Creation of a Royalty Program for an Online Grocery Store - Research Paper Example

Creation of a Royalty program for an online grocery store Executive Summary The modern market has become very diverse with most businesses adapting to this by putting in place different marketing and promotional strategies. Those whose strategies are aimed at not only boosting sales, but also developing ties and a long-term relationship with the customer have an upper hand in the long-term benefit of the business in terms of sales and profitability. One way of achieving this is creating a customer loyalty programme which is an effective marketing tool. This is attributed to the win-win situation whereby the customers are rewarded for their loyalty as well as the business acquiring and maintaining their market share through repetitive buying hence boosting sales. This paper looks into the considerations that should be put in place when developing a loyalty program for an online grocery store. It expounds further on the benefits accrued on such a program to both the businessman and the customers. It also looks into the consumer perceptions on the rewards given by these programs and how it influences their purchase behaviour. It also analyses the Customer relationship Management (CRM) and key factors that affect the development of a customer oriented cultures. The paper concludes that for any business to maintain its competitive advantage, it needs to put in place a sound relationship with its customers. This as explained in the paper can be attained through various methods such as personalizing rewards so that they fit with the customer requirements and needs as well as putting into consideration the customer’s views and perceptions with regard to their requirements and what adds them value. Table of Contents Title Page………………………………………………………………………………………..1 Executive Summary…………………………………………………………………………….2 1.0 Introduction………………………………………………………………………………….4 2.0 Literature review…………………………………………………………………………………………….5 3.0 Benefits of a Customer Loyalty programme……………………………………………..7 4.0 Survey design……………………………………………………………………………….8 5.0 Discussion…………………………………………………………………………………...9 6.0 Customer relationship management (CRM)…........................................................10 7.0 Ethical Considerations in CRM…………………………………………………………..11 8.0 Differences between online and traditional stores…………………………………….12 9.0 Conclusion…………………………………………………………………………………12 10.0 Recommendations………………………………………………………………………13 References…………………………………………………………………………………….15 1.0 Introduction In the modern world, competition in the market place has continuously increased. This has led to most businesses being centered on fulfilling the customer requirements and needs. This can be achieved through alignment of the company’s mission and vision to the fulfillment of customer requirements. This is attainable through acquiring customer’s feedback, linking the values to their business products and services and encouraging employees to wok to the realization of these values by exhibiting it through their behaviour. Most successful companies have achieved this through paying attention to customer needs and also through consultations with their employees by implementing a customer relationship management (CRM) (Goolsbee & Brown, 2002). A Loyalty Programme as a marketing approach aims at motivating and enhancing loyalty of customers by offering them rewards, depending on how often the shop at the stores and how much they spend. According to Pozzi (2012), they are designed to offer long lasting and long-term benefits such that, the more a customer shops for a prolonged period and the more cash they spend on a store, the greater is the reward. Hence, those that remain loyal to the store for a long period have greater rewards than new shoppers or those who have been customers for a shorter period. Loyalty programs are used by businesses as a form of marketing to enhance customer retention in the long-term. However, the value of the rewards and its timing are significant to the success of these programs. They have continuously become popular with most businesses implementing them in the recent past. Covielo et al (2000) notes that customer loyalty programmes are not only useful in the context of individual business but it can be comprehensive as well. This is done by businesses for instance in a specific area, aiming at encouraging shoppers to shop from that locality by rewarding them in return irrespective of where they shop within the scheme’s locality. These way customers can be given points for shopping which they can redeem later for coupons that can be used at any of the stores within the locality depending on the value of the points accumulated. If having a comprehensive customer loyalty is not attractive to a business it can also partner with a complementary business where rewards can be used at either of the business. One problem with Loyalty programs is that some businesses adopt a single approach by using monetary rewards such as discounts. These discounts however are not going to influence or tie customers in the long-term. Some customers would prefer personalized shopping experience and pleasure as well as convenience hence such customers would break from their usual buying behaviour so as to take advantage of the promotion and later go back to their old shopping habits, hence impacting a temporary boost in sales (Leenheer & Bijmolt, 2008). 