature that is available on the chosen research topic (Flick, 2015). This enabled the researcher to verify the accuracy of the data and information that is available about the research topic.

Sampling Strategy

This research has utilised a combination of probabilistic as well as non-probabilistic sampling strategy. The random probabilistic sampling was undertaken while gathering the quantitative data as it comprised of many market respondents (Lewis, 2015). So, the utilisation of probabilistic sampling helped in reducing the possibility of biased and inconsistent data. The non-probabilistic convenience sampling was mainly utilised for gathering the qualitative data as it consisted of only a handful number of respondents. So, the non-probabilistic convenience sampling helped the researcher to save their time and energy in the data collection process (Neuman, 2013).

Sample Space

The sample space for qualitative data was 5 respondents which comprised of the store managers of different retail establishments in UK. The sample space for quantitative data was 90 respondents who were chosen from the general population in UK.

Research Limitations

The main limitations of the research were budgetary constraints and time constraints. Both these factors played a major role in creating a lot of challenges before the researcher and this invariably reduced the accuracy of this research.

Research Ethics

The researcher has ensured that under no circumstances the respondents were exposed to any kind of bodily or physical harm. The researcher had ensured informed consent from the respondents without trying to motivate them in any manner whatsoever. The researcher also took affirmative steps to respect the confidentiality and privacy of the respondents who took part in this research (Blessing and Chakrabarti, 2009).    

Findings/ Results

1. Are you a member of any loyalty programmes? e.g Tesco Clubcard, Boots, Superdrug, MyWaitrose?

2. On average, how frequently do you use these loyalty schemes / cards / programmes?

3. When deciding where to shop there are a number of factors to consider. Please rank the following in order of importance. First being most important, last being least important.

4. The majority of loyalty schemes available meet your expectations as a customer.

5. On a scale of 1-5 how much would your shopping habits be affected through the introduction of a new loyalty scheme by a competitor? 1 being strongly affected, 5 being no difference to your habits.

6. As a customer, which would you prioritise value for money or the overall shopping experience? – (Shopping experience includes customer service and loyalty schemes)
value for money         overall shopping experience         neither          other (please specify)

7. Would you consider yourself as someone who is loyal to brands assuming they provide you with the
service you expect

Discussion

Quantitative analysis

The quantitative analysis is directed towards development of an understanding about the customer perception of the loyalty programs. The very first question of the quantitative series was asked to know the about the current status of the customers against the loyalty program. the resist shows that close to 88% of the total respondents are connected some form or the other types loyalty programs. Only 12% are not member of any such program with any big retail organisations. Therefore majority of the customer are linked with the loyalty program would be able to provide appropriate information about the role of the loyalty program for the customer retention.

The next questions was developed to understand the frequency of the loyalty program use by the customer. this answer would help to understand the scope for such use and the importance given by the customer to the loyalty program. the responses shows that the intraday frequency is below low as very few people visit daily with such higher frequency , the retail stores but the noticeable thing is that people still use the loyalty scheme when they get the chance for that. on the other hand visit of the customer is higher for the weakly and also monthly visit to the retail stores. There also whenever people get the change to use the loyalty card, they are happy to use that. Close to 13% people never use the loyalty facility in their shopping process at all. This number is consistent with the non subscriber of the loyalty program. in conclusion this response showed that the people who possess a loyalty scheming are more than willing to use the facility in their shopping process.

The next question in this part of the analysis was developed to understand the importance of the loyalty program among the other customer attracting aspects. This ranking process of different competitive advantage delivering aspect also can be seen from its individual important position for the customer generation and also retention.  Customer service in this part emerged as the most important factor for the customer generation and also for the retention, as most of the response in this series is concentrated between the 1^st or 2^nd preference of the customers. The next attractive series is the loyalty scheme but this is more evenly distributed series. Price and promotion along with the convenience or location advantage come after these two factors. Therefore it can be suggested that the combination of the customer service and the loyalty scheme would help to retain the customer for a long time in the organisation. This aspect is also more in line with the literary background of the customer of customer loyalty. First the customer becomes satisfied with the products and service and then they developed their loyalty for the brand. To capitalise more on the loyalty program the customers are given the loyalty scheme. Therefore the role of loyalty program in this overall competitive advantage of the organisation is an important approach.

Fourth question of this series tried to understand the satisfaction level of the loyalty programs. In most of the cases these loyalty programs are developed after through research about their current customers. Close to 59% of the customer are in agreement with the current loyalty programs that they are in. This statistic showed that the loyalty programs are well developed in the retail industry and have a major role in the customer loyalty and satisfaction development.

The fifth questions were developed to understand the impact of new loyalty program on the customer. The response in this question is interesting. Majority customer reacted that it would impact highly their shopping behaviour. Close to equal number of people are not two exited nor indifferent of the new loyalty scheme. Therefore in the market there are close to 30% people who are looking for new program whereas similar amount of people are not too moved but that would appreciate such effort. The overwhelming response was not achieved in 1^st ranking shows that the approach somehow reached situation considering its long use. Therefore a innovative customer loyalty program may impact the customer expectation and that may impact the retention process.

