Effectiveness of Loyalty Schemes for Supermarkets

Effectiveness of con comp cultivatement Schemes for SupermarketsChapter 1IntroductionIt is necessary for physical compositions to carry expose market question before they fundament inject up with a good quality marketing strategy no matter how big or small the company is. Market investigate is when an face studies their guests subvert habits and gathers randomness about the market. The cultivation they regulate is then analysed to determine the expectations of guests. Market research is necessary beca expend musical arrangements should aim to be marketing orientated and welcome the demands and leads of their customers.As well as meeting the wants and needs of customers marketing orientated companies welcome change. This mover they can react to external factors and changes in the market handle changes in consumer spending patterns. It is a litter easier for an organisation to put together a good marketing strategy if they ar marketing orientated and bring in carried out the appropriate market research to pick out the wants and needs of their target market. It is essential for an organisation to satisfy its customers. Meeting customer needs volition improve the organisations reputation amongst its customers which give result in a higher profit and could grant potentially make customers stanch to the brand.In 1995 Tesco introduced their Clubcard. This was the start-off customer truth card introduced in the UK and in that respect ar like a shot 13 million Clubcard members. (MIS Quarterly administrator Vol.8 No.2/June 2009, Leveraging Multichannel retailing the experience of Tesco.com) devotion designs be not meet apply by companies to raise hits to regular shoppers and reward customers for their verity. Every time a customer uses their consignment card in blood organisations record what products that customer has purchased to govern out their specific wants and needs. If the research turn ins that a product is more(p renominal) common with customers in a certain atomic deed 18a then an organisation could introduce offers to meet customer needs. then verity programs are used as a form of market research.The studyity of major retailers in the UK now offer fealty programs. Therefore the purpose of this research is to examine the come acrossdises and draw dorsums of these programs to both organisations and customers to see put up veridical the true can be obtained by means of with(predicate) wizard of these programs. There must be major pull ins of Loyalty programs otherwise they would not be so popular. provided not every organisation like Asda does offer a subjection program so the purpose of this research is to determine whether they are worth investing in.If the mass of customers who shop in an organisations insert own consignment card is the company adapted to surgical operation all of the information they shake up gathered. A verity card impart besides howeve r show the retailer what a customer spends in their specific store and not their general stealing habits. A customer whitethorn buy their weekly shopping in Tesco and use their Clubcard neertheless may buy marrow squash from slightly other supermarket or from a local al 1cher. If Tesco knew this they could introduce offers to encourage customers to buy meat in their store. The Clubcard however would not provide Tesco with this information. Despite this Tesco could use their Clubcard to identify changes in consumer buying patterns. A customer can however own as rough(prenominal) faithfulness cards as they want which means they can supply information to many different organisations.When customers sign up to a loyalty program they boast to provide name, address, age group and often email address allowing the organisation to get through them regularly with offers. With this information the organisation go the fascinate can determine what kind of person is buying certai n products. This boosters them segment the market and identify the target market for any product.This research is strategic and of take to be because organisations will get from it if they are considering investing in a loyalty scheme. This research will overly serving companies witness the advantages and disadvantages of loyalty programs and identify ship canal they can make the roughly of the massive amounts of selective information they gather from customers. This research will also be off interest to customers who lease signed up to loyalty programs and people involved in business.There are many aims and objectives of this research. The first aim is to chthonianstand what loyalty positively is and the importance of loyal customers. Is it actually possible for an organisation to obtain loyalty with a customer? If so can this be achieved through one of these broadcasts? Also is it possible to measure however how loyal customers are?The second aim is to study the histo ry of loyalty cards and programs and nonplus out which organisations a spacious with Tesco where first to introduce loyalty cards and gain an watching of how rapidly the cut back has gravid since both in the UK and interthemely. This information will help organisations get a line how loyalty cards became so popular with retailers.The third aim of this research is to find examples of how the information gathered from customers using their loyalty