2.0 Literature review With the growth of Electronic commerce as experienced in the modern world, many brick-and-mortar retail stores are continuously investing in technology thereby setting up online divisions in addition to the physical outlets. The increased reliance of the internet to gather information by individuals has driven most companies to develop online platforms and adapt to online marketing and sales. This in turn has brought about online loyalty programmes and online delivery of rewards as well (Kumar &Shah, 2004). According to Sinai & Waldfogel (2004), Loyalty programs in the marketing context can be viewed in various forms, these include; loyalty schemes, customer clubs and sales promotion strategies that motivate repurchasing by customers. Loyalty schemes serve to attain the loyalty of the customers by rewarding them according to the frequency of purchases and the value of their shopping. Loyalty schemes are widely implemented in Airlines, restaurants, Gas stations, stores among others. Loyalty schemes should be able to create value and be perceived in a positive way by the customers. For instance, they should be based on monetary value as most customers look at the cash value of reward in relation to the costs/expenses incurred for one to achieve the prize and should also be diversified in their reward system to suitably fit the program members. Rewards should also be achievable such that they are able to influence the customer and assure them that the reward is attainable and does not require too much effort to attain. Prince (2007) notes that, the success of a loyalty program do not solely depend on the value attached to the reward but is influenced by other factors as well. These factors include; timing of the reward system, rewards can either be immediate or delayed rewards. While immediate rewards are offered immediately in the form of discounts or free gifts on purchasing particular goods, delayed rewards call for the effort of the customer to repurchase and are obtainable in time frames like monthly or quarterly to enable the members to accumulate enough points for redeeming their rewards. As indicated by Anderson et al (1994), experts of the consumer goods industry point out those immediate rewards are important when attracting consumers of other brands whereas delayed rewards are significant in retaining customers by setting the reward in the future. When the monetary reward attached to the reward is of high value, customers would rather wait for a while to get the prize rather than go for the immediate prize whose monetary value is very low. They are structured on a continuing scoring mechanism, such that a customer’s score rises with each extra purchase made. This means that future purchases increases value for customers. Customer clubs are not that different from loyalty schemes as their approach is based on developing a feeling of attachment between the customer and the company (Ellison & Ellison, 2009). Membership to clubs can be free or by paying a certain amount but either way one fills a form with their details for registration. They are then offered a loyalty card that is able to identify who the owner is and what is his/her membership status. The company can thereon develop a relationship with the client based on behaviour and preferences thereby developing personalized goods and services for them. Club members have a number of benefits which include; access to products and services set aside exclusively for members only, newsletters, testing of various products before introduction in the market, discounts, bonuses through their loyalty cards, special offers, self-fulfillment among others. However these benefits need to be differentiated across all members depending on their behaviour patterns. Despite the cost of setting up a club being high they are significant and effective in retaining customers and enhancing loyalty, while covering the costs in due time as the club grows. Sales Promotion techniques on the other hand unlike loyalty schemes and customer clubs that offer long lasting benefits to participants, are useful in attracting new customers as well as influencing their purchase behaviour. The value offered by promotions is however temporary and in the short run. They can only enhance future retention by offering coupons for future purchases (Deleersyner et al, 2002). 