Download - Dissertation on (Customer Loyalty)
-
7/30/2019 Dissertation on (Customer Loyalty)
1/157
Page 1 of 157
TABLE OF CONTENTS
Chapter 1 Introduction
Introduction.6
Aims andObjectives...8
Scope..10
Rationale
.10
Methodology...1
0
Conclusions &
Recommendations11
Chapter 2 Literature Review
The Concept ofLoyalty13
Customer LoyaltyProgrammes.23
Loyalty asStrategy33
Rhetoric Vs.Reality..36
Chapter 3 Methodology
-
7/30/2019 Dissertation on (Customer Loyalty)
2/157
Page 2 of 157
ResearchMethodology.40
Summary of
Results.46
Chapter 4 Analysis
Results48
Discussion ofResults.56
Origin andMotives64
Tescos definition ofLoyalty.63
SuccessFactors..66
Strategic implications of theClubcard72
CompetitivePressures....77
Chapter 5 Conclusions and Recommendations
Conclusions81
Limitations...89
Recommendations89
-
7/30/2019 Dissertation on (Customer Loyalty)
3/157
Page 3 of 157
References93
Appendices
-
7/30/2019 Dissertation on (Customer Loyalty)
4/157
Page 4 of 157
List of Figures
Fig 1 Categorization of The Loyalty Concept
Fig 2 Conceptualizations of Loyalty Models
Fig 3Categories of Loyalty (O Malley model)
Fig 4 Motivator, De-motivator (Diller model)
Fig 5 The 5P Loyalty Strategy
Fig 6Characteristics of Loyalty programmes (Butscher model)
Fig 7Opportunities for using customer information
Fig 8Behaviour based CLP (Morgan et al model)
Fig 9 Relationship-based CLP (Morgan et al model)
Fig 10 The Ideal Customer experience (Fournier et al Model)
Figures 11-19 depict survey results
Fig 11 Customer Loyaltyindex sorted by female and male
Clubcard members
Fig 12 Customer loyalty dimensions: Female and male Clubcard
members
Fig 13 Overall customer loyalty for Tesco-Clubcard members andnon-members
-
7/30/2019 Dissertation on (Customer Loyalty)
5/157
Page 5 of 157
Fig 14 CLI of Clubcard and non-Clubcard members on loyalty
parameters
Fig 15 CLI of Clubcard members by occupation
Fig 16 CLIof Clubcardmembers by size of household
Fig 17 Percentage of monthly grocery budget spent with Tesco(Clubcard-members)
Fig 18 Percentage of monthly grocery budget spent with Tesco
(non-Clubcard members)
Fig 19 Factors in selecting a supermarket
Fig 20 The Loyalty Cube
Fig 21 Six Key success factors
Fig 22 COFP diagram
-
7/30/2019 Dissertation on (Customer Loyalty)
6/157
Page 6 of 157
List of Acronyms
CIUCustomer Insight Unit
CLPCustomer Loyalty Program
CLICustomer Loyalty Index
CRMCustomer Relationship Management
LTVLife-time Value
LTVALife-time Value Analysis
RFVRecency, Frequency, Value
ROIReturn on Investment
SWOTStrengths, Weaknesses, Opportunities, Threats
TPFTesco Personal Finance
4Ps - Price, Place, Product, Promotion,
-
7/30/2019 Dissertation on (Customer Loyalty)
7/157
Page 7 of 157
-
7/30/2019 Dissertation on (Customer Loyalty)
8/157
Page 8 of 157
1.1 Introduction (Overview and Background)
Traditionally, marketing has focused on market share and customer
acquisition rather than on retaining existing customers and on building
long-lasting relationships with them (Kotler, 2003). More recently,
however, market share has been gradually losing its revered status as
marketings holy grail and the wisdom of focusing solely on customer
acquisition (hoping that this effort will compensate for high levels of
defection) is now being seriously questioned and considered as very high
risk since ever more players enter an increasingly crowded marketplace
(Baker,2000). In response to these changes there has been a new
emphasis on defensive marketing, which focuses on holding on to
existing customers and getting more custom from them (higher share of
customer), in contrast to activities which focus on winning new
customers. Calls for a paradigm shift to the pursuit of loyalty as a
strategic business goal have become increasingly popular over the recent
years (Sharp & Sharp, 1997).
Accordingly, in Feb 1995, Tesco changed the way it did business so
fundamentally that its effect is still seen in every part of the company.
The events changed the way Tesco makes decisions, develop products,
manages its stores and, most importantly the way it serves its customers.
On that day Tesco launched Clubcard, its customer loyalty programme.
As a major food retailer, in a competitive market sector, there is always a
need for brand loyalty. Customer loyalty schemes were not a new idea
when Tesco launched it but Tesco developed a contemporary version of
the original concept which went much further in developing an active
relationship with customers. Today, Tesco Clubcard has established itself
as one of the most successful loyalty schemes over the past nine years,
-
7/30/2019 Dissertation on (Customer Loyalty)
9/157
Page 9 of 157
and a key driver of this is that the scheme in integral to Tescos stated
core purpose, To create value for customers. By understanding its
customers more and using this insight to deliver back what the customer
wants, Tesco is succeeding in its purpose- to deliver value to the
customer and earn their lifetime loyalty. Working with its suppliers, it
helps both parties to gain a better understanding of what the customer
wants in terms of good value quality products and in-store promotions.
Tescos marketing works because they combine insight with creativity,
value and scale.
Before Clubcard, Tesco was stuck as UKs second-ranking supermarket.
Today, not only is it the UKs largest grocer, it is the worlds most
successful Internet supermarket, one of Europes fastest growing
Financial Services company and arguably one of the worlds most
successful exponents of CRM. The Tesco Clubcard is the most successful
CLP currently running in the UK, used by one third of all UK households
(there are 25 million Clubcards in circulation, of which 10 million are
active in any one week), with 82% of Tescos turnover going through the
Clubcard (in out-of-town superstores, this figure rises to over 95%). (
Humpy et al. , 2004). No one would claim that Clubcard is exclusively
responsible for the success of Tesco, but it is clear that the benefits of the
Clubcard are now written through the Tesco business like lettering
though a stick of rock. (Mason, 2003 cited in Humpy et al.)
Tesco may well have got this enviable position without Clubcard but it
could not have done so as quickly or as cheaply as it has done without the
Clubcard data an insight the Clubcard provides. This information guides
almost all of the key business decisions the management team makes,
reducing the risk of taking bold new initiatives. As Mason points out Itchanges the behavior of the businesses. With Clubcard, Tesco gets
-
7/30/2019 Dissertation on (Customer Loyalty)
10/157
Page 10 of 157
personal by introducing a medium through which it can treat customers as
individuals. It can mass-customize to suit the needs of all the types of
customers, of all tastes and incomes and ages. Not on the basis of what
they think the broad mass of customers want but in knowledge of what
individual customers actively choose and what they prefer. While every
business talks about being customer centered, Tesco has made that
commitment tangible. It designed Clubcard not just to show customer
loyalty to Tesco, but more important, to recognize Tescos loyalty to
customers.
Clubcard is a reflection of the attributes of the business and its
commitment: a strong team ethic, a commitment to serving customers,
and most of all, top-to-bottom retailers pragmatism. Tesco made
customer loyalty marketing work, when every other British supermarket
loyalty programme in the late 1990s failed, faltered or never got started.
Every year since 1995, headlines have proclaimed the death of loyalty
scheme, usually enthusiastically supported by other retailers whose
loyalty schemes are distant memories. Yet Clubcard is never questioned
as a strategic priority by the management. Instead, Tesco has responded
to the critics by measurably building sales through Clubcard, using the
relevant knowledge it creates to improve the way it runs its business.
In short, Tesco hasnt found that its loyalty programme is a costly
overhead. Because Tesco made Clubcard work, it can find out what its
customers need and generate enough sales by satisfying those needs cover
the cost of finding out. Tesco runs Clubcard, and has been doing so since
1995, for no net cost.
-
7/30/2019 Dissertation on (Customer Loyalty)
11/157
Page 11 of 157
-
7/30/2019 Dissertation on (Customer Loyalty)
12/157
Page 12 of 157
1.2 Aims and Objectives
Aim
To analyze and examine the concept of loyalty in retail and to assess its
effectiveness as a corporate strategy through a Tesco Plc Case Study.
The Purpose of this research is to gain fresh insights into the concept of
loyaltyand customer relationship management and the part it plays in
strategic decision making. Its the strategic implications of loyalty
schemes that the project seeks to look into. Objective 5 is in a way the
primary objective of the research, all other objectives are necessary to
be realized before a thorough understanding of the strategic ramifications
of loyalty programmes is acquired. Thus, objectives 1-4 are important
stations (intermediate goals) which help reach the final destination or
purpose (objective 5).
