The Loyalty Card as Promotion Tool - Literature review Example

Analysis the loyalty card as promotion tools can improve satisfaction and loyalty between the supermarkets and s such as Tesco plc case study6055BUSIS BMI Project BMI-Literature review Tutor Name- Fred Dissertation main aim Analysis of the loyalty card as promotion tool and how it improves satisfaction and loyalty between the supermarkets and customers such as in Tesco plc case study Objectives 1. Analyse and define the idea behind satisfaction and loyalty. 2. Identify the correlation between the Tesco club card and improved customer satisfaction and loyalty. 3. Examine and assess the role played by Tesco club card and loyalty programs towards promoting inside customers. 4. Analyse the circumstances under which customer loyalty improve Tesco profit. Introduction Loyalty program can be described as a scheme set with the aim of rewarding customers who frequently purchase from a particular store or supermarket. This is achieved through cards that are awarded to the customers where points accumulate with every purchase made by them from their stores. The accumulated points can thereafter being redeemed and in turn be used to buy goods from the same stores even without cash. In addition, customers with loyalty cards have the privilege of discounts on products so long as they have the card. The challenging and tough part of any business is convincing customers to buy one’s products. After achieving that, it even becomes more challenging to retain them through ensuring their satisfaction. The use of loyalty cards have proven viable when it comes to maintaining customers and maximizing on profits (Kimmel, Weygandt & Kieso 2007). Therefore, main aim of this Literature review is to have an in depth review and analysis of the impact of Tesco club card on customer satisfaction and loyalty behavior toward Tesco. Customer Loyalty In simple terms, loyalty is the act of being faithful. However, it is worth noting that in the recent past, the concept of customer loyalty in many scenarios is misunderstood. To cement on this, many authors have confused and even used it interchangeably with customer retention and customer’s repetitive behaviour of purchasing at a particular store. As for the repeated behaviour and customer loyalty, the difference is that in customer loyalty there is the intentional component; it occurs for a reason and not by chance thus contains more of habitual or behavioural and attitudinal aspects (Hansen, 2000). On the same breath, customer retention has the marketer is perceived to be the active party whereas loyalty is focused on customers’ intrapersonal habits. Loyalty is perceived as that which customers and consumers exhibits as relates to products, stores, brands and sales personnel. The degree of attachment existing between a product and a customer is because of loyalty. The other factor responsible for the varying levels of loyalty expressed by a customer is repeat patronage. Such attachments are dictated by two dimensions that are the extent of preference (the much conviction the customers has regarding the product or service) and the extent of perceived product differentiation (the ease with which the customer distinguishes the product or service from the others). Highest attachment is achieved when a buyer has that strong feeling of buying preference accompanied with a high level of perception regarding product differentiation (Griffin, 2005, cited in Web6). Source: http://www.maritzresearch.co.uk/multidimensionalLoyalty.html Customer Satisfaction Satisfaction can be described as the wholesome attitude towards a product or service provider or that emotional reaction directed to the difference existing between what is expected by consumers or customers and what they actually receive in return towards the fulfilment of their need. It can also be defined as ones feelings of delight, excitement or displeasure brought as a result of comparing the perceived and the actual performance a product. It is that contentment one gets after fulfilling their desires, needs or expectations. Customer satisfaction is of great importance since it can be used as a measure of how customers are excited about products and services being offered by a store. Ensuring that customers are always happy is of benefit to any company. Such customers are most likely to remain loyal, increase their purchasing capability and recommend others to the business (Pearson 1996). Measure of customer satisfaction can be through questions which are paused to the customers which might include but not limited to, considering your experience of company Y, how can you rate your level of satisfaction in the scale of satisfied to dissatisfied? Other question could be, to what degree did company Y fulfill your expectations? (Frey & Oishi 1995) Relationship between the customer loyalty and satisfaction In order for customers to be loyal, there has to be satisfaction realised from their side. A part from the business owners, customers also need to uphold the continuing relationship with the company and its products. This is reflected by a collection of attitudes such as the intention to buy on a continuous basis of the initial or additional products from the company, willingness to refer other people to the company and commitment to the company that is not being easily convinced to abandon the company for its competitors (Malley & Patterson 2004). Continuous production of high quality products and services with designs aimed at meeting the customer’s needs is essential in the creation and sustenance of satisfaction. Consequences of customer’s loyalty It has been noted that businesses with long-term loyal customers have the capability of reaching great financial heights in terms of profitability as compared to those lacking the same. Some of the reasons that enable them achieve such success (profitability) include but not restricted to regular and consistency in the placement of orders which in term translates to less cost when it comes to serving them. Long established customers also have the tendency of buying more products from the company. Customers who feel satisfied always have the will of paying premium prices. Competitors do find it difficult entering a market or increasing their shares in cases where there are loyal customers to a particular company (Mitchell & Coles, 2003). Cases of other customers referred to the company are common and this happens with no expected returns expected by the recommending loyal customers. Acquisition and servicing of new customers normally comes with a cost which for this case is minimal since there is less need for new customers and if need be, it becomes cheaper. This is advantageous since the cost of acquiring new customers is in the range of three to five times as compared to customer retention in terms of cost. In addition, loyal customers will be more than willing to give their feedback especially in the case of dissatisfaction which help in controlling quality of company’s products and services. Customer’s loyalty is perceived to be a secret weapon since it is not easy to tell a competitor’s retention rate (Brassington & Pettitt 2003). Reasons for