Customer Loyalty and Relationship Marketing - Case Study Example

Customer Loyalty and Relationship Marketing at 7-Eleven Stores Pty Chao Xue Student No.:s0225582 Instructor: Institution Department Date Table of Contents Introduction ………………………………………………………………………………………3 Executive Summary ………………………………………………………………………………3 1.0 Background……………………………………………………………………………3 1.1 Scope and Aims ………………………………………………………………………4 1.2 Theoretical and Conceptual Framework ……………………………………………..4 2.0 Literature Based Evidence..…………………………………………………………………..6 2.1 Managing Value through Loyalty Based Programs ……………………………….. 6 2.2 Customer Benefits and Sacrifices in the value based equilibrium………………….. 7 2.3 Benefits of Retaining Customers…………………………………………………… 8 3.0 Survey findings: Existing customer loyalty relationship marketing strategies at 7-Eleven... 10 4.0 Conclusion……………….………………………………………………………………... 12 5.0 Recommendations…………….…………………………………………………………… 13 Bibliography…………………………………………………………………………………… 14 Executive Summary This paper explores customer loyalty and relationship marketing the 7-Eleven Stores Pty. The paper first defines customer loyalty and relationship marketing within the context of marketing theory as a shift in marketing organization’s emphasis from product and process to building relationships with immediate customers for competitive advantage. The paper also reviews evidence from literature on the effectiveness of CLRM strategies. The paper then examines some of the customer loyalty programs and relationship marketing strategies implemented by 7-Eleven. These include 7-Eleven fuel cards and various product offers to repeat customers on products from 7-Eleven proprietary brands such as Slurpee. These CLRM strategies have propelled 7-Eleven’s success as one of the world’s foremost convenience store franchises. The paper recommends that 7-Eleven should streamline its data collection on loyal customers and enhance sharing between franchises to enable customers enjoy uniform benefits from as many franchises as possible. Introduction 1.0 Background 7-Eleven is an international chain of convenience stores, operating under Seven-Eleven Japan Co. Ltd, that is owned by Seven & I Holdings Co. of Japan. This franchise is the world's largest operator, franchisor and licensor of convenience stores operating more than 39,000 outlets. It began when an employee of Southland Ice Company, Joe C. Thompson, started selling milk, eggs and bread from an ice house in the US later on growing into a fully fledged corporation that mainly sold groceries due to the discovery of ice as a suitable preservative. The name 7-Eleven originated from the fact that the firm operated from seven in the morning to 11:00 pm which was an unprecedented venture at the time. Most stores would close early and would not operate over the weekend leaving customers with the challenge of travelling longer distances in search of commodities. 7-Eleven stores sell gift cards including prepaid VISA cards, it also sells daily newspapers, drinks, confectionery, and snacks; pre-prepared food such as sandwiches, wraps, pies, sausage rolls under the brand 'munch' which are sold while still fresh. 7-Eleven stores have also partnered with BankWest and have BankWest ATMs in all of their stores. Every year, on 7th November; one small cup of free Slurpee is given to each customer in honor to Seven Eleven Day. (November is the 11th month which makes it 7/11 1.1. Scope and Aims In view of these, how does the company run its CLRM? What means can be employed in order to enhance its CLRM? Our main objectives will be to explore 7-11 Stores Pty limited’s strategy for CLRM and finding out the alternative avenues for enhancing its CLRM with a view to coming up with recommendations. The first 7-Eleven in Australia opened on August 24, 1977 in the Melbourne suburb of Oakleigh. It currently runs 565 stores in the Victoria, New South Wales and Queensland mainly located in the metropolitan areas, particularly in CBD. This study will thus focus on the Australian subsidiary of the firm. In this paper, sources of data will be secondary sources i.e. books, journal publications, and online sources. CLRM is a strategy that has been used by 7-11 Stores Pty limited for a long time. This has seen the company expand its market presence through and through. However it is important to explore the strategy employed by the company in order to understand the successes, loopholes and other options unexplored which could be useful in the future. 