card in store has benefited organisations when they determine their marketing strategy. This research will determine whether it is possible for a retailer to turn all the information provided by loyalty programs considering how popular they are with customers. Is there any actor wherefore a major retailer like Asda does not offer a loyalty program when a chew of its direct competitors do? This study will also help identify how organisations can benefit from loyalty kiosks.The fourth aim of this research to understand whether loyalty programs really benefit customers or whether its just organisations that get the chief(prenominal) benefits. In a bunch of cases customers have to spend a pile of cash in the retailers store to gain loyalty points and specie off products. Despite this organisations can use loyalty programs to determine which products are popular with customers and introduce offers. Therefore organism part of a loyalty program could benefit the customer without them really realising it. This study will also help identify how customers can benefit from loyalty kiosks.The final aim is to investigate the different types of loyalty programmes organisations offer and the advantages and disadvantages of the various programmes. This information will hope to the full help organisations determine which type of loyalty scheme is most appropriate for them to invest in. both the aims of this project will be achieved by gathering information obtained through secondary research. A thumping proportion of thi s research will be gathered from the academic journals. Research will also be gathered from relevant information found in books, articles, newspaper publisher reports and case studies. Previous literature will be reviewed and critically analysed. After this the research methods will be exposit and results of this research will be discussed, analysed and related backbone to relevant theory shown in the literature review. The study will then be concluded showing any limitations. The main lessons learnt from this study will be described showing what succeeding(a) research should be conducted.Chapter 2Literature ReviewWhat is loyalty? Can it be purchased?The word loyal is defined in the oxford English dictionary as being true to obligations of duty and love although it is secure to imagine the average consumer feels this way about the supermarket where they buy their groceries. (Uncles, Dowling and Hammond 2003) argue that it is not possible for a consumer to have an emotional atta chment towards a brand of tomato soup.Even if customers are not loyal many retailers may have their personal information stored in their computer database. (Rowley 2000) understands that it is very difficult for supermarket to encourage actual loyalty and claims that the very technology that supports innovations such as loyalty cards may serve to overturn the concept of loyalty.Many people believe that true loyalty is not actually attain fit through loyalty programs and that the main purpose of these programs is to provide management with information. (Jenkinson 1995) strongly believes this and claims thatThe customers loyalty is simply not for sale. It cannot be bought for ever by companys ordeals. Real brand loyalty results from an emotional bond created by trust, dialogue, frequency, ease of use and a sense of value and added satisfaction. Loyalty is the reflection of a customers subconscious emotional and psychological need to find a constant source of value, satisfaction and i dentity.(Jenkinson 1995) does make a valid point solely it is still possible to obtain loyalty through loyalty programs its just not very easy. (Stone et al 2004) believe that customers are unlucky to become loyal to an organisation just from being part of one of these schemes. However they understand that a scheme could produce information that could help an organisation find ways to offer suitable rewards to meet the needs of customers which is presumable to lead to loyalty amongst customers. (OBrien and Jones 1995) exsert this theory and understand that the only way an organisation can obtain loyalty through a loyalty programme is if the organisation offers rewards that are of value to the customer. They claim there are 5 elements that determine value. (see appendix)Even though loyalty can be obtained through loyalty programmes it is necessary that every employee at the organisation is amply committed to the program. Therefore as well as any initial financial investment there also needs to be an investment in staff training when an organisation introduces a loyalty card. (Omar 1999) understands this and believes that a loyalty program will not be prospered unless everyone within the organisation is committed. This includes the fracture who simply smiles and asks a customer if they own a loyalty card. (OConner 1996) shares this opinion and understands that customers will come back to a store and become loyal customers if employees are friendly.As well as being fully committed to their loyalty program physical compositions need to be sure that customers are not just subscribe up to their loyalty program just for the sake of it. (Omar 1999) understands that some customers may sign up to a loyalty scheme just to get the discounts and may not be actually loyal to the organisation. It is strategic that Organisations are aware of this when starting up a loyalty program.Even though (OBrien and Jones 1995) have already shown that an organisation can obtain l oyalty through a loyalty programme if they offer rewards that are of value to the customer there are also many other factors that can affect how loyal customers are. (Wright and Sparks 1999) have determine that it is possible to achieve customer loyalty through a number of means. This includes where the store is located and how easy it is to access. Also the loyalty of customers very much depends on the quality and price of the goods being sold.