In the next response these loyalty program has been considered as the most important value for money aspect in their overall shopping process. here the customer services is just behind the loyalty program as only 11% people did not consider these are had something other in the mind. Comparing this response with the competitive advantage delivering question an important insight can be delivered. The customer service is important as most important competitive advantage delivering aspect which attracts the customer to retail organisation but the value for money aspect is most impacted by the loyalty scheme. Therefore it can be said that the loyalty program would more important for retaining the consumer for a long time.

The next question of brand loyalty showed that close to 52% which absolutely loyal to brand and 23% thing themselves as somehow loyal. Therefore a great majority like to think them loyal customers. High customer sensitivity towards the loyalty issue makes the loyalty program more important for the retail organisation.

Qualitative findings

Manager questions

In your experience how do to see customer retention impacted by the customer service and value for money?

Majority of the managers stated that the customer generation and retention is two different processes. Customer generation happens through delivering something attractive to the customers that help them differentiate a brand from the other. This perception attract them towards a particular retain brand. Customer service been stated the most important attraction for the customer to visit a shop in the regular operation. The customer service develops the sense of satisfaction among the customer at the time of shopping. Greater satisfaction developed each time they shop in the organisation makes a customer loyal. But customer time to time checks other retail services. There would be some differentiation point that would look to be attractive to the customers. During this time the advantages shows the actual value from the business side to the customer. some extra incentive like price advantage, product choice advantage, provide them an extra value or reason which they associates with the  relation they have with the brand. This value from money approach gives an extra incentive to the customer to remain in the organisation as customer.

Which one is the most important factor as per your experience, the above factors or the loyalty program for the customer retention and why?

The managers in this at the time of responding considered that the customer loyalty program is one of the important aspect that is useful for the customer retention. In the earlier section the customer service has been regarded as the binging point where as the value for money is the next step in the customer retention process. But the managers uniformly said that the loyalty program is more dedicated approach from the brand side towards the customer to make them happy. This approach helps the develop greater value of the relationship.

Question to customer

If you could change just one thing to improve loyalty schemes as a whole, what would it be?

This was a open ended question the customers. This question in close to 30% cases the customer said that there is no suggestion that comes to their mind whereas close to 35% of them said that are satisfied. People who positively respondent to this open ended question more of less agreed that the eligibility criteria needs to be relaxed to avail the loyalty scheme.

Recommendations

In this part the literature review showed that the better differentiation is an attractive aspect for the customer retention. On the other hand the expense is less for the customer retention than creation. Therefore spending a part in more targeted way for the customer retention like loyalty program is highly effective for the businesses. Apart from this some other specific recommendation that came up from the primary research are listed below.

• Improve service differentiation for the customer generation but use loyalty program in combination with other value for money approaches for better customer retention.
• Reach more customer with the loyalty program as there is close to 12% customer out of the scheme.
• Improve the scope of use of the loyalty scheme.

• Loosen the eligibility criteria for availing the loyalty program.
• Develop new loyalty scheme to attract customer from other competitors.
• Do incremental but substantial improvement to deliver greater value to the customer.
• Innovative loyalty scheme is the approach to satisfy the total consumer base

References

• Bhakar, S.S., Upamannyu, N., Aronkar, P., Lal, C., Chib, S., Jauhari, S., Chaturvedi, S. and Bajpai, P., 2015. Effect of Customer Loyalty Programme on Customer Retention: A Study of Organized Retail Sector in Gwalior. A Handbook on Writing Research Paper in Social Sciences, pp.47-75.
• Blessing, L.T. and Chakrabarti, A., 2009. DRM, a design research methodology. Springer Science & Business Media.
• Demoulin, N.T. and Zidda, P., 2008. On the impact of loyalty cards on store loyalty: Does the customers’ satisfaction with the reward scheme matter?. Journal of Retailing and Consumer Services, 15(5), pp.386-398.
• Dorotic, M., Bijmolt, T.H. and Verhoef, P.C., 2012. Loyalty programmes: Current knowledge and research directions. International Journal of Management Reviews, 14(3), pp.217-237.
• Flick, U., 2015. Introducing research methodology: A beginner’s guide to doing a research project. Sage.
• Khan, I., 2012. Impact of customer satisfaction and retention on customer loyalty. International Journal of Scientific & Technology Research, 1(2), pp.106-110.
• Lewis, S., 2015. Qualitative inquiry and research design: Choosing among five approaches. Health promotion practice, 16(4), pp.473-475.
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• Meyer-Waarden, L., 2008. The influence of loyalty programme membership on customer purchase behaviour. European Journal of marketing, 42(1/2), pp.87-114.
• Mimouni-Chaabane, A. and Volle, P., 2010. Perceived benefits of loyalty programs: Scale development and implications for relational strategies. Journal of Business Research, 63(1), pp.32-37.
• Neuman, W.L., 2013. Social research methods: Qualitative and quantitative approaches. Pearson education.
• Taylor, S.J., Bogdan, R. and DeVault, M., 2015. Introduction to qualitative research methods: A guidebook and resource. John Wiley & Sons.