1.2 Theoretical and Conceptual Framework Relationship marketing can be conceptualized as all marketing activities directed towards building, keeping, and winning customers through provision of value to all the parties involved in the relational exchange (Peng and Wang, 2006). Customer loyalty is defined as a deeply held commitment to re buy or re patronize a preferred product or service in the future despite there being situational influence and marketing efforts with the potential to switch behavior (Yim et al.,2008). A loyal customer has tolerance to approve for a while also inconvenient situation, for example bad price-quality relations (Alrubaiee and Al-Nazer, 2010). Loyalty can also be the function of satisfaction, switching barriers and voice (Fornell, 1992). Loyal customers may not always be satisfied, but satisfied customers are apt to be loyal (Fornell, 1992). Satisfaction has effects to perceived quality, which could cause loyalty and intention to certain behavior (Alrubaiee and Al-Nazer, 2010). Marketing theory is undergoing a paradigm shift from transaction-based marketing; focusing on oppressive and offensive associations and relationship between the customer and product, few exchanges and power-based notions to customer loyalty relationship marketing, that is reformative, forward-oriented and is hinged on long-term relationships, associations, and harmonic connections (De Madariaga and Valor, 2007). CRM transcends market-based relationship marketing (buyer-seller dyad) to network-based relationship theories enabling communication, collaboration and co-operation amongst online communities (Cook, Mason et al. 2008 as quoted in Awa et al. 2011). Technological advancement has facilitated enhanced inter-firm alignments and relationships to assure outstanding performance. Rapid advances in information technology have relentlessly restructured, re-engineered processes, integrated resources, and automated transactions across traditional boundaries in essence improving network relationships and knowledge sharing, which has cut costs, improved operational efficiencies, transparency and value-added information, and created exceptional but difficult to copy customer values (Awa et al. 2011). The integrative character of CRM denotes a cross-function shaped by re-engineering. Unlike traditional marketing where works follow silo approach, from one functional department to another; cross-functional and re-engineering theorists believe in integrative and pervasive structuring of organizations to reflect complete tasks and processes (Awa et al. 2011). They emphasize company-wide training and retraining of staff on relationship marketing. The banking industry is in the fore-front of seeing long-term relationship as worthwhile perhaps because they are service-oriented; competitive; and customer decisions carry high perceived risks (Awa et al. 2011). Their efforts having been geared towards the induction of feelings and emotions through respects, courtesy, warmth, empathy and assistance (Al-alak, 2006; Al-alak and Alnawas, 2010 as quoted in Awa et al. 2011) may be signs of shifts from marketing mix frameworks to building relationships with immediate customers in order to push them upward in the hierarchy of the customer loyalty ladder (Awa et al. 2011). 2.0 Literature Based Evidence 2.1 Managing Value through Loyalty based Programs A CRM business process involves processing of customer knowledge to pursue the goals of CRM. It also involves the direct customer contact and the exchange of information and services between the enterprise and a customer. This is triggered by the firm with a view to deliver information and services to the customer. This process entails campaign management, lead management, offer management, contract management, complaint management and service management (Gebert et al. 2003). This ensures the implementation of the key ideas of relationship management. Many studies have proved that customer retention increases profitability. First, the cost curve of the relationship is only high at the acquisition time and falls as the relationship becomes stronger and more enduring. So, accounts maintenance costs decline as percentage of revenue increases per account. Second, stable or improved sales volume/sales amount may be stimulated by building switching barriers and less price sensitivity as well as creating avenues through which satisfied customers initiate free-cost viral promotions and referrals (Awa et al. 2011). The longer a relationship lasts the more profitable it turns and so, the core of CRM is to win and keep customers by creating relational value chain (Peng and Wang, 2006) in a manner that culminates more points of contacts and deeper accords, frequency marketing and efficient operations, cannibalization, making disruptive behavior costly, and detailed probing into customer complaints and competitive benchmarking to make informed corrective decisions to keep all relationships improving (Awa et al. 2011). The development of supply chain management informed by the advent of globalization highlighted the strategic importance of logistics and the pivotal role of information technology. 