(Bellizi and Bristol 2004) understand that a consumer that is part of a potty of loyalty schemes is more liable(predicate) to be touched by other factors and judge a supermarket on the speed of its checkout lines and its variety of fresh produce. (Gounaris and Stathakopoulos 2004) extend this theory and suggest that customer loyalty is something that can be influenced by a combination of 3 factors. These are the reputation of the brand and the amount of choice available in the market, affable influences and rememberations from peers and the degree of fortune aversion from the consumer themselves.According to them these influences can create four types of loyaltyNo loyaltyCovetous loyalty This is when a consumer has a strong attachment to a brand possible imputable to social influences yet there is no purchase. Many customers may be interested in premium brand products but choose to buy a less expensive alternative to save money.Inertia loyalty This is when a customer purchases a certain brand due to habit or convenience but has no emotional attachment to the brand itself. A customer may choose one supermarket over another simply because it is closer.Premium loyalty This is what every organisation should aim for. It is when a customer regularly buys a companys products due to a high attachment to the brand.However customer loyalty is obtained it is important not to under estimate the value of having loyalty customers. Every organisation should be aiming to encourage loyalty. (Omar 1999) understands the importance o f customer loyalty and points out that a store is in all likelihood to be unsuccessful without loyal customers because they are likely to buy more products and will be willing to pay more. They are also more likely to recommend the organisation to friends and family which will bring in new customers.Organisations usually have to spend a lot of money on promotions to try and attract new customers to a business. It costs a less money for an organisation to obtain customers then it does to attract new ones. Also once customers are loyal to an organization they are less likely to be interested in the promotions other companies are offering. (Christopher and McDonald 1995) hence understand that by retaining customers an organization could stop new companies from wanting to enter the market. (Halowell 1996) has also found evidence to show that there is a definite connection in the midst of the loyalty of customers and the amount of profit an organisation makes.(Oliver 1997) mighty sum s up customer loyalty by defining it as.A deeply held commitment to re buy or re patronize a preferred product/service consistently in the future, thereby causing repetitive same-brand or same brand-set purchasing despite situational influences and marketing efforts having the potential to cause geological fault behaviour.(Whyte 2004) suggests that loyalty programmers may just create customer loyalty for short amount of time that may not result in full commitment. This however isnt true because there are major differences between loyalty schemes and incentive schemes. (Hirshman and Goldstucker 1978) understand that loyalty programs are more long term and can help an organisation improve its reputation amongst customers and establish a transactionhip. This is definitely true as general incentive schemes are likely to be short term promotions or offers to make customers interested in a specific product or just to draw their attention to the brand.Loyalty programmes are therefore a lot more expensive to run then simple incentive schemes but a lot more beneficial at the same time. Loyalty schemes can even help organisations come up with appropriate short term offers and promotions which can be flat issued to the target market. (OConner 1996) has identified that incentive schemes are usually a final resort for organisations if their loyalty scheme fails.Even though (OBrien and Jones 1995) have already shown that an organisation can obtain loyalty through a loyalty programme if they offer rewards that are of value to the customer it is still very difficult for an organization to measure how loyal its customers are. (Omar 1999) identifies that Store loyalty is a percentage of customer satisfaction. This is definitely true as satisfied customers are more likely to keep coming back to the store and become loyal customers. However (Omar 1999) goes on to suggest that a number of variables can be used to determine how loyal a retailers customers are. (See appendix)Th e variables listed above could definitely be used to measure the satisfaction of customers. Despite this customers may appear to be satisfied and still influence to shop somewhere else if they are attracted by promotion. Therefore it is very difficult for an organisation to measure