impact of loyalty on consumer buying behaviour
DESCRIPTION
Technology has increasingly helped businesses to keep track of their customers. Loyalty schemes are one such tool to maintain strong relationship with the customers. Loyalty schemes are the marketing tool of the company which analyse the consumer behaviour with the help of computer database. Key information obtained by the system is helpful for the management to make future decisions. There are benefits for the consumers as well. Customers those who buy regularly are often treated with points and special offers. Electronic cards are given to the consumers to collect the points and to spend them. This assignments further analyse the mutual relationship among the customers,business and relationship among them.TRANSCRIPT
Effectiveness of Loyalty Schemes on the Customers’ Buying Behaviour
Submitted by: Ganesh Adhikari
ABE membership number: W07304
28 May 2013
Contents
1. INTRODUCTION, BACKGROUND AND RATIONALE...........................................4
2. THE RESEARCH QUESTION................................................................................5
3. THE LITERATURE REVIEW...................................................................................6
3.1MEASURING LOYALTY...............................................................................7
3.2HOW DOES A LOYALTY CARD WORK?....................................................7
3.3CRITICISM....................................................................................................8
4. THE RESEARCH METHODOLOGY.......................................................................9
5. ANALYSIS AND THE FINDING............................................................................11
6. CONCLUSIONS, RECOMMENDATIONS AND LIMITATIONS.............................15
6.1RECOMMENDATIONS..............................................................................15
6.2 LIMITATIONS…………………………………………………………………..15
7. REFERENCES......................................................................................................17
8. APPENDICES
2
Declaration
I declare that this assignment is my own work and I have appropriately
acknowledged the work of others. This assignment is produced in accordance with
the ABE regulations and guidelines.
……………………………......
28 May 2013
3
Total word count: 3585
1. Introduction, Background and Rationale
Boots is the leading pharmacy-led health and beauty retailer with more than 3300
stores across the world. Boots has its roots in the mid-19th century when John Boot,
an agricultural worker, opened a small herbalist store on Goose Gate in 1849, since
then the company grew significantly and now is part of Alliance Boots, an
international health and beauty group.
To achieve the target of being world's leading health and beauty group Boots is
committed to providing excellent customer and patient care; to being the first choice
for pharmacy and healthcare and to offering innovative ‘only at Boots’ products, with
great value. They aim to provide customers with excellent value through executing
strong promotional offers and rewarding customer loyalty with Boots Advantage Card
points.
Boots constantly seek sustainable ways to improve their relation with the customer to
gain competitive advantage in the current competitive business environment. In the
consumer centric UK retail market it is often necessary for the firm like Boots to
measure, manage and track their customers. So it is a major priority for a Boots to
have an Advantage card which facilitates the tracking and communication with
potential customers.
Boots realised that there was a need for them to have electronic cards through which
they can reward and give benefits to their loyal customers. Boots launch the
Advantage card scheme in 1997 which currently has 17.8 million active cardholders.
According to Boots website the current scheme gives four points for every pound
spent by customers in store or online.
The intent of this assignment is to explore how important the Boots Advantage card
is for the company to maximise sales and profit. It is widely believed that if used
effectively loyalty schemes help companies to improve their relationships with
customers. These relationships in many cases are maintained by different rewards
and benefits for the customers as well as promotional offers. Why are loyalty
schemes in existence in large quantities? And the most interesting question is does
this scheme really gives value to customers or is it just a way of making profit? There
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are varying thoughts among scholars about the way these loyalty schemes are
implemented in market. Therefore to find out to what extent these various loyalty
cards are effective in attracting customers and retaining them more research is
required. By using Boots Plc as the case company, this research is intended to
analyse the impact of loyalty cards on consumer buying behaviour.
2. The Research Question
What is the impact of Boots Advantage card on its customers?
The Objective of this assignment is to critically analyse the effectiveness of
loyalty schemes on the customer’s buying behaviour and their perception
about the company.