Objective 1
Analyze and define the concept of loyalty and identify the
relationship between customer satisfaction and customer loyalty
Customer Loyalty has been one of the most misunderstood concepts
of recent years (Payne, 2002). Unfortunately there is no universally
agreed definition of loyalty (Jacoby and Chestnut 1978; Dick and Basu
1994; Oliver 1999). Oliver (1999) suggested that loyalty and
satisfaction are linked inextricably, but also that this relation is
asymmetric, arguing that although loyal customers are usually
satisfied, satisfaction is an unreliable precursor to loyalty. This
-
7/30/2019 Dissertation on (Customer Loyalty)
13/157
Page 13 of 157
research seeks to define the real meaning of loyalty in retail terms
and how it differs to satisfaction.
Objective2
Examine the conditions under which customer loyalty enhances
profitability
Some loyalty Schemes are termed as a disguised from of Sales
promotion. They are just another way of bribing the customers
(Woolf, 1996), Its a zero sum game as profit margins are squeezed
to run the scheme (Oliver, 1999). Handling data is like drinking water
from a fire-hose (Humpy et al, 2004). Still, loyalty schemes are
practiced by big retailers. This study seeks to identify the variables
which help make a loyalty scheme successful, and clearly identify the
conditions under which loyalty enhances profitability.
-
7/30/2019 Dissertation on (Customer Loyalty)
14/157
Page 14 of 157
Objective 3
Assess the role of loyalty programs in promoting loyalty and
building favourable customer relationships
Our Customers told us that they prefer pound in their pockets. (Zaria
Pinchbeck, Asda, 2003, cited in Web 1). Trying to analyze all the data is
madness (Waitrose, cited in Web 2), Dropping the loyalty card is
inconceivable (Russell Craig, Tesco, 2004, cited in Web 3). The market
research company Mintel, says that there is mixed evidence that loyalty
cards really do promote loyalty. Gary Davies (2004), professor of
retailing at Manchester Business School (cited in Web 4), believes that
loyalty cards have run out of steam stating that most of us have cards for
at least two stores, so that defeats the point [of loyalty]. The UK's top two
supermarkets, Tesco and Sainsbury's, both say that loyalty schemes are
an integral part of their retailing strategy and insist they remain
committed to them. The study seeks to assess the contribution of loyalty
programs in creating long-term relationship with the customer.
Objective 4
Evaluate the extent to which loyalty marketing makes its
contribution to TESCOs success and identify key areas where
TESCO outwits its competitors
The study seeks to point out the parameters TESCO considers to quantify
the effect of its loyalty program and assess if those parameters are
justified. Safeways loyalty scheme (ABC card) started off well but was
finally withdrawn four and a half years after its launch. ASDA shied
away from rolling out the loyalty card nationwide after having trials at
different stores. TESCO Clubcard was three times more famous thanSainsburys Saver card and achieved two and a half time greater
-
7/30/2019 Dissertation on (Customer Loyalty)
15/157
Page 15 of 157
awareness than any other card. (Woolf,2002) TESCO CEO Terry Leahy
puts it Its not the skill but the will that counts. This research seeks to
examine TESCOs skill and the will which makes its loyalty program
stand out and the extent to which it contributes to the retailers success.
Objective 5
Assess whether loyalty marketing should form a part of a retail
firms overall business strategy
Is Loyalty Marketing dead or is it a vital force to reckon with? Anti-
Loyalty lobbyists argue that loyalty programmes are little more than a
discount scheme ; that do nothing to engender consumer allegiance.
Loyalty aficionados, on the other hand, claim loyalty programmes form
the core of their business strategy, enabling them to increase customer
value, grow market share, and successfully populate new markets. The
research will explore the myth and realities of loyalty marketing and thepart it plays in shaping Tescos overall business strategy.
1.3 Scope
Since the study examines the Tesco Clubcard only, the results cannot be
generalized for every loyalty schemes. Future research should seek to
replicate the study onto other retailers in order to be able to get a broader
understanding of the loyalty effects of customer-loyalty-programmes.
Also, this study only examines the loyalty effects of the Tesco Clubcard
in terms of its marketplace impact; it does not examine the loyalty effects
in terms of the financial impact of the programme. The econometrics of
the Clubcard doesnt form a part of the research.
-
7/30/2019 Dissertation on (Customer Loyalty)
16/157
Page 16 of 157
1.4 Rationale
The interesting perceptions with contradictory thinking with regards to
loyalty in retail and loyalty schemes is what aroused sufficient interest in
the author to go in for a research into this elusive concept. Although
conventional wisdom dictates that customer loyalty is the most vital
aspect of every business because companies live or die from repeat
business, in reality, loyalty programmes are surprisingly ineffective
and almost 50% of them miss their business objectives partly or
completely (Web 5). Yet, most of the major supermarket multiples have
already joined the bandwagon, for some, its a roaring success while for
others it turned out to be more than a liability. This tricky tale of retail
was what made the author go in for a research on loyalty as no
existing literature gave a clear-cut judgment on the subject of
customer loyalty in retail. Is loyalty an armoury which came,
conquered and died?
1.5 Methodology
In order to approach the above mentioned research objectives, this
longitudinal exploratory study took into account both qualitative and
quantitative research strategies which is often necessary for
triangulation meaning getting a fix from two or more places (Green
et al, 2002). The Research Approach is a combination ofdeductive and
inductiveapproach. Deductive, because the existing concept of loyalty
and its impact on business decisions and strategy is first tested using data
and Inductive, because the data collected is analyzed to give new
-
7/30/2019 Dissertation on (Customer Loyalty)
17/157
Page 17 of 157
dimensions to the loyalty concept and its strategic effect on business
decisions.
A Case Study (Tesco) Strategy is taken as it involves an empirical
investigation of the loyalty phenomenon within its real life concept to
the particular retail firm.
Quantitative and qualitative research is applied, both using primary and
secondary information that is gathered and assembled specifically for this
study. Qualitative secondary information from a variety of sources is
gathered like Tesco Case Studies, Tesco Brochures, Tesco Web page,
Reference books, Journals, Online journals, Newspaper and Magazine
(The Grocer) Articles, Taped interviews, Business news channel views,
Research Agency (e.g Mintel) databases. Quantitative data from Tesco
Company reports and other supermarkets is collected and analyzed to
compare and contrast the effect of loyalty. Primary data is collected using
mall-intercept-interviewing (Zikmund, 2000). For this purpose, aconvenience sample of Tesco shoppers is surveyed in front of local Tesco
supermarket Other primary data collection methods included a
questionnaire that divides customers into two categories, namely Tesco
Clubcard members and non-members, which was important to know in
order to have a benchmark to find out how the Tesco Clubcard affects its
members loyalty towards Tesco. The Satmetrix Market Stat was madeuse of; it is a dynamic tool for customer satisfaction and loyalty
measurement that uses the customer loyalty index as key metric in
order to measure overall customer loyalty.
1.6 Conclusions and Recommendations
-
7/30/2019 Dissertation on (Customer Loyalty)
18/157
Page 18 of 157
Tescos loyalty marketing project has become a pillar of its business
strategy and has helped Tesco evolve in its strategic thinking and
direction from being an outstanding food retailer to being an information-
driven business, constantly searching for ways to act as the value-adding
agent for its customers, Its customer information assets uses to allow it
to take a strategic approach to customer management. Tescos loyalty
scheme suggests that a loyalty scheme can only have a sustained impact
on the bottom line when, from its inception, it changes the dynamic
culture of the organization. When the board recognize that loyalty scheme
data is the bedrock of their business, then the considerable investment in
technology, manpower and other resources really starts to pay dividends.
Companies embarking on a loyalty scheme should make sure that data is
analyzed with an eye on desirable economic outcomes and companies
should make sure that they establish what they are trying to accomplish
with the program and continually measure its performance.
Summary
This chapter provided us with a basic guideline of the things to come. It
gave a detailed description of the aim, purpose and objectives of the study
and what the study seeks to achieve. It clearly mentioned the scope of the
research and areas where the study will not throw much light on. The
study now moves forward into the journey of exploring the true
meaning of loyalty in retail and discusses different theoretical
frameworks of customer loyalty programmes and their individual
characteristics. It delves into both soft and hard aspects of loyalty and
evaluates the success factors and conditions which encourage loyalty.
