Of all the strategies being used in marketing, the development of customer loyalty by giving them with unique benefits is one of the most popular.. However, this is still not enough. Customer satisfaction may not be able to ensure a certain company, or a certain hotel for this matter that customers will return to purchase or stay. The trend then now is not just to ensure the satisfaction of their customers but to also make sure that their customers would return for future business transactions (Kandampully and Suhartanto, 2000).
Because of this, it has been said that relying on customer loyalty is more effective than actually having to rely on pricing strategies to keep businesses alive. According to the different studies made in relation to the said topic, a 5 percent increase in customer loyalty that is often related with customer satisfaction produces a profit increase which range from about 25 to 85 percent. Hence, managers should ensure that their services fully satisfy their customers as this is the only way that could increase their profits.
In the same manner, as mentioned in one of the previous paragraphs, businesses should also see to it that the satisfaction their customers receive on their first transaction with their businesses should in return, ensure them of the customers’ loyalty, existing or prospective (Kandampully and Suhartanto, 2000). Retailing defined by Varley and Rafq (2004) as “an activity of selling goods and services to final consumers for their own personal use and concerned with getting goods in their finished state into the hands of customer who are prepared to pay for the pleasure of eating, wearing or experiencing particular product items”.
On the other hand, Baker (1998) defined retailers as “any establishment engaged in selling merchandise for personal or household consumption and rendering services incidental to the sale of such good”. Businesses in the retail industry often struggle in making profits due to the competitive nature of their market. The presence of so many competitors in the retailing industry has been caused by different factors such as low barriers to entry. At the same time, competition is also affected by the lack of product differentiation. Traditionally, retailers knew all their customers personally.
They know what their preferences are and more often than not, are aware of what was happening in their lives, Because of the existence of this kind of relationship, the retailers could react quickly and formulate marketing strategies based on the needs of individual customers. In the same manner, they were also able to develop good relationships with their customers through the establishment of friendships and interactions. As a result, the retail industry revolves around the customer more than any other industry. Due to this, it is not enough to simply interact with the customers.
Rather, they are expected to know them better These all changed, however with the growing chains and building malls and the continuous promotion of self-service. With these changes, more and more retailers have lost their contact with their customers. As a result, they are also simply losing the loyalty that the customers once entrusted upon them. Hence, more and more retailers are now trying to regain the loyalty they lost as they begin to value of their customers through programs incorporated within the idea of customer relationship management.
According to Varley and Rafq (2004) interactions between retailers and customers generates vast amount of information and with the help of recent technological developments retailers started to use this information in identifying the changes happen in consumers’ behaviour. In fact, this gave opportunity for the retailers in retaining their customers as well as increasing their loyalty (Dowling and Uncles, 1997). By stating recent technological developments Varley and Rafq (2004) referred EPOS (electronic-point-of-sale) systems.
In these systems retailers are able to collect wide variety of data regarding to popularity of their offerings, sales, stocks etc. Recognising the importance of EPOS system in collection of the data, retailers are started to introduce EPOS based loyalty schemes in which the retailers were able to collect the data about customers’ personal and demographic information as well as their product choices. In doing this, according to Varley and Rafq (2004), magnetic cards, which can be read electronically, are given to the customers and asked them to use those cards when they made a purchase each and every time.
Customers are encouraged to scan their cards in each visit to store by offering them a point along with their amount of purchase. By doing so retailers became able to understand the shopping habits of their customers as well as meet with the specific needs and changing needs and wants of the customers. In fact customer cards enable retailers to convert raw data into learned consumer behaviour (Pine et al. , 1995) and thereby as the need of the consumers have met; it increases the loyalty among the customers towards that particular retailer (Dowling and Uncles, 1997).
However, the ultimate objective of issuing these cards and introduction of loyalty programs is to increase the frequency of visiting stores, customer satisfaction (Worthington, 2000) and thereby to create customer loyalty (Kivetz and Simonson, 2002). According to Roehm et al. (2002) from the early 1990s retailers are trying to use these programs and nowadays investing heavily on these programs. In fact spending on the loyalty cards among the top European retailers is more than $1 billion a year (Strategic Direction, 2005).