Loyalty is a powerful tool to strengthen the relationship with customers and by
improving relationship with customers companies gain competitive Advantage and
financial growth. There has been plenty written about loyalty in the past with some
believing it is for the benefit of customer while others argue it’s just another tool of
marketing. There is no universal tool to measure the impact of loyalty into customers.
This research aims to evaluate the impact of loyalty by executing a survey and
reviewing the existing literature.
Loyalty is very important aspect of modern business policy. As Peter Drucker (1993)
said the main purpose of the business is to attract and maintain customers and it is
widely believed that retaining existing customers is often cheaper than attracting new
ones. A loyalty scheme is one such tool which has been used extensively by many
forms in recent years to gather personalised data about customers to enhance the
relationship with them.
Boots Plc started its loyalty card in 1997 and it is regarded as one of the most
successful schemes for customer retention. Since then it has played a significant
role in increasing customer satisfaction and is regarded as one of the most
successful schemes in the British retail market according to its website. Through its
Advantage card, Boots has been able to gather valuable data on individual spending
which helps management to make decisions, help maximise profits and strengthen
5
its relationship with the customer. This research therefore aims to understand the
customers’ perception of the loyalty card. Furthermore, the question intends to
examine how Boots Advantage card affects the buying behaviour of the customer
and what role it plays in shaping their attitudes.
3. The Literature Review
Customer loyalty is seen to be a prime business objective. In an increasingly
competitive global market, organisations are constantly seeking innovative ways to
create and maintain customer loyalty. One such tool is the Loyalty card. According to
the Oxford Dictionary (2013), “a loyalty card is an identity card issued by a retailer to
its customers as part of a consumer incentive scheme, whereby credits are
accumulated for future discounts every time a transaction is recorded.” Loyalty
programs are formal relationship marketing strategies designed to reward the
customer based on the amount and frequency of their purchases (Sharp and Sharp,
1997). Dick and Basu (1994) defined Customer loyalty as the strength of the
relationship between an individual’s relative attitudes and repeat patronage.
Therefore, the loyal customer is one who not only advocates a particular brand but
also repeatedly buys it. According to the Customer Loyalty Research Centre (2001),
“Loyalty is a market segmentation based on the strength of the customer
relationship.”
A loyalty program is the tool used by a company to reward the customer on their
revisit. The development of database technology helps companies to identify their
loyal customers and implement their business strategy of rewarding the right
customers. Bolton et al. (2000) suggested one benefit of the loyalty program by
showing that “members in the loyalty program tend to overlook or discount a
negative evaluation of the company vis-à-vis the competition.” To be successful, a
loyalty program must target a valuable customer segment and attract them with
variety of rewards and benefits. Dick and Basu (1994) suggest that loyalty favours
positive recommendations and greater influence among loyal customers. Of course,
such findings encourage companies to build and maintain loyalty among customers.
6
Measuring loyalty
It is widely agreed that the companies with higher customer loyalty usually
experience faster business growth than companies with lower customer loyalty
(Hayes, 2011). However, there has been always debate among academics about
how loyalties can be measured. Dick and Basu (1994) proposed a two-dimensional
conceptualization of loyalty by adding an attitudinal dimension to the behavioural
dimension. Their idea was that the quantity and measurement are equally important
as advocacy and favourable related attributes to measure loyalty. Additionally,
Dowling and Uncles (1997) believes that only a small numbers of customers are
100% loyal to any one brand. Many customers are believed to keep changing their
buying behaviour which could be affected by promotion, sales or discounts.
According to Oliver (1999) loyalty can be measured through shopping frequency,
price sensitivity, customer retention and the spending pattern of the customer over a
period of time. Companies must have an effective way to measure loyalty in this
dynamic business environment according to the changing environment. Customers
who rated a company highly on the “likely” scale purchased more products and
services are more likely to recommend the company (Quindlen, 2013). However, it is
not clear in which case customers are going to rate highly. Hayes (2013) in his article
believes that retention, advocacy and purchase are the general components of
customer loyalty which he believes can lead to a financial growth of the company.