-
7/30/2019 Dissertation on (Customer Loyalty)
19/157
Page 19 of 157
-
7/30/2019 Dissertation on (Customer Loyalty)
20/157
Page 20 of 157
The aim of this chapter it to clear the air of confusion with regards to
the concept of loyalty and bring out its true meaning considering
both attitudinal and behavioral dimensions. It goes on to give a
detailed account of relevant loyalty frameworks and models put
forward by purists and examines the reasons for the popularity and
sudden proliferation of loyalty schemes. It then evaluates whether
successful loyalty programmes are a stand-alone entity or form a part
of the overall strategy and help in strategic decision making. The
chapter concludes by highlighting the hype and hoopla surrounding
loyalty schemes and the myths associated with it.
2.1 LoyaltyThe elusive phenomena
According to the Oxford Dictionary of Current English (2003, pg
327), loyalty is defined as being faithful or steadfast in allegiance
but as Payne (2002) points out customer loyalty has been one of themost frequently discussed and most misunderstood concepts of recent
years . This is further evidenced by the fact that some authors use
customer loyalty interchangeably with other constructs, including
customer repeat purchasing behaviour and customer retention.
However, it has been suggested that the construct of customer loyalty
differs from the one of repeat purchasing behaviour in the way that itimplies an intentional component, i.e. there is always a reason for the
customers repeat purchase and it does not happen by chanc e
(Hansen,2000) .The construct of customer loyalty also differs from
the one of customer retention in that customer retention has a purely
behavioural character, whereas todays interpretations of the loyalty
construct usually include both behavioural and attitudinal dimensions;
moreover, while the construct of customer retention considers the
-
7/30/2019 Dissertation on (Customer Loyalty)
21/157
Page 21 of 157
marketer as the active party, loyalty focuses more on intrapersonal
aspects of customer behaviour (Hansen,2000) .
Loyalty is seen as something that consumers and customers exhibit
towards brands, products, services, stores, as well as salespersons
(Laurent, 1997) .The level of attachment a customer feels toward a
product or service is a prerequisite to loyalty and that a second factor that
marks a customer's loyalty is repeat patronage. Attachment is shaped by
two dimensions: the degree of preference (the extent of the customer's
conviction about the product or service) and the degree of perceived
product differentiation (how significantly the customer distinguishes the
product or service from alternatives). The highest attachment occurs
when a buyer feels a strong buying preference coupled with a high degree
of perceived product differentiation. (Griffin, 2005, cited in Web 6))
2.1.1 Categorization of The Loyalty Concept ( from the Retailers
perspective)
Adapted from Bergeron, 2000, pg 135-147Figure 1
-
7/30/2019 Dissertation on (Customer Loyalty)
22/157
Page 22 of 157
According to Bergeron( 2000) , the definitions of loyalty fall into three
broad categories:
Transactional loyalty, in which the customers buying behaviour is
seen to change or be changed, although what motivates that change
may be unclear. These are often the most popular choices, as they
relate most closely to commercial results.
Transactional loyalty is the ultimate objective of any supermarket;
Tesco encourages transactional loyalty by concentrating on moreemotional aspects of things. Therefore research will deal more with
Tesco form of loyalty which is more emotional and less
transactional.
Perceptual loyalty, in which the attitudes and opinions of the
customer are the key, but there is not necessarily evidence of an
impact on purchasing. Sometimes these are regarded as more
significant, because they are seen to reflect possible behaviour
Loyalty
Transactional
Perceptual Complex
Repeat Purchase
Brand Value
Satisfaction
Awareness
Cross-selling Up-selling
Persistency
Lifetime-value
-
7/30/2019 Dissertation on (Customer Loyalty)
23/157
Page 23 of 157
patterns that could be created in the future, not patterns of what has
happened in the past.
Perceptual loyalty will be researched upon in more detail as
customer attitudes and opinions or the softer side of loyalty is what
Tesco concentrates on.
Complex loyalty, where there is a combination of these two effects.
Within each of these categories there are a number of terms, all of
which have been, or are being, used as definitions of loyalty.
Transactional
Cross-selling - seen as loyalty when a customer buys a new,
different product or service from the same supplier, rather than
choosing an alternative.
Up-selling - a customer buys more from the same supplier, usuallyof the same product or service.
Repeat purchase - obviously, buying the product again, when the
same need arises.
Persistency - maintaining a relationship rather than concluding it.
Perceptual
Satisfaction - an easy and obvious use of loyalty is within the
context of the degree of satisfaction felt by users of a product or
service; the kind of emotion articulated in response to the question
how was it for you?. However, customer satisfaction can be a
misleading measure as there are many examples of customers
changing supplier despite high levels of satisfaction. The research
-
7/30/2019 Dissertation on (Customer Loyalty)
24/157
-
7/30/2019 Dissertation on (Customer Loyalty)
25/157
Page 25 of 157
2.1.2 Conceptualizations of loyalty (from the customers
perspective)
Adapted from Uncles et al., 2002
There are three popular loyalty conceptualizations put forward by Uncles
et al.(2002): loyalty as primarily an attitude that sometimes leads to a
relationship with the brand (Model 1); loyalty mainly expressed in terms
of revealed behavior (i.e., the pattern of past purchases) (Model 2); and
buying moderated by the individuals characteristics, circumstances,
and/or the purchase situation (Model 3).
Fi ure 2
-
7/30/2019 Dissertation on (Customer Loyalty)
26/157
Page 26 of 157
Analysis of models put forward by Uncles will bring us closer to one
of the objectives of the research as it may reveal the real meaning of
loyalty in attitudinal and behavioural terms and the conditions which
help a loyalty scheme prosper.
Loyalty has been largely defined and measured in either behavioural
terms (stochastic approach), or attitudinal terms (deterministic
approach) and although it has been suggested that the concept should
be understood in both terms, there is still little agreement when it
comes to measuring it (Rundle-Thiele, 2001) .This disagreement has
led to a debate that originally started almost 30 years ago between
Jacoby and Kyner and is still going on in present times (Rundle-
Thiele, 2001) . Defenders of the stochastic approach consider loyalty
as behaviour and argue that the customer who buys the same brandsystematically is loyal. Loyalty, like love or loathing, is impossible to
quantify exactly. What can be quantified is customer behaviour and
where customer loyalty is concerned, the closest factor that can be
measured is customer behaviour. (Stone, 1997) .Loyalty, here is
defined mainly with reference to the pattern of past purchases with
only secondary regard to underlying consumer motivations orcommitment to the brand (Ehrenberg 1988; Fader and Hardie 1996;
Kahn, Kalwani and Morrison 1988; Massy, Montgomery and
Morrison 1970). Stochastic modelling techniques describe the
observed patterns of customer buying. Loyalty to the brand (measured
by repeat purchase) is the result of repeated satisfaction that in turn
leads to weak commitment. The consumer buys the same brand again,
not because of any strongly-held prior attitude or deeply-held
-
7/30/2019 Dissertation on (Customer Loyalty)
27/157
Page 27 of 157
commitment, but because it is not worth the time and trouble to
search for an alternative. If the usual brand is out of stock or
unavailable for some reason, then another functionally similar (or
substitutable) brand (from the portfolio) will be purchased ( East
1997; Ehrenberg, Barnard and Scriven 1997). Problem with this
approach lies in the fact that it considers loyalty behaviour as too
complex to be comprehended due to the number of explanatory
variables and their frequency of appearance and therefore makes the
processing of loyalty in a dichotomous way loyalty Vs. disloyalty,
which is singularly short of nuance, and requires a very arbitrary
categorization of customers into one of the two categories
(Odin,2001) .Moreover, it has been suggested that only a few
customers are 100 per cent loyal to a single brand, but rather, are
likely to have a repertoire of two or three brands within any product
category from which they regularly buy i.e. polygamous or divided
loyalty (O Malley, 1998) .Another shortcoming of the stochasticapproach is that it does not tell whether repeat purchasing has been
done out of habit, due to situational reasons, or due to other more
complex psychological reasons and it has been argued that the narrow
technical definitions of the stochastic approach do not capture the full
richness and depth of the loyalty construct (Odin,2001). Many
researchers and consultants argue that there must be strong attitudinalcommitment to a brand for true loyalty to exist (Day 1969; Jacoby and
Chustnut 1978; Foxall and Goldsmith 1994; Mellens et. al. 1996;
Reichheld 1996). Oliver (1997) has this in mind when he defines
customer loyalty 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
-
7/30/2019 Dissertation on (Customer Loyalty)
28/157
Page 28 of 157
influences and marketing efforts having the potential to cause switching
behaviour
This determinist approach considers loyalty more as an attitude and
argues that there are a limited number of explanatory factors
responsible for it, which can be isolated and manipulated (Odin,2001)
, including:
Customer satisfaction: Oliver (1999) suggested that loyalty
and satisfaction are linked inextricably, but also that this
relation is asymmetric, arguing that although loyal customers
are usually satisfied, satisfaction is an unreliable precursor to
loyalty, which is further evidenced by findings from the
automobile industry, in which 85 % to 95 % of customers report
that they are satisfied, but only 30% to 40% return to the
previous make or model. This gives us a pointer thatsatisfaction may not be as intricately linked to loyalty as
assumed and brings us closer to Objective 1.