actual levels of loyalty.The History of Loyalty programs and Loyalty cardsOrganisations have been aiming to encourage customer loyalty for a long time and the introduction of loyalty cards has definitely helped them achieve this goal. Loyalty cards are now very popular both in the UK and internationally. (Sharp and Sharp 1997) have identified that since loyalty cards have been introduced, they have been used effectively by organisations to increase levels of satisfaction amongst customers. Further research will be conducted to show examples of this.Today the majority of retailers now offer loyalty schemes. (Rowley 2007) is aware of the popularity of Loyalty schemes and identified that they are now an esta blished feature of the retail and services landscape. (Uncles, Dowling and Hammond 2003) suggested that competitors are likely to copy a loyalty scheme if it appears to be successful. This seems fairly understandable as organisations are often influenced by the activities of the competition. OMalley (1998) realises that there is a chance customers may begin to expect a reward every time they visit a store as loyalty cards have led to them being bombarded with promotions and money off vouchers for products they regularly buy.The above literature suggests that the introduction of loyalty cards is the only reason for organisations being so preoccupy with obtaining the loyalty of customers. It is obviously a major factor but (Omar 1999) has identified that loyalty schemes have been growth in popularity for a lot longer than this and suggests that such a remarkable shift to loyalty-building activity has been do possible because the cost of recruiting each consumer into a loyalty schem e has fallen substantially in real terms since the early 1970s.(Omar 1999) also believes that the popularity of loyalty schemes may lead to their downfall by understanding that the majority of loyalty schemes are now run in pretty much the same way. He is therefore able to identify that the differentiation these schemes provided when they first became popular is slowly being lost. This could well be the reason why Asda have chosen not to invest in loyalty scheme even though the majority of their direct competitors have.(Omar 1999) even suggests that loyalty cards could start a more sophisticated bout of mark-down wars which held the high street stores to ransom in the late 1980s and early 1990s. However this seems unconvincing.How loyalty programs benefit the organisation(Walters and Hanrahan 2000) have been able to identify the numerous benefits for organisations that use loyalty programmes to store the purchasing elaborate of their customers. Loyalty schemes can help an organis ation decide where it places its products and how they allocate their space in store. They can also use the information they have stored in a database to introduce in store promotions and offers on products where they have identified interest from customers. Loyalty programmes can also more importantly help an organisation find out who its target market is.Tesco have had a lot of success since launching their very successful Clubcard scheme. (Uncles, Dowling and Hammond 2003) have identified that Tesco have been able to use their Clubcard to aid brand extension. Tesco have definitely shown that they understand the importance of customer loyalty. (Turner and Wilson 2006) were however able to identify Clubcard is not the only reason for Tescos loyal customers and major market growth.It is necessary for an organisation to know who its target market is and offer rewards to the right customers. (OBrien and Jones 1995) understand that it is important for organisations to consider the valu e of their customers. If they fail to do this an organisation may waste time and money conform to the customers of less value whilst the greater value customers are not satisfied and loose loyalty as a result. An article by (Media Week 2009) suggested that loyalty schemes with the most members may not be the most successful ones. The article described how todays loyalty efforts are more tincted with the quality of membership and not just the quality. This makes sense as organisations are aiming to obtain loyalty and therefore dont just want customers to sign up for loyalty schemes just to get the discounts.It is still difficult to understand how a retailer is able to process all the information provided by loyalty cards considering how popular they are with customers. (Uncles, Dowling and Hammond 2003) identify that a popular loyalty scheme is likely to gather a lot of unnecessary data which is of no use to anyone. (Omar 1999) therefore suggests that any loyalty scheme must be dri ven by a database to ensure that it adds a significant new element rather than being simply another promotional activity. (Omar 1999) makes a very valid point although organisations are still dealing with a very large amount of information..Loyalty cards have become increasingly popular within the last fewer years due to advances in technology like the growth in computer memory aptitude (OConnor 1996) believes that it is therefore now possible for an organisation to track, identify and respond to the buying behaviour of customers. Also with this information a retailer can contact customers through direct mailing.