2.2. Customer benefits and sacrifices in the value equilibrium Value creation can be viewed as one of five key cross-functional processes that together constitute the Strategic Framework Customer Relationship Management (CRM). The value creation process is a critical component of CRM as it translates business and customer strategic into specific statements of what value is to be delivered to customers and, consequent what value is to be delivered to the supplier organization (Payne, 2001). This entails the planning, realization and control of marketing activities aimed at known recipients who are either existent or known customers. Marketing campaigns are individualized (one-to-one marketing) or segment-specific, usually use different communication channels, and offer at least one communication channel to the customer for feedback to allow interaction (Gebert et al. 2003). Amidst stiff competition, companies distinguish their operations to reflect quality customer service, innovation and customer responsiveness in an attempt to build customer satisfaction and their concomitant ideals of profitability (resulting from premium price), loyalty and dominant share. Customer satisfaction is viewed as a complex relational and economic activity involving inputs from vendors and other independent firms and continues even by the manner the dealers handle and explain customers’ complaints and doubts (Awa et al. 2011). The web plays an important role in product research for many multi-channel shoppers who buy in stores. Today people use the web as their primary source for product research, compared to those who consider the store as their primary research channel—almost a dead heat. The web is favored as a research tool for specific product categories (Freed, 2005). Competition exists not between what companies produce in their factories but between "what they add to their factory output in the form of packaging, services, advertising, customer advice, financing, delivery arrangements, warehousing, and other things that people value". The value the customer attributes to these benefits is in proportion to the perceived ability of the offer to solve whatever customer problem prompted the purchase (Payne, 2001). Understanding and undertaking the value creation process is crucial in transforming the outputs of the strategy development process in CRM into programmes that both extract and deliver value. An insufficient focus on the value provided to key customers, as opposed to the income derived from them, can seriously diminish the impact of the offer in terms of its perceived value (Payne, 2001). The implication is that customer satisfaction is a value-chain and systems activity based on value chain trust, mutuality, promise, shared values, and commitment. Each subsystem interacts with others to maintain the whole; when one is weak the entire whole fails. This belief guides value chain decisions. If done online, such relationships allow for overtime creativity, communications, secured information sharing in real time, and collaboration between members of on-line communities. Networking information for value chain access, including the customers, provides strong basis for building sustainable competitive advantage (Awa et al. 2011). 2.3 Benefits of retaining customers Relationship marketing represents a strategic response by firms to gain competitive advantage over their counterparts. This response appreciates the interdependence of market players, and the mutual effort based on trust and commitment. Companies cannot maintain attitudes characterized by attracting customers or expanding in new markets without an aggressive and robust strategy. To survive in mature markets a company has to sustain long-term relationships with stakeholders (De Madariaga and Valor, 2007). Relationship marketing has been found to be a tool for building trust and commitment with external stakeholders to create those loyal customer relationships. Trust exists when one party has confidence in an exchange partner’s reliability and integrity. It is a central component in all relational exchanges. It provides the basis for future collaborations. Once trust is established, firms learn that coordinated, joint efforts will lead to outcomes that exceed what the firm would achieve if it acted unilaterally in its own best interests. Trust is also defined as one party’s belief that its needs will be fulfilled in the future by actions undertaken by the other party. This has been an integral part of CRLM since it creates a cohesive relationship and linkage between the customer and the firm providing certain commodities consumed by the customer. In marketing-practice and research it is agreed that mutual commitment among partners in business relationships produces significant benefits for companies (Farrelly & Quester, 2003). Commitment serves as the dependent variable in relationship marketing models including buyer-seller relationships and channel behavior. Commitment is an indicator of long-term relationships and is represents the peak in relational bonding. Commitment is important to the study of Customer Loyalty relationships because it not only signals enduring stability at the conceptual level, but also serves as a reliable surrogate measure of long-term relationships at the operational and empirical level ( Farrelly & Quester , 2003). Committed customers ensure the survival of the firm in turbulent times while on the flip side the firm ensures efficient and effective delivery of the much sought goods and services