Commitment and Trust: According to Morgan and Hunt
(1994), commitment and trust not just one or the other are
the key to success in relationship marketing, since trust implies
that the consumer has confidence in the brand/firm and iswilling to rely on it though there is an evidence of risk
involved, while commitment reflects a psychological
attachment to the brand/firm and an enduring desire to maintain
the relationship.
The determinist approach is not based on loyalty/disloyalty
opposition, but seeks to measure the degree of intensity of loyalty
-
7/30/2019 Dissertation on (Customer Loyalty)
29/157
Page 29 of 157
(Odin, 2001) .Nevertheless, the determinist approach has been
criticised for only relying on customer declarations without taking
into account their observed behaviour and also for using either
antecedents, or consequences of loyalty to measure the former and not
loyalty in itself (Odin, 2001). Despite the psychological and
sociological richness of the attitudes drive behaviour and relationship
approaches to understanding customer loyalty, these conceptualizations
of loyalty are not without their critics (Dowling 2002). They are thought
to be less applicable for understanding the buying of low-risk, frequently-
purchased brands, or when impulse buying or variety seeking is
undertaken, than for important or risky decisions (Dabholkar 1999). Also,
as Oliver (1999) has noted, there is little systematic empirical research to
corroborate or refute this perspective of customer loyalty. Those who
subscribe to the attitudes drive behaviour and relationship approaches
expressly rule-out revealed behaviour as a dominant measure of loyalty.
That, they argue, may merely reflect happenstance. Even combinedmeasures of revealed behaviour and satisfaction may not probe deeply
enough for us to be sure there is true loyalty (Arnould, Price and Zinkhan
2002). Brian Woolf (2004) puts Loyalty as a positive attitude built up
over a series of favourable interactions expressed in a customers
behaviour.
As a result, it has been suggested that neither attitudinal nor
behavioural measures on their own are sufficient to explain or define
the complex construct of loyalty and therefore, a number of hybrid
frameworks have been developed which try to combine both
dimensions of loyalty in an attempt to overcome such problems.
2.1.3 Loyalty Frameworks
-
7/30/2019 Dissertation on (Customer Loyalty)
30/157
Page 30 of 157
A popular framework that tries to take into account both dimensions
of the loyalty-
Construct has been proposed by Backman and Crompton (1994) (cited
in OMalley, 1998), which results in a number of different categories
of loyalty, each of which have clear managerial implications as
demonstrated in Figure 3.
Adapted from O Malley 1998, pg 47-55
In an attempt to explain the forces affecting loyalty in more detail,
Diller(2000) has proposed a model of loyalty motivators and de-
motivators that is based on background theory from consumer
motivation research and is illustrated in Figure 4.
No Loyalty
Managers can attempt to generate spurious
loyalty through such means as in-store
promotions, loyalty clubs and special offers.Is a state whereby customers will move
from retailer to retailer as there is little
benefit and difference perceived between
any of the outlets in the marketplace.
Spurious Loyalty
In order to defend the customer base
against competitive attacks managers can
attempt to maintain spurious loyalty and/ordevelop sustainable loyalty .Little difference
is perceived between retailers, there is often
inertia which keeps a customer loyal based
on habit.
Latent Loyalty
Managerial efforts are best focused onremoving the obstacles to patronage, for
example by extending the branch network.
Occurs when the customer feel san element
of loyalty yet will not buy from that retaileron every occasion
High Loyalty
Organisations must not become complacentand managerial efforts should be continually
focused on reinforcing attitude and
behaviour, particularly as the consumer is
likely to be targeted by competitors. This
may involve maintaining a price advantage,and/or providing additional services, which
offer value to the consumer
Patronage BehaviourHigh Low
High
Low
Relativeattitude
Fi ure 3
-
7/30/2019 Dissertation on (Customer Loyalty)
31/157
Page 31 of 157
Opportunism versus Relief
Arguably the strongest factor constraining loyalty has been
termed opportunism, which in this context stands for the
willingness of customers to take advantage of any opportunity
to get the maximum benefit (value for money), to be completely
flexible and to be only interested in their personal benefit (also
Fi ure 4 Adapted from: Diller, 2000, pp 39 43
Autonomy
Variety
seeking
Opportunism
Relief
Contin
uity
Social
Integra
tion
-
-
-
+
+
+
- Intensity of loyalty +
-
7/30/2019 Dissertation on (Customer Loyalty)
32/157
Page 32 of 157
known as smart shoppers).
The model suggests that everyone is a smart shopper to a
certain degree, but also that everyone (to various degrees) is
tired of only looking for economic advantages and therefore
opportunism is weakened by the need for relief, which
originates from the need for more freedom of economic
pressures and tasks, and a consciousness of alternative human
values, including humanity, solidarity or personal loyalty.
Variety versus Continuity
The second pair of ambivalent loyalty forces suggested by the
model includes variety seeking opposing loyalty while the need
for continuity makes it more attractive.
The desire for variety has its roots in a general motivation for
stimulation and absence of boredom, while at the same time,
man is a creature of habit who loves the well-known and
familiar, thus people are curious, but still have their habits and
like the certainty of knowing what they will get for the money
paid.
Autonomy versus Social Integration
The third pair of ambivalent loyalty forces suggested by the
model includes the need for autonomy opposing loyalty while
the need for social integration makes it more attractive.
-
7/30/2019 Dissertation on (Customer Loyalty)
33/157
Page 33 of 157
Autonomy in this context means freedom from others and
decision-making independence, which is becoming increasingly
important in a time of customer emancipation, where self-
esteem is highly regarded and attempts made by suppliers to
restrict this freedom might achieve the opposite of the intended
affect.
However, even in times of individual isolation, social
integration remains a widespread need and therefore many
customers long for social integration, a sense of social security
and a sense of affiliation or social esteem within different
relationships or groups.
Loyalty has become one of the most sought after concepts in the
business world and it is often the most elusive phenomena. Loyalty
cannot be blueprinted. It cannot be produced on an assembly line. In fact,
it cannot be manufactured at all, for its origin is the human heart -the
centre of self-respect and human dignity. It is a force which leaps into
being only when conditions are exactly right for it, and it is a force verysensitive to betrayal. (Maurice R. Franks, 2004)
Businesses can succeed with a great product or service, but will fail
without loyal customers. (Anon, 2004)
-
7/30/2019 Dissertation on (Customer Loyalty)
34/157
Page 34 of 157
It is now appropriate to discuss the possible effects of the construct of
loyalty for retailers and why it has become increasingly popular over
the recent years.
2.1.4 Reasons for the rapid increase in popularity of customer
loyalty
A critical evaluation
Gronroos (19994b, p9) described the objectives of relationship
marketing as being to identify and establish, maintain and enhance
and, when necessary terminate relationships with customers and other
stakeholders, at a profit so that the objective of all parties involved
are met, and this is done by a mutual exchange and fulfilment of
promises.
Customer loyalty is a strategic approach to improving shareholder
value through the development of appropriate relationships with key
customers and customer segments.(Payne & Ballantyne,2002).
Proponents tend to focus on the psychological bonding that eventuates
from membership (a customer benefit), and the enhanced customer
insights that can be gained from analyzing the program database (a firmbenefit) (Brown 2000; Pearson 1996). Critics argue that the loyaltyboth
attitudinal and behavioral for most customers is quite passive and
resembles habit rather than serious commitment. Where the focus is on
individual customers, loyalty programs can be seen as vehicles to
increase single-brand loyalty, decrease price sensitivity, induce greater
consumer resistance to counter offers or counter arguments (fromadvertising or sales-people), dampen the desire to consider alternative
-
7/30/2019 Dissertation on (Customer Loyalty)
35/157
Page 35 of 157
brands, encourage word-of-mouth support and endorsement, attract a
larger pool of customers, and/or increase the amount of product bought(
Bolton et al., 2000) Two aims of customer loyalty programs stand out.