(Passingham 1996) argues that not all customers who shop in a retailers store will sign up to a loyalty scheme so some of the data that is being stored may be inaccurate. Loyalty schemes also dont provide retailers with information about customer buying habits outside of that specific store. However a large proportion of regularly shoppers are likely to be part of the orga nisations loyalty scheme so this is unlikely to be a serious concern of organisations as they will still be able to get an overview of the buying habits of specific groups of customers.One of the main reasons that customers may refuse to sign up to a loyalty scheme is because they are worried that the organisation may give out their personal information to third parties. (Sarathy and Robertson 2003) have identified that customers may be concerned about their privacy when it comes to loyalty schemes due to recent corporate mismanagement scandals. However customers will be less likely to worry about this if they are attracted to the rewards being offered by the scheme.The following research by (Schriver 1997) which was carried out just as loyalty cards were becoming popular in the UK. He was able to identify 6 factors that surprisingly made consumers less loyal today than in the past. He also identified that the 6 factors can increase consumer doubt leading to more complaints and a b ring low level of loyalty as well as greater price sensitivity.How loyalty programs benefit customers(Potter 1998) identifies that customers deserve to be treated well by organisations. This is true as they are unlikely to come back and re visit a store if the experience they received was not a pleasurable one.It is pass on that loyalty cards benefit organisations but how much do they benefit customers. (Schultz and Bailey, 2000) believe the rewards that customer receive are simply given to them as compensation for the information they provide. This section proves that this is not entirely compensate and that loyalty programs can benefit customers. Despite this (Uncles, Dowling and Hammond 2003) have identified that the main reason organizations invest in loyalty schemes is because they expect the program to benefit them. This is because the main aim of any business is to make a profit and being marketing orientated and meeting the needs of customers is the main way of achieving t his aimRowley (2000) has identified that loyalty style kiosks are becoming an increasingly popular way for organisation to encourage loyalty amongst customers in the USA. She describes how the kiosks themselves are placed at the front of stores and she is able to identify that they offer a lot more benefits then simple promotional leaflets. By offering one of these kiosks organisations are therefore likely to increase the satisfaction of their customers. This is because they are likely to feel valued as they get to choose their rewards quite simply being given a voucher they could potentially discard. Omar (1999) has already identified that loyalty is function of customer satisfaction.Despite customers receiving points every time they use their card in store (Omar 1999) believes that a number of schemes are purely set up to provide retailers with a database so that they can advertise their products directly to customers via emails. This is definitely a valid opinion. Therefore rese arch will be carried out to find examples of how organisations have used their schemes in order to contact target groups of customers directly.If customers dont benefit from an organisations loyalty scheme the business is unlikely to be successful (Dowling and Uncles 1997) point out that this may make customers frustrated resulting in them losing loyalty.Different types of Loyalty ProgramsThere are many different types of loyalty programmes which can be used by organisations offering a wide variety of products and services. There is no single type of loyalty programme that is guaranteed to be successful. A study from (Wanswink 2003) showed that brand managers believe that all loyalty programmes can have an impact on the buying behaviour of customers. The study also showed that the most cost-effective loyalty programmes were the low and moderate ones.However another study by (Gordan and Mckeage 1997) showed that loyalty programmes are more likely to be successful if the organisation is offering a product or service that the customer considers to be high involvement because of the financial, social and physical risk involved.American express also offer a club yet they bespeak a fee to join. Although this could prevent customers from join the loyalty programme (Shiffman and Kanuk 2007) can see a benefit of this by suggesting that this increases the customers investment in the relationship which may lead to greater commitment and increased usage loyaltySome companies reward loyal customers by giving them points so they can gain more goods or services from the organisation. This kind of point system is very popular with hotel chains and airlines. (Shiffman and Kanuk 2007) believe that this could act as an exit barrier because customers would have to give up the points if they started a new relationship.Chapter 3methodological analysisNow that the relevant literature has been reviewed further research has been conducted to examine the benefits and drawbacks of lo yalty programs to both organisations and customers. The purpose of this