Loyalty card and customer loyalty: case study of Tesco in UK (Aldershot location) - Essay Example

A loyalty card is a plastic card, usually looking like a credit card, that en s the holders to discounts on making purchases from a retailer or asupermarket chain. Loyalty cards are meant to increase the loyalty of the customers towards the issuing retailer or supermarket chain ( Stieb, James A,2006).Oliver (1997) defines loyalty in a customer as, “A deeply held commitment to re-buy or re-patronize a preferred product or service in the future despite situational influences and marketing efforts having the potential to cause switching behavior.

” Buyers can be divided into four groups according to their brand loyalty status (Kotler, 2000):i) Hard-core loyals (consumers who buy one brand all the time).ii) Split loyals (consumers who are loyal to more than one brands).iii) Shifting loyals (consumers who shift from one brand to another).iv) Switchers (consumers who show no brand loyalty to any brand). Now the aim of loyalty cards is to pull the customers up the loyalty ladder from switchers to the higher most hierarchy of hard-core loyals (Buchanan, R.

and Gilles, C. 1990). So do loyalty programs like loyalty cards actually succeed in enhancing customer loyalty?A study of Tesco store in Aldershot, Hampshire shows that loyalty cards are quite successful in increasing the customer loyalty. The Tesco store in Aldershot is surrounded by its competitors like Asda, Sainsbury’s etc. A number of stores of the major supermarket chains in UK are located in Aldershot or the nearby Farnborough area.The Tesco store at Aldershot offers the loyalty card known as the Clubcard.

The holders of the Clubcard receive two points for every GBP 1 worth of purchase at the store. Once the customer has collected 150 points a voucher worth GBP 1.50 is issued to the customer. The customer can use these vouchers for further purchases and discounts at the store.Has the loyalty card program increased spending at the Tesco store?The loyalty card, after its introduction at Aldershot store, had the effect that the Clubcard holders were spending on average 25% more at Tesco and about 15% less at its competitors like Sainsbury’s and Asda located in the neighborhood.

Has the loyalty card program generated valuable information on customer buying behavior and buying patterns?The second benefit of the Clubcard loyalty card at Tesco store in Aldershot was that it gave valuable customer information to the store. The store was able to identify buying patterns of its most loyal customers. For instance, one buying pattern that was identified was that fathers of small children generally bought nappies more on Fridays (while returning home from work).Such knowledge on customer buying behavior and patterns was immediately reflected in the choice of merchandize and in-store display at the store.

For instance, based on the above buying pattern of fathers of small children on Fridays, merchandize like beer cans, that are usually popular among men, were placed on the adjacent shelves to the nappies. The immediate effect was that the sale of beer cans picked up at the Aldershot store of Tesco.Has the loyalty card made the customers really more loyal?The loyalty card had also the effect of increasing the frequency of the visits of the customers to the Tesco store. 80% of the profits of the store came from 20% of its customers.

The aim of the loyalty card was to increase the loyalty and spending and generate valuable information about these 20% high spending customers. The loyalty card scheme at Tesco store succeeded in achieving these objectives.Is it really cost-effective? And are these loyalty cards program really cost-effective? Well, going by the benefits accrued to the Tesco store under study and doing a cost-benefit analysis, the loyalty card program has actually proved to be a very cost-effective way of increasing loyalty among customers, increasing the spending of the customers and generating valuable information on the customer buying behavior.

The benefits of this information on customer buying behavior and buying patterns are not only immediate but also strategic and long-term (Sharp, Byron and Anne Sharp, 1997).Survey of a small sample of the customers of the Tesco store at Aldershot :A survey of about 50 regular customers of the Tesco store at Aldershot who were also members of the loyalty card scheme gave the following results:Q) Do you like the loyalty card schemes at the Tesco store?Q) Has the loyalty card affected your shopping behavior in any significant way?Q) Has the ownership of the loyalty cards made you more loyal to the Tesco store?

References:Richard L.Oliver, 1997, Satisfaction: A Behavioral perspective on the Consumer, McGraw-Hill.Phillip Kotler, 2000, Marketing Management, Pearson.Sharp, Byron and Anne Sharp, 1997, "Loyalty Programs and Their Impact on Repeat-Purchase Loyalty Patterns", International Journal of Research in Marketing, 14 (5), 473-86Buchanan, R. and Gilles, C. (1990) "Value managed relationship: The key to customer retention and profitability", European Management Journal, vol 8, no 4.Stieb, James A. ,2006, "Clearing Up the Egoist Difficulty with Loyalty", Journal of Business Ethics, vol 63, no 1.