required by the consumer. In this case the sustenance of the firm and that of the consumer are co-determinative in nature. It ensures quality in goods and services. Communication is an indispensable attribute in successful alliances and has thus been viewed as a core competence in alliance building. Hutt et al. (2000) noted that communication among boundary-spanning personnel produces a shared interpretation of expectations and goals, and a common understanding of the processes and responsibilities necessary to achieve those goals. Communication comprises a combination of relationship building communication attributes. These include communication frequency, bi-directionality, formality, and influence activities. By highlighting shared interests and common goals, collaborative communication can generate volitional compliance between partners and thus bolster relationship performance (Farrelly & Quester, 2003).Firms and customers communicate through channels of reactions on the quality of goods and services. Consumers can send a message by buying commodities in low quantities due to quality reasons while the firm will respond by improving the quality of the products next time. CLRM is meant to enhance communication between the consumer and the firm which later produces a response in patterns of buying. Bonding is defined as the dimension of business relationship that results in two parties (buyer and seller) acting in a unified manner toward a desired goal. Bonding in relationship marketing consists of developing and enhancing customer loyalty, which results directly in feelings of affection, a sense of belonging to the relationship, and indirectly in a sense of belonging to the organization (Sin et al., 2002). Stronger personal bonds among buyers and sellers lead to a greater commitment to maintain the relationship (Yim et al., 2008). This would see buyers determining their preferences due to their connection with a certain firm that is seen as ideal in place of a number of competitors. 3.0 Survey findings: Existing customer loyalty relationship marketing strategies at 7-Eleven 7-eleven is one of the few companies that have initiated programs aimed at customer retention. This is done through provision of fuel cards where every 7-Eleven Fuel Card customer receives a discount on their fuel purchase every time they use the card. 7-eleven customers can apply for this card online and can use it at almost 400 locations countrywide. The company also runs promotions aimed at rewarding its loyal customer with gifts and presents. The franchise makes the most of the additional customer traffic the brands drive, by always ensuring they are well presented and in stock, to maximize the extensive marketing support that these brands receive. To maximize sales and profit, the 7-Eleven teams of Category Managers negotiates prices with suppliers; provide recommended product range and layouts tailored to the customers and specific store. 7-Eleven proprietary brands, Slurpee and munch, are exclusive to 7-Eleven stores, giving customers even more reasons to return. Its mission is to support causes that are aligned with community and guest interests and enhance the overall quality of life in neighborhoods where the guests, franchisees and employees live, work and play. 7-Eleven set the standard for responsible retailing in the convenience industry by being the first retailer to develop and implement a comprehensive training program for the safe and legal sale of age-restricted products. 7-Eleven considers it a privilege to sell age-restricted products, such as alcohol and tobacco, and we want to ensure that they are sold in a legal and responsible manner. The payment system for the customers is convenient and relatively fast. 7-Eleven ensures that its customers get the best, can transact easily by use of pre-paid systems such as visa cards, credit cards as well as cash payments. These transactions are run online with a tracking system that ensures that all matters arising are dealt with effectively and efficiently. Customers can log onto the company website and make their transactions including shopping, making payments, looking for information on new commodities and making pre-orders. The company also  uses  responsiveness as a  strategic differentiator and has built its  supply  chains  to  react  on  market  changes  through  more  localized  supply  networks. It has partnered with various companies to ensure constant supply of its commodities whenever, wherever i.e. the partner coral. 