One is to increase sales revenues by raising purchase/usage levels, and/or
increasing the range of products bought from the supplier. A second aim
is more defensive, by building a closer bond between the brand and
current customers it is hoped to maintain the current customer base. The
popularity of these programs is based on the argument that profits can be
increased significantly by achieving either of these two aims. In today's
economic climate loyalty programs can help companies do more with
less. They have been able to provide a sense of personal service without
an actual person which is clearly apparent from Tescos case (Seybold,
2001) Loyalty schemes can lead to more purchases more often, give
the ability to mass customize marketing communication, minimize
waste and help promote trust. It attempts to win a slightly larger share
of the customers spend than would otherwise be the case if theadditional value of the scheme were not offered (McAlexander,2002).
Loyalty programmes seeks to identify and talk to individual
customers on a massive scale and torrential flow of live transactional
data offers the possibility to transform how retailers manage their
business. Research will analyze in greater detail the ways in which
loyalty programmes can transform the business and help makestrategic business decisions, which is the purpose of the research (to
evaluate loyalty as a strategy). One of the reasons for the great
popularity of customer loyalty is the recognition that losing a
customer means in fact more than a single sale: It means losing the
entire stream of purchases that this particular customer would make
over a lifetime of patronage also known as the customer lifetime
value(Kotler and Armstrong,2001).
-
7/30/2019 Dissertation on (Customer Loyalty)
36/157
Page 36 of 157
Another reason for the rapid increase in popularity of customer
loyalty can be found in the impressive array of suggested evi dence
in support of loyalty, such as the figures provided by the associates of
Bain & Company, claiming that the net present value increase in
profit that results from a 5% increase in customer retention lies
somewhere between 25 and 95% in over 14 industries (Oliver, 1999).
Loyal customers are supposed to buy more, pay higher prices and
bring in new customers through word-of-mouth support (Morgan et
al.,2000).Another profitability-argument in favour of loyalty
includes that in many cases the management of loyal customers is
supposed to be cheaper since they are usually better informed and
therefore ordering and delivering procedures can become routine
(Scott, 2000, cited in Web 7).However, some of these profitability-
arguments have been challenged recently by Reinartz and Kumar(2002), who compared the behaviour, revenue, and profitability of
more than 16,000 individual and corporate customers over a four-year
period, concluding that they discovered little or no evidence to
suggest that customers who buy on a steady basis are necessarily
cheaper to serve, less price sensitive, or particularly effective at
bringing in new business. They also found that a considerable amountof loyal customers were only marginally profitable, while a large
percentage of short-term customers were very profitable.
This has arguably to do with the fact that many non-loyal customers
can be highly profitable at the beginning, causing companies to chase
after them in the hope of future profits, but once these customers
cease their buying activity, they may become unprofitable because the
-
7/30/2019 Dissertation on (Customer Loyalty)
37/157
Page 37 of 157
company continues to invest in marketing to them (Reinartz and
Kumar,2002).A recent Best of Biz (2003) report also questioned
customer loyalty as the driver of profitability, arguing that
profitability might ultimately be more related to business
fundamentals such as superior products, services or processes.
Academicians have also argued that loyalty programmes are
ultimately self-defeating when competition confronts the first mover.
Woolf (1996) puts it great success comes from a marketing strategy
base firmly on understanding customer economics and only
secondarily on customer loyalty. Other pro-loyalty arguments include
that loyal customers may bring more certainty into the business, e.g.
through increased customer immunity to competitive offers, through
higher tolerance of mistakes made by the supplier, through increased
customer feedback (loyal customers are supposed to be more prepared
to complain and to participate in surveys).On the other hand,
however, loyal customers may also seduce suppliers intocomplacency and encourage inactivity and carelessness or the
supplier may become too reliant on them, which may mean that they
fail to adapt to changes in market structure or to respond to the
changing importance of certain market segments
(Diller,2000).However, despite their criticism, even critics themselves
have suggested that customer loyalty is a worthy contributor to theshareholder value of a company(Diller,2000;pg33), and that firms
are encouraged to study their position and options in the pursuit of
this goal(Oliver,1999; pg37). The research will extensively analyze
the reasons for popularity of Tescos loyalty programmes and
compare it with other loyalty schemes which are one of the objectives
of the study (to compare and contrast Tescos loyalty schemes with its
competitors).
-
7/30/2019 Dissertation on (Customer Loyalty)
38/157
Page 38 of 157
2.2 Customer-Loyalty-Programmes
The notion of customer-loyalty-programmes is not really a
revolutionary idea and it is probably fair to say that the cooperatives
pioneered the modern day programmes already in the mid 1800s
(Sparks,1999).What distinguishes todays customer-loyalty
programmes is their ease of use for consumers as well as the degree
of technology involved. However, the rationale behind modern CLPs
is still the same, to build lasting relationships with customers, and to
do so by rewarding loyal and heavy or frequent buyers, in the hope of
achieving benefits of loyal customers. The ultimate goal of every
CLP, according to Stauss et al. (2001), is to increase general
operational profitability by customer retention. However, Butscher
(2001) argues that profitability should be considered as a medium- or
even long-term goal which can only be achieved if other intermediategoals are reached first, such as building a strong customer database.
Most modern CLPs are using some form of membership card which is
presented at the point of sale in order to identify the customer and to
record the purchase details (e.g. time of purchase, value and type of
items etc) and/or the value of the rewards earned. There are various
different types of cards issued by and on behalf of retailers, including:Payment cards: provide a mechanism for customers to pay
retailers and are sometimes known as store cards
Reward cards: provide a mechanism for retailers to reward
their customers for repeat purchasing and are sometimes called
bonus cards or club cards which is what Tescos club card is all
about.
-
7/30/2019 Dissertation on (Customer Loyalty)
39/157
Page 39 of 157
Combined cards: act simultaneously as payment and reward
card
According to Cuthbertson and Williams (1999), retailers have four
different CLP-card strategies available:
-
7/30/2019 Dissertation on (Customer Loyalty)
40/157
Page 40 of 157
Adapted from Butsher,2001, pg 123-131
The 5 P Loyalty Strategy
Pure Strategy: Spending and accruing benefits with only the
card-issuing retailer. Means, strengthening the existing bond
between the customer and the retailer, so that the retailer can
find out what the customers wants, and give the customer more
of it. Pure loyalty schemes aim to establish a two way dialogue
so that the retailer can act to improve the basic offer. (Rayner,
1998). Tesco used to follow a Pure Strategy and even now the
Clubcard is more or less based on a pure strategy with the
primary objective being, strengthening the two way
communication and understanding the customer better.
Fi ure 5
-
7/30/2019 Dissertation on (Customer Loyalty)
41/157
Page 41 of 157
Although Tesco has partners like Allders, H Samuel, Powergen
etc under Tesco Freetime but it is Tesco which issues the
Clubcard points and the partners buy those at a rate negotiated
with Tesco. But they are the Tesco Clubcard points redeemable
through Tesco or Tesco Freetime only.
Push Strategy: Spending at several retailers, accruing benefits
with the card-issuing retailer. Means, creating a scheme to
encourage customers to use a way of shopping that they would
not have done before ,pushing customers through new channels,
or trying to create new types of behaviour. It is a technique
used by low-cost airlines to encourage customers to book
online, or it can be used by a retailer expanding into non-core
businesses to draw customers with it.
A pure loyalty card strategy primarily affects current customers. Ifsuccessful, new primary customers would then need to be attracted
via a Push loyalty strategy.( Rayner ,1998)
Pull Strategy: Spending at the card-issuing retailer, accruing
benefits outside the retailers everyday range. Means, attracting
customers by augmenting a retail offer, so customers will find
that buying one product means that they get an offer on another,
linked product. At a simple level buy one get one free.
Effectively it is an inducement to create more sales by
encouraging customers to buy something new.( Sharp,1997) It
is best suited when a retailer's offer is not sufficient in itself to
attract new primary customers or retaining the existing ones.
-
7/30/2019 Dissertation on (Customer Loyalty)
42/157
Page 42 of 157
Purchase Strategy: Spending and accruing benefits across
many retailers. A Purchase Strategy is primarily aimed at
increasing customer purchases regardless of where those
purchases take place. It is suited to financial services and
transaction processing providers and to mainstream retailers
wishing to develop financial or transaction processing services.