These three factors provide a factual confirmation about how well the company is
doing against its competitors. The modern electronic card is used as a critical tool
which gives the real evidence of where and how many customers are spending.
How does a loyalty card work?
Loyalty and reward programmes are launched using plastic cards with an electronic
chip on the back. These cards are given to the customer to use and when they buy
from the store they are rewarded with some points. However spending of those
points is different from company to company depending upon the nature, type of
7
business and competition in the market. These cards are electronically tracked so
the company can find out what types of product the customer purchased and the
frequency of the visit. The majority of the cards available in the market are electronic
and technically advanced so customers just need to swipe or touch to get rewarded
or to spend points. One of the most important advantages for the business is that it
captures all the required demographic information about the customer on the
application form which helps them to make decisions for the future. In most cases
companies send vouchers, catalogue and information to particular customer related
to their needs and wants determined earlier through the computer database which
help the business to create a personalised service.
Criticism
There appear to be varying opinions over whether loyalty schemes and card do
actually work in favour of the retailer or whether the advantage lies instead in the
hands of the customer, or indeed is there a mutually beneficial relationship present.
According to O’Malley (1998) “Loyalty programmes are developed for a variety of
reasons including to reward loyal customers, to generate information, to manipulate
consumer behaviour, and as a defensive measure to combat a competing scheme.”
According to Shabi (2003) at least 85 per cent of UK households have at least one
loyalty card. However it is unclear to whom customers are loyal with as most of them
have cards of various retailers. Furthermore another question often raised is about
loyalty schemes is that these activities cost a huge amount of money which could be
viewed as just another version of promotion. Dowling and Uncles (1997) claimed that
a loyalty program itself does not play any role in changing the customer’s perception.
However, it plays a role in understanding the needs and wants of potential
customers and is also an effective tool of communication.
The loyalty card should work as a bridge of trust and mutual respect between
business and customer. By maintaining this relationship the company will not only
influence the customer to buy more but also attract others through the advocacy of
existing customers (Reichheld, cited in ABE manual book 2011). On the other hand
Customer will experience benefit through consistent points, discounts, offers and
personalised touch from the company. Business should utilise the card in very
8
constructive way to bring consistent benefit for the company as well as the
customers through effective and cautious use of data and information.
4. The Research Methodology
In order to analyse the impact of loyalty schemes on customers, both primary and
secondary data were employed. Primary data was gathered through a structured
questionnaire and an interview with the Assistant manager of the Boots store. The
secondary data was gathered from various Books, Journals and reliable websites.
The methodology employed focuses on the effectiveness of the Boots Advantage
card on the loyalty of its customers towards the company. Therefore the research
requires the development of a way to gather data: in this case a structured
questionnaire as well as interview with a Boots store assistant manager was
conducted with questions mainly focused on the factors that influence a customer to
be loyal. To determine how these loyalty schemes play role in encouraging
customers to revisit the store, it was important to find qualitative information too.
Therefore this research with the involvement of both open and closed ended
questions facilitates the mixed research method. According to Creswell (2009),
“mixed methods research is an approach to inquiry that combines or associates both
qualitative and quantitative forms.” The purpose of mixed research methods was to
critically analyse the factors influencing consumers’ behaviour. It will also ensure the
validity, relevance and validity of the data collected. Often limited information is
found through quantitative research therefore to determine emotion, feeling, insights
and motives Qualitative questions were also included in the questionnaire.
The primary data was gathered through the survey with the help of structured
questionnaires in a busy Boots store in west London. It is a very busy shopping mall
therefore the questionnaire was short with the purpose of maximising the number of
respondents. The nature of the survey was an interview which took approximately 2
minutes and there were 11 questions mainly focused on Boots Advantage card and
loyalty. On 23rd of March 2013 from 1pm to 5pm was the scheduled time for the
questionnaire. As the researcher has previously worked in the store as a part time
customer assistant, it was easier to gain permission in advance through a telephone
9
call with the manager of store. The researcher carried questions with him and asked
them to various group i.e. teenager, adult and elderly. However 12 people did write
their answers themselves with pen and hard cover made available.