research was too help organisations who offer loyalty cards identify ways in which they can make the most of the information they gather whilst benefiting organisations that dont currently offer a scheme by helping them identify if loyalty schemes are beneficial or not. Customers who are part of loyalty programs and people involved in business will also benefit from this research.Several aims and objectives of this research were established before the research was carried out. The first aim was to find out what loyalty actually is and whether actual loyalty can be obtained through a loyalty scheme. After this the history of loyalty cards and loyalty programs were researched to identify how rapidly the trend grew in the UK and internationally. This was followed by research into the benefits of loyalty programs for both organisations and customers and research into the different types of loyalty programs in which customers can sign up for.In the end all research that was conducted was secondary and not primary. This was partly due to insufficient funds as it would cost a lot of money and take a lot of time to arrange interviews with members of the major organisations that were studied. There were also plans to hand out questioners to people in supermarkets although these never went ahead due to ethical reasons. Despite there being some limitations of this study all the information found from the secondary research did relate to the aims and objectives and therefore will be of benefit to the reader.The research process consisted of examining several articles, various figures and company websites in order to achieve the aims and objectives. The majority of this research was taken from journals, newspaper articles and from The Grocer magazine. A number of case studies were also examined during the research process.An article in the Grocer from the 18th April 2008 entitled serve with a smile w as examined because it described some of the various ways organisations could encourage loyalty amongst customers. However one of the main purposes of this research was to identify if loyalty can be obtained through loyalty schemes. Are loyalty schemes able to reach large groups of shoppers? Another article in The Grocer from the 6th February 2010 entitled retailers need to lam harder to increase loyalty card appeal was examined in order to answer this question.Research was conducted to find out how many loyalty cards are currently in operation in the UK and internationally. This will help gain an understanding of how rapidly loyalty schemes have grown in popularity over the last 15 years. A number of sources where found which featured sections that showed only how popular loyalty schemes were on a national and global basis in different years and the relevant figures are shown and analysed in the results section.One of the sources used is an article from (University Of Minnesota 2 009) entitled Leveraging Multichannel retailing The experience of Tesco.com which describes how Tesco have grown to dominate the UK market. Figures were also taken from a case study in a book by Omar (1999) entitled Retail Marketing. An article from Media Week entitled the brave new world of loyalty marketing featured results from a state by state analysis by the COLLOQUY Loyalty Census which describes the popularity of loyalty cards on a global scale and by how much this has increased since 2007.Several major organisations were researched to find out which loyalty schemes had been successful and the reasons for this. Most major organisations now offer a loyalty program. How do independent retailers encourage loyalty? An article in the Grocer from the 5th February 2010 entitled Independent chains try on to win loyalty with card schemes helped to answer this question.Organisations value the customers loyalty and their purchasing activity data. However a lot of money is spent on loya lty schemes and therefore research was carried to find out whether loyalty schemes are worth investing in. An article from the BBC written on the 17th February 2003 entitled The cost of ragweed loyalty explains why this may not be the case. Dispute this many organisations have benefit from loyalty schemes and Tesco is definitely an example of this.A lot of research was therefore based around Tesco as they currently dominate the UK market. Page 17 of the Walters D, Hanarahan J (2000) book entitled Retail Strategy described some of the major benefits loyalty club members at Tesco receive. The article by the (University of Minnesota 2009) was also examined again because it described why Tesco had been so successful. Page 94 of this article described how Tesco were able to manage customer relations and use their ClubCard to aid direct marketing.Why Asda do not offer a loyalty scheme? The answer to this question can be found in the results section. The answer was taken from an article i n the Grocer from the 7th November 2009 entitled Why Asda rejected launching its own loyalty card scheme explains exactly why. However another article in the Grocer from the 20th February 2010 entitled Is Asda paying the price for not joining the loyalty club? Suggests reasons why this decision made by Asda may have been a errorAsda are owned by Wal-Mart which is a major American retailer who currently has the 2nd largest database in the US behind the US government. T