To encourage usage, successful Purchase loyalty card strategies
tend to rely on high use availability, high brand awareness and
low costs, especially processing costs. They tend to act as
payment cards first and reward cards subsequently.( Reichheld ,
2000)
Purge Strategy: Represents a deliberate choice by retailers to
avoid a loyalty card scheme, target customers of other schemes
with alternative benefits and increase the number of primary
customers and overall market share. Therefore the key measures
should aim at increasing the competitiveness of the retailerrather than any specific measures related to loyalty cards
Butscher (2001) has suggested that the information obtained from
CLP-members are particularly useful as they have already identified
themselves as having a special interest by signing up for the
programme and sometimes depending on the type of programme
(limited programme versus open programme), even pay a
membership-fee an effort that non-interested customers would
probably not invest. The advantage of a limited programme, where
members have to pay a joining-fee and/or annual-membership fee is
that it has a positive influence on filtering out unwelcome members
-
7/30/2019 Dissertation on (Customer Loyalty)
43/157
Page 43 of 157
The characteristics of limited and open customer-loyalty-programmes
Limited or Opt-it CLP Open CLP
Membership fee helps to
cover costs.
Membership prerequisitehelps channel
membership/focus on target
groups.
Limited access makes
membership more valuable.
Clearly defined membership
structure makes
communication more effective
Membership prerequisite
keeps number of members,
and thus cost , down.
Database includes only
members with an above-
average interest in the
product
Membership payments raise
expectations, so the loyalty
programme management is
constantly forced to improve
A wider number of
customers can be reached.
Database more completePotential customers and
competitors customers can
be reached more easily.
Completeness of database
could, after further analysis,
lead to segmentation and
segment-specific
communication.
Larger number of members
helps to reach critical mass,
which makes loyalty
programme become more
cost-effective sooner.
Fi ure 6 Adapted from: Butscher, 2001, p 51
-
7/30/2019 Dissertation on (Customer Loyalty)
44/157
Page 44 of 157
value.
Will be the better approach for
companies:
Will be the better approach for
companies:
Trying to reach/reward their
top customers.
Preferring a more focused
approach
With smaller budgets
In clearly segmented markets
In business-to-business
markets
In markets with homogeneous
customers
With very little knowledge
about current and potential
customers
Following a more general
approach
With long-term larger
budgets
In unsegmented markets
In business-to-consumer
markets
With commodity products
The Tesco Clubcard falls into the category of open CLPs, since
everybody living in the UK aged 18 years or above can register for it for
free via an application form which provides essential information for
targeted promotions (Tesco Clubcard Brochure). Since this research takes
a Tesco Case Study, it only takes into consideration Open-CLPs.
Opportunities for using customer informationFi ure 7
Direct
Sales
Report
Sales success
Generate sales
contacts
Define
Sales goals
-
7/30/2019 Dissertation on (Customer Loyalty)
45/157
Page 45 of 157
It should be kept in mind that a loyalty card is not a replacement for
any of the basic loyalty drivers but is a supplement to them. Just as a
hammer doesnt build a house, a loyalty card doesnt build customer
loyalty. Both the hammer and the card are tools that, when properly
and appropriately used, help bring the architects blueprint to life.
(Woolf, 2004)
2.2.1 Building a CLP
Setting up a customer-loyalty-programme requires careful planning
and should include detailed plans and methods for customer
identification and registration, segmentation, reward design, and
Customer
InformationProdu
Product
demand
Servi
Pursue customerissues
Marketi
Sales
Product
development
Product
analysis
Competitive
analysis
Assess customer
satisfaction
Monitor service
quality
Respond
customer
inquiries
Program
testing
Program
preparation
Program
PlanningProgram
analysis
-
7/30/2019 Dissertation on (Customer Loyalty)
46/157
Page 46 of 157
programme maintenance operations. Moreover, setting up a CLP is
very resource intensive and therefore the company developing the
programme should take it very seriously, i.e. being aware of the time,
effort, financial investment and above all, being aware of entering a
long-term commitment (Butsher,2001). In order to be a source of
sustainable competitive advantage, the company developing the CLP
must always take into account what its loyal customers value, since
loyalty is inextricably linked to the creation of value, and then design
a programme that directly supports their value proposition (Morgan et
al, 2000). The greater the perceived value of a companys goods or
services, the greater the loyalty effect. (Bryan, 2002). A value
proposition is the full positioning of a brand , the full mix of benefits
upon which it is positioned and the answer to the customers
question Why should I buy your brand?(Kotler &
Armstrong,2001).Moreover, in order to be viable, a CLP must build
and sustain noticeable differences in its offerings that are difficult tocopy, since a lack of differentiation removes any potential of
competitive advantage which is anything but easy in retailing,
where first movers are quickly imitated (Morgan,2001).Thus, the
right combination between soft (e.g. magazine, travel aids, special
products, services, events) and hard-benefits (e.g. discounts, rebates,
coupons) is essential and Tesco is a champion at this, because itknows fully well that although savings are at the top of the customers
wish list, hard benefits are usually copied by the competition and
therefore it considers soft benefits as the key to its loyalty programme
as they are less likely to be copied due to their mostly intangible
nature. Five elements which determine Tescos loyalty programmes
value are (1) cash value (how much the reward represents as a
proportion of spend); (2) choice of redemption options (the range of
-
7/30/2019 Dissertation on (Customer Loyalty)
47/157
Page 47 of 157
rewards offered); (3) the aspiration value of the rewards (how much
the customer wants the rewards); (4) the perceived likelihood of
receiving the rewards; and (5) the schemes ease of use .In addition to
the elements are the psychological benefits of belonging to the
programme and accumulating points.
In order to be able to deliver a unique value proposition (that is still in
line with an organisations overall strategy), CLP -managers have to
select an appropriate CLP-format which can be further categorized
into behaviour-based models, attitude-based models, hybrid models
and relationship-based models (Morgan et al.,2000).In practice, most
CLPs follow the behaviour-based model, focusing on behavioural
outcomes such as repeated patronage and targeting immediate
benefits for the organisation by providing easily observable
typically economic benefits to cause the customer to purchase,
repurchase, or purchase more frequently the firms offering ( Figure
8).However, this stands in contrast with the long-term character of the
relationship-marketing concept and as a result of that, behaviour-
based customer-loyalty-programmes have been criticised as dressed-
up sales promotions that are highly questionable as relationship
building initiatives which fail to emphasise on emotional elements
and do not necessarily lead to greater marketing efficiency andeffectiveness (Tynan,2000).According to Dowling and Uncles (1997),
behavioural based models might well stimulate sales for the duration
of the promotion but do not have any long-term behavioural after-
effects.
-
7/30/2019 Dissertation on (Customer Loyalty)
48/157
Page 48 of 157
Adapted from: Morgan et al., 2000, p 73
Behaviour-based CLP
Programme tactics Programme outcomes
An alternative approach followed by Tesco and proposed by Morgan
et al. (2000) is known as the relationship-based model, which is based
on relationship marketing theory, consumer behaviour theory and
strategic marketing theory (Figure 9)
It has been suggested that in any marketing relationships, all partners
engage to some extent in economic, resource and social exchanges
and therefore these three areas of relationship content build the
starting point for the relationship-based CLP:
Fi ure 8
Price advantage
Persuasive
communication
Economic
benefit
Habitual buying
Switching costs
Repeat
patronage
Promotional
expenses
-
7/30/2019 Dissertation on (Customer Loyalty)
49/157
Page 49 of 157
Economic Content. The economic content of relationships deals
with the economic benefits and costs of participating in the
relationship and it has been suggested that customers are only
willing to participate actively in a CLP, if their individual cost-
benefit calculation leads to a positive result, which then
provides the partners with an incentive to explore the
relationship further, cooperation may become more attractive as
enhanced economic returns will be expected thus, a strong
economic relationship content can contribute to the growth of
loyalty (Stauss et al.,2001).Loyalty marketing is, essentially, all
about economic differentiation. Its about deciding how to
optimize long-term yield from the limited resources we have.
Understanding our customers behaviour and economics
(derived from loyalty program) allows to do just that. (
Woolf,2003 )
Resource Content. It has been suggested that parties engage inrelationships to secure valuable resources that they would not
be able to acquire more efficiently elsewhere, which, in a
business/consumer exchange means that the business requires
the purchasing power and effort of the consumer, while the
consumer wants reliability, status, safety, and other facets of
reputation and tangible value in the products and services theypurchase and according to Morgan et al.(2000), the resource
content of relationships can contribute to commitment among
exchange partners through dependence, strategic interest,
reciprocity and equity.
Social content. The relationship-based model suggests that
although economics and resources may indicate a prosperous
-
7/30/2019 Dissertation on (Customer Loyalty)
50/157
Page 50 of 157
relationship, no relationship can be successful in the long-term
without a social environment that nurtures communication,
honesty, fair play and an awareness of mutual interests and
therefore a CLP should accommodate opportunities for
interactions so that friendships may be developed.