Furthermore an in-depth interview with the Assistant Manager of the same Boots
store was carried to find out more qualitative information. The interview was
scheduled after the survey in the same day after she finishes her shift at 5: 30 pm.
The weekly report given by her consists of the data from Sunday 10 th to Saturday
16th March 2013 was helpful in analysing further. The weekly sales and the effect of
Advantage card in it were clearly showed in the numbers. No pre-determined
questions had been set for this interview as the aim of the researcher was to allow
the interviewee lead an unstructured discussion and enable author to gain a deeper
understanding about the research topic. During the interview some new quantitative
information was revealed which was again useful to differentiate the sales figures
with and without the card. Similarly this statistical data gathered from her was used
to compare and correlate with the findings from survey. Additionally, the qualitative
data was useful in analysing the Advantage card and its effectiveness.
Whilst the interview and questionnaire results were the major primary forms of data
for this research, other secondary data sources have been reviewed and analysed.
This has included the report from the Boots store, boots websites and various other
journals and Books. The purpose of using different source of data was to establish
validity and reliability of the research. Therefore the triangulation approach was
applied to understand the research objective from different perspective. According to
Patton (2002) triangulation involves using data from different sources and analysis of
the similarities and difference in the findings.
(Note: the Limitations to this Methodology is included in Section 6. Please see
page 15 and 16)
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5. Analysis and the Findings
The research shows that the majority of Boots customers actively use their Boots
Advantage card. The numbers of customers interviewed were 40 and surprisingly
only 4 among them did not have a Boots Advantage card. Interestingly the frequent
buyers are using card less compared with the occasional buyer. This might have
happened because the frequent buyers made smaller purchases which they think is
not worth using the card. In fact the occasional buyer purchase more and like to gain
more points therefore are keen on using the card every time they shop. While
spending the card points, the majority of Boots Advantage card holders spend their
points more often however a small number of respondents like to spend the points
on special occasions. Frequent spending of the points suggests that the consumers
are well informed about the function of card. However on the other hand, recurrent
use of the card might have made them more aware about their spending of points.
Using the card Buying boots products
spending card points
05
10152025303540
Customer spending
NeverOccasionalyFrequently
Num
ber o
f cus
tom
ers
The overwhelming majority of card holders believe that the Boots Advantage card
gives them value for money. It therefore appears from the survey that the Boots card
has achieved a high level of penetration of the target market and the card is popular
amongst customers. Additionally it is found that the more than half of the
respondents have other members within the family with a Boots Advantage card.
11
However, the number of customers using the card for online purchase is relatively
low. More than half of the Boots Advantage card holders prefer not to shop online.
However the high participation of the elderly people in the survey could be the
reason behind the reluctance in shopping online.
83%
6% 11%
Value for money Yes No Maybe/Not sure
The research suggests that the Boots Advantage card has a great influence on the
repeat purchase behaviour of its customers. The major motivation for customers to
come back is the value it gives for money and the flexibility in using the card.
However according to the Assistant manager the coupon and vouchers that boots
send to the customers are also the key factors influencing them to visit the store.
She further added that if the card is used in conjunction with the vouchers and
coupons, customer can save extra points.
These benefits and rewards have created a sense of satisfaction among customers.
The evident of this is the satisfaction about the current scheme among the
overwhelming majority of Boots card holders compared with other similar cards in
the market. Nevertheless most of the customers like to see some changes in current
scheme to make it more competitive.