7-Eleven purchases a wide variety of goods and services on the local, regional and national level. Every item the company sells in its stores and all goods and services it uses in day-to-day business operations must be supplied by vendors. It has a commitment to working with vendors that sharpen 7-Eleven's competitive edge by helping it better meet our customers' expectations. In addition, the company seeks a vendor base that reflects the ethnic and gender diversity of the communities in which it operates. The firm has developed a strong structure of logistical management that is run at the headquarters and at the various stores around the country and regions which manages transactions for effective service delivery to the customers. Customers can simply log in and begin their requests and transactions with ease and are responded to by the 7-Eleven staff on swift and convenient basis. It also ensures its supply and management is run effectively through various teams specializing in real estate developers, brokers, surveyors and companies; professional services including accounting, legal, personnel recruitment; merchandising of perishable foods, non-food foods and processed foods; environmental experts such as solid waste management; development such as construction, maintenance and repairs and store equipment; corporate supply such as food service, office supplies, and containers. 7-Eleven customers have been enabled 24 hour access to the company through online mechanisms where they are allowed to sign up and open an account through which they communicate with the company via email. This also allows the company to send them information on promotions and competitions that are ongoing where customers can participate. Customers are also allowed to contribute to the development of products by sending their opinions, thoughts while also getting free samples and prizes. In other cases, it also runs television adverts for the same products. This is further enhanced by the attempt to offer customers an opportunity to own a 7-Eleven franchise where they undergo training on how to operate and manage a store. This training is both in classroom and in the stores where the franchisee is licensed to operate the store according to the rules set out in the 7-Eleven store agreement.  As a franchisee, one is responsible for keeping the store equipment spotlessly clean and performing some very basic maintenance. One learns about the importance of delivering excellent customer service along with the systems and processes you must follow to run a 7-Eleven store. The cost of this training is included in the initial 7-Eleven franchise application fee. 7-Eleven has gone a mile further and ensured that all its advertisements, promotions and commodities are accessible online just by the click of the mouse. Customers can browse the variety of commodities they want and chose from a variety of products and go further to buy them. This has ensured a long connection between the customers and the company for a long time. In addition to brand image and the store channel, convenience is another high priority item, offering retailers the best opportunity for improving customer satisfaction and influencing future purchase behavior. Within these high priority elements the ease of returning products, the helpfulness of store employees, and the usefulness of product information in the store are three key areas 7-Eleven employees are well trained in. in some cases, a District Manager who has expertise in 7-Eleven retailing visit the retailers twice a month to share information, monitor performance and work with them to help run the business. In addition, the 7-Eleven 24/7 Support Centre provides telephone assistance 24 hours a day, should employees have an issue they need help with. This ensures that 7-Eleven employees are up-to-date with the customer needs and problems in order to serve and deliver high quality services. Every product is packaged as a brand which ensures maximization of quality, variety and customer satisfaction. This gives the customer the opportunity to lodge complains directly to the 7-Eleven team whenever they need any matter to be handled regarding their commodities. As a convenience store, it ensures that stores are located close to customers with a well trained team to serve them. The marketing plan includes regular advertising and in store promotions, as well as supply of all in store promotional material. 4.0 Conclusion 7-eleven has developed a magnificent CLRM strategy in place for its customer base. This has seen it provide high quality goods and services to both locals and guests in the locations of its convenience stores. The company has won accolades for its remarkable success in the convenience business sector globally making it one of the world’s best Franchisors. Having created an elaborate customer relationship, the company should into acquiring more clientele than just retaining old ones as new changes and developments come with new clientele. Increase in the quantity of commodities would as well go hand in hand with creating new relationships. 5.0 Recommendations As part of the recommendations, 7-Eleven stores should further develop and enhance its customer engagement management in order to gather more information and improve its data. This will go a long way in developing a value hierarchy, core products, enabling products and augmented products. Even more audacious would be investment in the manufacturing of goods which would ensure maximum returns and avoid losses through leakages. 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