Customer loyalty and customer trust are the key variables of Tescos
relationship-based model which it considers to be the crucial in
building the intermediate goals of the model and providing
competitive advantage, as they lead directly to a successful outcome.
Fi ure 9 Adapted from: Morgan et al., 2000, p 79
-
7/30/2019 Dissertation on (Customer Loyalty)
51/157
Page 51 of 157
Relationship-based CLP
Relationship content Key variables
Outcomes
2.2.2 Tescos CLP-Mix
Tescos CLP falls into the category of so-called integrative
instruments (Stauss et al.2001) due to its capability to combine
various elements from existing tools as it relies on a differentiated set
of product, price, communication and distribution issues to organize
the customer benefits (although it has been claimed that relationship
marketing offers an alternative to the traditional 4P classification,
Economic
content
Resource
content
Social
content
Share of
customer
Customer
referral
Co-operation
Promotional
expenses
Customer
Loyalty
Customer
trust
Product
development
ex enses
Customer
retention
-
7/30/2019 Dissertation on (Customer Loyalty)
52/157
Page 52 of 157
most scholars do still use the classic paradigmatic framework when
identifying adequate tactical marketing tools for building and
maintaining relationships with customers (Hansen,2000).
The product-mix consists of goods and services of the specific CLP-
operating company (Tesco) or its coalition partners (partners under
Tesco Freetime). The price-mix, contains member discounts,
favourable conditions of payment as well as financial advantages via
bonus programmes. Communication issue is of great importance for
the interaction with CLP-members and with Tesco, communication
with members is exclusive, meaning that it is only accessible to
members, integrated in the sense of everything Tesco does (and
sometimes does not do) sends a message that can strengthen or
weaken relationships, as well as interactive in that Tesco not only
talks to their CLP-members but also listen to what they have to say
(Hansen, 2000). For this purpose Tesco has exclusive CLP-magazines
(Clubcard Magazine), regular newsletters or mailings, or CLPmeetings and events for members (Butsher, 2001).
2.3 Loyalty as strategy
In order to realize the purpose of the research, its important to as sess
loyalty schemes as a part of a strategy rather than a stand-alone entity.It must be considered that CLPs do not exist in a vacuum, but should be a
coherent element of a companys overall strategy and capabilities
(OMalley , 2000).Given the potential benefits of customer-loyalty-
programmes, firms like Tesco have adopted them as a core business
strategy (Morgan et al,2000). Tescos design of a loyalty program takes
into account the nature of the business, its market position and strategicgoals, and the competitive landscape. (Fournier et al, 2001). It is
-
7/30/2019 Dissertation on (Customer Loyalty)
53/157
Page 53 of 157
essentially a long term CRM strategy that not only evaluates the current
performance of Tescos relationship with its customers, but also drives its
strategic direction (Roberts, 2004). The success strategy is always to
closely align an organization with its customers but bringing this vision to
reality is far from easy ( Sawhney, 2001).
Tescos concept of Relationship Management begins and ends with the
customer.
Strategists have put in place a framework for understanding and meeting
the needs of the customer or which (Fournier et al, 2003) calls as The
Ideal Customer Experience.
A framework for the Ideal Customer Experience is designed by (Fournier
et al.,2003)to deliver a Customer Experience that meets the needs of the
individual customer. The strategy behind this (and behind Tescos
strategy) is that a customer whose needs are understood and met will
continue to purchase from the company with increased frequency and
value. The result is win-win between the company and the customer.
Adapted from Fournier et al, ,2003 pg 133-151Fi ure 10
-
7/30/2019 Dissertation on (Customer Loyalty)
54/157
Page 54 of 157
Customer Loyalty Measures
Customer Loyalty measures are designed for the people within a
company who dictate the strategic direction of the company. These
measures evaluate the performance of a companys current customer base
and drive the future direction of a companys overall customer strategy.
Tescos loyalty measures are comprised of:
Average Profit per Customer by Tenure
Size of Customer Base by Tenure
Lifetime Value of Customer Base by Tenure
Potential Value of Customer Base by Tenure
Although Loyalty measures are discussed in brief, the study doesnt deal
in depth with the econometrics of the Clubcard.
-
7/30/2019 Dissertation on (Customer Loyalty)
55/157
Page 55 of 157
Rank the Customer Base by Value
One of the key outputs of determining the Customer Loyalty Measures is
to rank the customer base by value. This is very crucial as it should drive
decisions on where a company should allocate resources. Initially,
Tescos loyalty scheme was one size fit allin this case but later on it
realized the importance of doing something extra for its more profitable
Premium Loyal customers. Now Tesco understands the pivotal concept
in determining a customers value, that some customers are much more
important than others.
Customer Strategies
Tesco establishes customer strategies to retain High Value customers,
grow High Growth customers, acquire either High Value or High Grow
customers, and determine if negative value customers can be turned into
profitable customers. Each individual Customer Strategy outlines the
steps that need to be put in place to retain, grow, acquire or terminate
specific customers. These strategies are executed via the Customer
Experience. The strategies designed are created with the primary
objective of meeting the needs of the customer, and its success is
dependent on whether the needs of the customers have been met.
Customer Strategy Measures
Customer Strategy measures attempt to answer the following questions:
1. Which customers should a company retain/grow/acquire/terminate?
-
7/30/2019 Dissertation on (Customer Loyalty)
56/157
Page 56 of 157
2. How did the company perform in
retaining/growing/acquiring/terminating the appropriate customers?
However, Tescos Customer Strategy measures delve into deeper detail
by breaking down the measures by each customer segment, which breaks
it down by Value and Customer Characteristics/Preferences. Also, each
customer strategy contains tailored Customer Strategy measures, such as
Wallet Share for growth strategies, and Retention rate for retention
strategies. The results of these measures enable Tesco to allocate specific
resources to target a specific customer segment. The resources that work
within a targeted customer segment shapes the customer experience for
the individual customers within that segment.
The Customer Experience is comprised of the following components:
1. Populating the Customer Profile To create the Ideal Customer
Experience, Tesco populates the Customer Profile with the relevant
information to properly understand and meet the customers needs.
The Customer Profile will continue to be enriched as the relationship
between the company and customer grows deeper
2. Delivering and Receiving Value at Each Customer Interaction
Tesco views each interaction as a golden opportunity to deliver value
through its products, services, and processes, as well as to receive
valuable information from the customer in the form of feedback
3. Customizing the Customer Experience By understanding an
individuals needs, it creates the Ideal Customer Experience by
-
7/30/2019 Dissertation on (Customer Loyalty)
57/157
Page 57 of 157
customizing the products, services, and processes to meet the needs of
the individual customer
The Customer Experience bit is where Tesco hugely outflanks itscompetitors. Detailed examination of all the factors will be done which
will make the author reach closer to Objective 4.
Tactical Measures
Tactical Measures are all measures that evaluate the performance of the
Customer Experience, Customer Ownership, and Technology. These
measures are critical to detecting the success or failure of any component
within the Customer Experience..
Depending on the models (shown in Figure1) one adopts, the strategy
adopted can be significantly different. For example, advocates of the
attitude approach (Model 1) ( more or less adopted by Tesco) aim to
increase sales by enhancing beliefs about the brand and strengthening the
emotional commitment of customers to their brand. Moving customers up
a loyalty ladder through image-based or persuasive advertising and
personal service (recovery) programs are frequently used tactics (Brown
2000; White and Schneider 1998).
Managers who adopt (Figure 2 Model 2) approach try to maintain their
share of category sales by matching competitor initiatives and avoiding
supply shortages, and achieve growth via increased market penetration.
Under these circumstances, a loyalty program might be launched for
mainly defensive purposes, in a bid to match competitors with no
expectation of dramatic changes in customer attitudes and behaviour.
-
7/30/2019 Dissertation on (Customer Loyalty)
58/157
Page 58 of 157
Advocates of the contingency approach (Figure 3 Model 3) emphasize
what might seem to be prosaic factors such as avoiding stock-outs,
extending opening hours, offering the appropriate assortment mix. They
also often use price promotions, deals and special offers to attract the
customers of competitor brands. Here the potential for loyalty programs
to impact demand is very limited.