12
17%
69%
14%
Customers ViewFlexible Value for money Other
There were ranges of response to the question about changes to the current Boots
Advantage card scheme. Most of the respondents want the current scheme to
change. They want the following changes:
Mix and match payment with cash
Part payment i.e. some with cash remaining with money
Should be able to exchange it for money
Increase the points
Should give more vouchers
Influence for repeat purchase
Family Usage Online Usage 05
101520253035
Influence and usage the card
YesNo
Num
ber o
f cua
tom
ers
More than half of the respondents write their feedback on the possible changes that
need to be made to the current scheme. Nearly 95% of them would like to
recommend the Advantage card to their family and friends. This shows the card has
13
significant impact on the loyalty of consumers and how the positive word of mouth
can help maximise growth.
Yes No0
5
10
15
20
25
30
35
Customers perception
RecommendationSatisfaction
Num
ber o
f cus
tom
ers
The weekly report obtained from the Assistant Manager of Boots store is further
confirmation of the fact that the Advantage card plays a significant role in maximising
the sales. Weekly report from the week Sunday 17th to Saturday 23rd March 2013
shows that 55.1% of total sales were made using the Advantage card and £8791.56
worth of points were issued to those cards in that week. The amount of money
issued from the single store in a week is the indication of the level of reward given to
customers. The pattern observed from the data is that the customers will come back
to spend the awarded money at anytime in future. Similarly it is found that the
average value of transactions with the Advantage card was £18.86 compared with
£11.78 for those without card. The report clearly shows that people with the card
tend to buy more than those who do not have card.
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6. Conclusion, Recommendations and Limitations
Research has clearly shown the Boots Advantage card has a significant impact on
its customer. Customers with the card are buying more than the customers who do
not have card. The points offered by Boots has significantly influence its customer to
come back to the store. The value given by the card and flexibility in using it has
made the Advantage card popular among customers.
It is found through the research that the Boots Advantage card is an effective tool to
improve relationships with customers. The second major finding of this assignment is
that through the influence of loyalty cards customers recommend and advocate the
Boots brand which helps the company to grow with no extra cost. Furthermore Boots
has successfully used its card as an effective tool to gather information and
communicate with potential target customers.
6.1 Recommendations
The results from this study suggest that the Boots Advantage card should increase
the circulation of supportive coupons and vouchers. It should also seek possible
ways to implement the process where customer can pay with points as well as
money in same transactions. Additionally Boots should make it easier for people to
buy online. Furthermore if the company can combine Boots Advantage card points
with money that could bring lasting impact in the business. This research has
created more opportunity to investigate further into Boots Advantage card and
customer perception about the card. This research shows that if used effectively this
loyalty scheme brings huge benefit to the company.
6.2 Limitations
Firstly, only a limited time was allowed to carry out the survey within the store.
However, more time was needed to improve the validity by involving more people.
Secondly, if the questionnaire were more segmented according to different
demographic segments it would have given clearer picture of customers’ thoughts on
Advantage card. Considering the difference in the needs and wants of different age
groups might reveal differences in their perception. Additionally, the research was
15
only carried out in one store therefore the findings might not represent the impact of
the card on different group of customers.
Furthermore, According to its website Boots has 17.8 million active cardholders
however in this research the number of people interviewed was only 40. Therefore
the gap between the actual customer-based population and the sample of this
research might have impacted the reliability of the findings. However, the size of 30
is seen as a reasonable sample size (Saunders, Lewis and Thornhill, 2003).
Furthermore, the author has worked for Boots in the past which may have caused
the bias towards the company. This might have also affected the design of the
questionnaire as well as the interpretation of the findings.
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7. References
JOURNALS
Bennett, R. and Bove, L., 2002. Identifying the key issues for measuring loyalty.
Australasian Journal of Market Research, 9(2). pp. 27-44.
Dick, A. and Basu, K., 1994. Customer loyalty: towards an integrated framework.
Journal of the Academy of Marketing Science 22 pp. 99-113
Dowling, G.R. and M. Uncles, 1997. Do Customer Loyalty Programs Really Work?