However, according to Strategic Direction (2005) even though retailers invest huge amount of money on the loyalty cards only a little evidence exists about whether this strategy creates loyalty among the customers. As a result it can be said that conducting a research that identifies the effectiveness of customer cards in creating loyalty would be beneficial for the companies in measuring the efficiency of their marketing instrument. Purpose of the Study Loyalty cards have become an increasingly sophisticated marketing strategy in recent years.
Particularly retailers believe that loyalty cards are an effective marketing strategy. In recent years the top sixteen European retailers have spent over $1 billion annually on loyalty cards and similar initiatives. The reason for choosing Customer Relationship Management from the customer perspective as the research topic is because; CRM is seen as a powerful tool in recent years. Organisations particularly retailers are looking for different approaches on the way to customer and loyalty. This is because of these businesses’ aims to improve their ability to compete with other organizations belonging to the retail industry.
Two problems that haunt the businesses in the retail industry are the following: (1) products are easy to copy (2) services are harder to provide. Because of these, it is very hard to retain their customers who are in pursuit of products that are relatively cheaper than its competitors. As a result, the industry has been centred on prices and their products rather than their customers. It is also because of the aforementioned problems that the retail industry should focus more on their customers rather than the products.
As a result, different researches emphasize the importance of customer relationship management to ensure the success of the businesses in the retail industry. At the same time, programs and/or strategies related with CRM could be useful in ensuring the businesses of a fair competition in the market. However, it has been argued that cost of running these programs are really high and there is only little evidence exists in terms of their effectiveness in increasing the customer loyalty as most of the customers hold more than one card in their wallets (Strategic Direction, 2005).
Therefore it will be beneficial conducting a research to understand how customers perceive loyalty schemes in UK and how their buying behaviour influenced with loyalty cards offered by supermarkets. Research Aims and Objectives The aim of this research is to explore how supermarket loyalty cards effect UK consumers’ buying behaviour. To achieve this aim, this research will focus on the following research objectives: • Critically review and evaluate the literature concerning relationship marketing, loyalty schemes and customer buying behaviour
• Identify the role of loyalty schemes in creating customer loyalty • Investigate the attitudes of UK consumers’ towards supermarket loyalty cards • Examine whether their buying behaviour is effected by loyalty cards Research Questions In the light of these objectives, this study aims to examine the following questions: • How the usages of loyalty schemes affect the UK retail industry? • How customers perceive loyalty schemes? • What are the attitudes of customers towards loyalty schemes? • In what ways loyalty schemes influence customers buying decisions? Organization of the Study
In order to present an effective discussion of the topic at hand, the study has been organized in this particular manner: Chapter one, as clearly seen was devoted to the introduction of the study wherein the following the rationale for choosing the topic, the purpose of the study, the objectives of the study and the research questions were discussed extensively. Also, a brief information about the UK retail industry, major players of the UK retail industry and existing loyalty schemes particularly loyalty cards was given in order to form a research background.
Chapter two was devoted to the methodology part of the study which consisted of brief discussion of main philosophies of research, research design, sampling methods, data collection methods and data analysis. Next, the third chapter presented the review of the literature on the subject wherein the following are included: (1) a definition of Customer Relationship Management, (2) Customer Loyalty, (3) Loyalty Schemes and (4) the revision of empirical schemes on loyalty schemes to provide the contextual framework for the research.
Chapter four consisted of the detailed explanation of the statistical analysis and the actual findings of the research. Chapter five presented discussion and evaluation of the results in the light of theories and other empirical researches. Finally, chapter six was devoted to the conclusion part which included the summary of the findings and direction for future researches. Chapter Two: Methodology This research made use of different methodologies to accomplish its main objective: to explore how supermarket loyalty cards effect UK consumers’ buying behaviour.
More specifically, it would focus on the following: (1) to critically review and evaluate the literature concerning relationship marketing, loyalty schemes and customer buying behaviour; (2) to identify the role of loyalty schemes in creating customer loyalty; (3) to investigate the attitudes of UK consumers’ towards supermarket loyalty cards and; (4) to examine whether their buying behaviour is affected by these loyalty cards.
This research is exploratory in nature. Therefore, both the quantitative and qualitative researches were performed in order to achieve the objectives of this particular research. Quantitative research focused on obtaining the descriptive data of the participants. On the other hand, qualitative research focused on discovering the attitudes of customers towards loyalty schemes and to understand whether these schemes influence their buying decisions.