2.4 Rhetoric vs. Reality
There is confusion regarding the nature, scope, role and influence of
customer relationship marketing. From a functional perspective, many
marketers believe that the route to customer loyalty is through the
operation of a number of mechanistic, tactical initiatives such as loyalty
cards, points schemes, events and promotions. It is hoped that customer
incentives and rewards are a sufficient basis to build loyalty, generate
knowledge and change customer behaviour. On the other hand, an
organizational perspective views relationship marketing as a total firm
customer orientation one that seeks to integrate and align multiple
sources, processes and activities for creating superior customer value on a
consistent basis. Although the applied marketing literature suggests
that there are very high expectations for CLPs, in reality they are
surprisingly ineffective and it has been suggested that almost 50% of
them miss their business objectives partly or completely (Reinartz,
2002). One reason therefore can be found in the fact that many CLPs
have been launched as competitive-moves in order to combat a
competing programme, with quality often being sacrificed for speed
in many cases (Butsher, 2001). Too often, loyalty programs appear to
lack clear goals or are not tied to overall business strategy which is
-
7/30/2019 Dissertation on (Customer Loyalty)
59/157
Page 59 of 157
what makes ineffectual and ineffective. As markets mature, there is
increasing saturation and cannibalization of loyalty effects, making it
difficult for smaller programs to compete effectively .Another reason,
according to Cigliano et al.(2000), is that many organisations
underestimate the full cost of setting up and sustaining CLPs, arguing
that even those that increase sales might actually be still draining
money which could have a variety of reasons apart from
underestimating CLP-set-up and maintenance costs, such as getting
caught up in price wars with competitors due to heavy financial
incentives, or investing in the wrong customers (in some cases, the
demand of certain customers is so small, even after a lifetime, that the
cost and effort of turning them into loyal customers are out of
proportion to the revenue they could generate (Butsher,2001)).It has
also been suggested that far too many customer-loyalty-programmes
have overemphasized on information gathering rather than
relationship building and have thereby ignored the need forcustomers voluntary participation in the programme
(Tynan,2000).One reason therefore might be found in the false
assumption by many marketers that every customer is keen to develop
an intense and devoted relationship with them, while in fact it has
been suggested that they are more likely to view companies as
enemies, not allies(Fournier et al,1998) .Furthermore, it has beenargued by Fournier et al.(1998) that the very things that marketers
are doing to build relationships with customers are often the things
that are destroying those relationships since what is called
intimacy by marketers is often viewed as intrusive by the
customer in a world where customers want, and will increasingly
demand control over their own data (Tynan,2000). Also, there is a
clear limit to the number of such schemes the customer will take the
-
7/30/2019 Dissertation on (Customer Loyalty)
60/157
Page 60 of 157
trouble to join. The greater the proliferation of loyalty schemes, the
less they act like loyalty schemes, appealing more to the minority of
customers who are especially susceptible to promotions. One must
question whether the proliferation of loyalty programs represents real
value creation or is simply a case of keeping up with the
neighbours. (Kadar & Kotanko, 2004).
Summary
This chapter dealt with the relevant theories and concepts that pertain to
the concept of loyalty in general and illustrated the brand of loyalty which
is relevant to Tesco. It gave us the outline of the form and structure of
Tescos Clubcard and how its embedded within the organization. The
study now moves ahead into adoption of appropriate methodologies to
figure out what loyalty approach Tesco adopts, how its strategy aligns
with the loyalty model and overall business objectives, if loyalty forms
the core of its business strategy and how much does it contribute to
enhancing customer experience and achieving business objectives.
Through appropriate methods in place, it also seeks to evaluate the
loyalty concept and its effectiveness in future.
The aim of the next chapter is to achieve the research objective by
applying the appropriate research approach, strategy and
methodology. The chapter also seeks to ensure that the data collected
is valid and reliable, is not contaminated and bias is reduced to a
minimum. For this purpose the tried and tested Satmetrix Loyalty
index is applied to measure Customer Loyalty Index to find out the
-
7/30/2019 Dissertation on (Customer Loyalty)
61/157
Page 61 of 157
effect of the Clubcard. Focus groups, Telephonic and face to face
interviews are also conducted as a part of primary data collection,
which help to triangulate findings.
-
7/30/2019 Dissertation on (Customer Loyalty)
62/157
Page 62 of 157
-
7/30/2019 Dissertation on (Customer Loyalty)
63/157
Page 63 of 157
In order to approach the research objectives, this longitudinal exploratory
study is taking into account both qualitative and quantitative research
strategies, which is often referred to as triangulation meaning getting
a fix from two or more places(Green et al,2002).
The triangulation approach strives to capture a more complete, holistic,
and contextual portrayal of the phenomena under study, and is intended to
neutralize bias in any one approach applied (Green et al., 2002).
According to Bonoma (cited in Lewin & Johnston, 2002), researchers can
pursue high levels of data validity and generalizability by adopting
triangulation strategies which provide replication and/or corroboration of
findings across methods (i.e. experiments, surveys, case studies). It has
further been suggested that the integration of both research strategies
within a single project opens up enormous opportunities for mutual
advantage, since inherent weaknesses of one approach can be overcome
only by using other methods (Simon & Vosseberg , 2001).
The Research Approach is a combination of deductive and inductive
approach. Deductive, because the existing concept of loyalty and its
impact on business decisions and strategy is first tested using data and
inductive because the data collected is analyzed to give new dimensions
to the loyalty concept and its strategic effect on business decisions.
Both Quantitative and qualitative methods of data collection technique
is applied, although the major part of the research relies upon qualitative
data and its analysis. Qualitative secondary information from a variety of
sources are gathered like Tesco Case Studies, Tesco Brochures, Tesco
Web page , Reference books , Journals , Online journals, Newspaper and
Magazine (The Grocer) Articles , Taped interviews , Business news
channel views , Research Agency (e.g Mintel) databases . Quantitative
-
7/30/2019 Dissertation on (Customer Loyalty)
64/157
Page 64 of 157
data from Tesco Company Reports and other supermarkets are collected
and analyzed to compare and contrast the effect of loyalty.
Before embarking on a definitive research methodology (Philosophy,
Strategy and Approach) each research objective was taken into
consideration separately and a SWOT analysis was done for each data
collection approach against each objective. A rationale was established
behind each research method before going ahead. It was ensured that the
data collection methods were more or less interdependent so that each
method filled the hole or covered the areas which could not be covered by
the other.(e.g Focus groups helped in redesigning and reframing some of
the questions in the questionnaire, telephonic interviews and Face to Face
interviews were only conducted after the secondary data was collected
and analyzed to properly design questions in order to keep the interview
short , exact and effective)
Initial secondary data collection method included reading through the
relevant material in Books , Journals , Online Web pages, White papers,
Seminar papers, Company Reports, Tesco website, Tesco cases studies,
Research databases (Mintel) etc. Keywords were then generated to refine
the search.
Keywords generated: - Customer Relation Management, Loyalty
Marketing , Direct Marketing , One-to-one Marketing , Database
Marketing , Relationship Marketing , Customer Loyalty, Retail Strategy,
Co-creation, Integrated marketing communications, Affinity programs ,
Buyer behaviour.
-
7/30/2019 Dissertation on (Customer Loyalty)
65/157
Page 65 of 157
Generation of keywords made the secondary data collection a lot easier as
it gave a specific direction to data collection , more relevant material
were available in less time.
Primary data collection methods were embarked on only after sufficient
insight had been gained from secondary data and most of the secondary
data was collected and analysed and the loyalty concepts fully
understood.
For the fulfilment ofObjective 1, Objective 2 and Objective 3, Focus
groups have been conducted to reveal both behavioural and attitudinal
aspects of loyalty and to decipher if loyalty schemes encourage loyalty or
is it just another marketing tool. Focus groups are a cognitive form of
qualitative research. There is less structure to the group, with group
members being encouraged to take their own paths of discussion, make
their own connections and for the whole process to evolve. It seeks toencapsulate the experiences and feelings of respondents in their own
terms. The purpose of the project is disclosed to the respondents or is
otherwise obvious to them from the questions asked. Focus group is a
tool borrowed from psychotherapy where it has long been realised that
people can be encouraged to open up if they are asked to share their
views as part of a small group.(Edmunds,1999). It has a brainstormingeffect so that a comment from one person sparks ideas from another and
groups can yield more ideas than one to one interviews. The group may
gel and a bonding between members acts as further encouragement to
disclosure.
Focus groups reveal customers viewpoint and perception and looks at
loyalty programs through customers eyes. By historical evidence it is
-
7/30/2019 Dissertation on (Customer Loyalty)
66/157
Page 66 of 157
found that women and old people were more loyal in their shopping
habits while men and students are the most promiscuous and fickle. The
variables taken into consideration in the formation of focus groups were
Age, Gender, Income, Religion (in some cases), closeness to the
supermarket, weekly shoppers and weekend shoppers. The details of the
participants were tried to be matched against the profile of the customers,
to ensure that the conclusions drawn were statistically significant. Focus
groups gave customer viewpoint on loyalty, satisfaction, loyalty schemes
and what kind of loyalty programs they preferred and wh