Sloan Management Review 38. Pp.71-82
Oliver, R.L., 2001. “Whence Consumer Loyalty.” Journal of Marketing, Vol. 63,
special issue pp.33-44,
Reichheld, as cited in ABE Customer relationship management manual book,
(2011),Managing the Customer Relationship, ABE study manual. London UK.
Ruth N., Kannan P.K, Bramlett Matthew D, 2000, Implications of Loyalty Program
Membership and Service Experiences for Customer Retention and Value. Journal of
the Academy of Marketing Science, vol. 28.page 104.
Books
Creswell, J. W., 2009. Research design, Qualitative, Quantitative and mixed method
approaches 3rd edition. London: thousand oaks CA: sage
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Potter. S., 2006. Doing post graduate research. 2nd edition. Milton Keynes. Open
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Saunders. M, Lewis. P and Thornhill. A., 2003. Research methods for Business
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Smith. M.E, Thorpe. R and Jackson. P.R., 2008. Management Research. 3rd edition.
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Patton, M.Q., (2002). Qualitative Research and Evaluation Methods. London.
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http://www.bootsuk.com/About_Boots/Boots_Heritage/Boots_History.aspx
[Accessed 10 March 2013]
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[Accessed 10 March 2013]
Alliance Boots, 2013. The weekly Loyalty report. Sales report for week ending 16th
March 2013. London Boots.
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Dowling, G. 2002. Customer Relationship Management: in b2c markets, often less is
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f[Accessed 20 March 2013]
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[Accessed 15 March 2013]
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Hayes. B. 2013. What is Customer Loyalty? Part 2: A Customer Loyalty
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http://businessoverbroadway.com/customer-loyalty-measurement-frame work
[Accessed 13 March 2013]
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Behaviour and Loyalty. [Online]. Available at:
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[Accessed 21 March 2013]
O’Malley, L. 1998. “Can Loyalty Schemes Really Build Loyalty?” Marketing
Intelligence and Planning. [Online] MCB university press. Available at:
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http://oxforddictionaries.com/definition/english/loyalty%2Bcard [Accessed at 12
March 2013]
Quindlen T., 2013. Effectively Measuring and Leveraging Customer Loyalty. [Online]
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[Accessed 13 March 2013]
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Appendices
A. Sample Customer Loyalty Questionnaire
Good afternoon Sir/Madam,
My name is Ganesh Adhikari. I am studying for the ABE post graduate diploma
and as part of my assignment I am trying to find out what customers think
about the Boots Advantage card.
Please answer the following questions:
1. How often do you shop at Boots?
Frequently Occasionally Never
2. Do you have Boots Advantage card? (If No, thank you very much)
Yes No
3. How often you use the Boots Advantage card?
Frequently Occasionally Never
4. How often do you use your points?
Frequently Occasionally Never
5. Are you satisfied with the current Advantage card scheme?
Yes No
6. Does any other member of your family use the Boots Advantage card?
Yes No
7. Do you use Advantage card for online purchases?
Yes No
8. Do you think it gives the value for money?
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Yes No Maybe/Not sure
9. What is best about this card compared with similar other scheme?
Flexible Value for money Other
…………………………………………………………………………………………………..
10. Does it influence to come back again?
Yes No
11. Would you recommend the card to your family members and friends?
Yes No
Comments:
1…………………………………………………………………………………………………
2…………………………………………………………………………………………………
3…………………………………………………………………………………………………
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C. Tables of findings
Total number of customers’ participated in the survey was: 40
Number of respondents with Advantage card was: 36
1. Data related to the uses of the card among customers.
Frequently Occasionally Never
Buying Boots
products
15 25 o
Usage of the card 24 10 2
23
Source: Weekly sales report, Boots White City store. Westfield London
B. Loyalty report
Spending of the
points
28 6 2
2. Value for money
Yes 30
No 2
Maybe/Not sure 4
3. Customers’ view
Flexible 6
Value for money 25
Other 5
3. Customers response on Impact and popularity of the card
Yes No
Influence 32 4
24