the rapid increase in popularity of customer loyalty A critical evaluation Customer loyalty is perceived to be the best approach to enhance shareholder worth through the development of relevant relationships with important customers and customer segments. Proponents tend to base their arguments on the psychological engagement that originates from membership and the improved customer insights resulting from the analysis of program’s database thereby benefiting the customer and the firm respectively. On the contrary, critics base their arguments that loyalty (both attitudinal and behavioural) for a large number of customers is passive in nature and comes in the form of habit and not serious commitment (Griffin 1995). Customer loyalty has two outstanding aims. The first one being to oversee an improvement on revenues resulting from sales through increasing purchase/ utility levels, and/ or adding the range of products acquired from the supplier by buying. The second aim is considered to be more of defensive in nature since it geared towards building a closer link between a company’s brand and its current customers with the hope of retaining and maintaining current customers. Increased profitability is guaranteed once either of these aims is realised (Berman & Evans 2001). Going with the current economic situation, loyalty programs have become more useful since they help by providing a sense of personal service in the absence of actual people; this is clearly expressed in Tesco’s case. Loyalty schemes have in most incidences led to increased purchases, gave the ability to large scale customize marketing communication, limit waste and assisted in promoting trust. Loyalty programmes aims at identifying and talking to individual customers on a large scale; this accompanied by the flow of data helps in transforming business management style by retailers. Popularity of customer loyalty can be attributed to the fact that there is cognition of the fact that losing a single customer means much more than making a single sale. The argument behind this point is that the company would lose all the stream of purchases that would be made by such a customer in the future; thus loosing the customer’s lifetime value to the business (Litwin 1995). The other reason attached to the rapid rise in popularity of customer loyalty is linked to the evidence supporting loyalty; purporting that the net current worth rise in profit resulting from a 5% rise in customer retention lies in a range of 25 and 95% in more than 14 industries. Loyal customers are endowed with the task of making more purchases, paying high prices for products and increasing the customer base through referring other people using word of mouth. The argument that management of loyal customers is cheap has also worked positively towards popularising customer loyalty. Such customers are perceived to be well informed thus order and delivery processes considered a routine. According to other pro-loyalty arguments, loyal customers bring more certainty into the business; this could be in terms of improved customer protection from competitive offers, tolerating supplier’s mistakes and enhanced customer feedback (Bergeron 2002). However, such profitability arguments have received opposition from various quarters with their main point of reasoning being; profitability is pegged on business fundamentals such as products, services and procedures but not customer loyalty as put forward by loyalty proponents. Others also believe that success can be achieved through marketing strategies with stooge primary base on understanding customer economies and secondary to customer loyalty. It is worth noting that despite all the criticisms levelled against customer loyalty, critics still acknowledges that it is a valuable contributor to the shareholder worth of a company. Customer-Loyalty-Programmes The idea of customer loyalty programmes has been in existence as early as the mid 1800s thus not considered revolutionary. The difference is comes in its easy to use aspect for customers and the extent of technology employed. Despite such improvements, the guiding rationale­­­ (building long-term relationship with customers) behind CLPs still holds. It needs to be noted that the ultimate aim of every CLP is to increase the overall operational profitability through customer retention. However, profitability need be considered as a mid- or long-term goal after the realization of short term goals (Butscher & Butscher 2002). Modern CLPs are employing a kind of cards that indicate membership; produced at the point of sale with the sole aim of identifying the customer and recording the purchase details and/or worth of the earned reward. Some of the cards used by and on behalf of retailers include but not limited to, payment or store cards used by customers in paying retailer. Reward cards are used by retailers to reward customers for their continual purchases made. These are at times called bonus or club cards; this is what Tesco’s club card entails. Combined cards function both as payment and reward cards (Brown 2000). Conclusions Satisfaction and loyalty marketing project of Tesco has enabled it improve its business strategy by evolving in its strategic perception of thinking. Through this Tesco’s operations have changed from just being an outstanding food retailer to a business driven by information, continually searching for means to act as its customer’s value-adding agent. It uses customer information as an asset that enables it take strategic approaches for managing customers. This made it possible for Tesco to plan for events and challenges to come. References Bergeron, B. P. (2002). Essentials of CRM: a guide to customer relationship management. New York: Wiley. Berman, B., & Evans, J. R. (2001). Retail management: a strategic approach (8th ed.). Upper Saddle River, NJ: Prentice Hall. Brassington, F., & Pettitt, S. (2003). Principles of marketing (3rd ed.). Harlow, England: FT/Prentice Hall. Brown, S. A. 2000, Customer Relationship Management . New York: John Wiley& Sons. Butscher, S. A., & Butscher, S. A. (2002). Customer loyalty programmes and clubs (2nd ed.). Aldershot, England: Gower. Frey, J. H., & Oishi, S. (1995). How to conduct interviews by telephone and in person. Thousand Oaks: Sage. Griffin, J. (1995). Customer loyalty: how to earn it, how to keep it. New York: Lexington Books. Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2007). Financial accounting: tools for business decision making (4th ed.). Hoboken, NJ: John Wiley. Litwin, M. S. (1995). How to measure survey reliability and validity. Thousand Oaks: Sage. Malley, L., & Patterson, M. (2004). Exploring direct and customer relationship marketing (2nd ed.). London: Thomson Learning. Mitchell, D., & Coles, C. (2003). The ultimate competitive advantage: secrets of continually developing a more profitable business model. San Francisco: Berrett-Koehler. Pearson, S. (1996). Building brands directly: creating business value from customer relationships. Washington Square, New York: New York University Press. Website: Mintel Access on 28/10/2012 http://academic.mintel.com/sinatra/oxygen_academic/search_results/show&/display/id=12818 Read More