3.0 Benefits of a Customer Loyalty programme. Gordon (2002) indicates that a loyalty programme benefits both the business and the customer. Some of the benefits of a loyalty programme are; Enhances customer retention by minimizing their chances of switching to competitors. It enhances a good relationship between the company and the customer in the long-term. Winning a new customer is five times as much in cost to retaining an old one hence the more a business is able to retain its customers, the more profitable they become. As a result of the ever changing market environments, economic factors, new and complicated competitors among other factors, have led to diminishing market shares hence the need for companies to attain and fulfill customer value and satisfaction so as to retain customers. Loyalty programs are one way of achieving this. Most new and growing businesses tend to seek new customers, it is however more viable to prioritize pleasing the existing customers. Companies that fail to retain customers finally fail and are not able to attract new customers if they can’t retain and satisfy the old ones. To enhance their superiority and competitive advantage businesses are seeking to stand out from the rest through customer experience and hence enhance customer loyalty. Loyalty schemes and programs are useful in this. A customer loyalty programme boosts the sale of a business; this is because it rewards the best and loyal customers by encouraging them to continue transacting with the business. An ideal design of a loyalty programme enhances customer retention. It is also beneficial in that a customer can be asked what their opinions are regarding the programme and recommend any changes they think would be more valuable to them. According to Sheth and Pavatiyar (1995), loyalty schemes are more effective when they are tailored to reward customers according to their requirements and specific needs. This differentiation by some businesses of customers plays a significant role in convincing the customers to come back to the store as they stand out. 4.0 Survey design. The purpose of this study was to establish how companies are customer oriented and what measures they have put in place to ensure that they are keen to meet the requirements of customers. The survey was conducted on ten interviewees from different organizations across various sectors. All the employees were from companies that have loyalty programs for their staff and were asked different questions to base the argument of the study with respect to the way the companies they worked for were focused to fulfilling customer’s satisfaction The survey questions and findings were as follows; 1. Does customer service appear at least once a month on the top team’s agenda? Yes – 50% No – 50% 2. Does the management team give equal weighting to customer data as they do to financial data? Yes - 30% No - 70% 3. Do you have a formal customer satisfaction measurement programme? Yes – 40% No – 60% 4. Does the customer satisfaction measurement programme involve regular, monthly feedback from customers? Yes- 30% No - 70% 5. Are your organization’s values based on customer and employee feedback? Yes - 40% No – 60% Based on the feedback of the survey it is quite apparent that most companies have not effectively put in place or implemented customer relationship management. This is because out of the 10 interviewees interviewed, only 40% work in companies where values are aligned to customer and employee feedback, 70% pointed that the regular customer satisfaction assessment does not involve monthly customer’s feedback, only 40% have a formal customer satisfaction measurement programme, whereas in 70% of the respondents the management of their companies to don offer the same focus and attention to customer data as in financial data. With a proper customer relationship management there should be an adequate measurements of satisfaction, feedback monitoring and alignment of the company’s vision with regard to employee’s and customer’s feedback. 5.0 Discussion Customer relationship management enhances creating and maintaining rewarding customer relationships by offering superior value to them and fully satisfying their requirements. CRM is vital to customer’s retention as it avails them with financial and social benefits as well as developing individual attachments with the customers . To develop a successful loyalty program, one should first carry out a research to gather information and understand what drives customers to purchase their preferred commodities. According to (Goolsbee & Brown, 2002), customers are motivated to buy certain products due to different motivations. These are; to save money, for pleasure, as a routine, to diversify risk, creating a relationship with the store, and to minimize the energy and time utilized in shopping especially with grocery stores. A business can be in a position to establish what motivates various customers to purchase at the stores by looking into their Age, sex among other demographic factors for instance younger consumers are known to be economical consumers while on the other hand older customers with higher incomes are routine customers. It should also put into consideration the view of the customer’s and their perception on the value of the reward (Deleersyner et al, 2002). This can be done by acquiring feedback on regular basis. For example according to the survey conducted above, most businesses do not use of gather the feed back on regular basis. With the customer behaviours experienced in the recent past, it is quite apparent that the perception of the customers with regard to the value of a reward plays a vital role in influencing their purchase behaviour by enrolling for the program if they deem it valuable. Rewards are grouped into five categories; Economic rewards, Hedonistic rewards, Socio-relational rewards, Informational rewards and functional rewards. According to Sinai & Waldfogel (2004), a good loyalty program should design the rewards centered on the purchase motivations of a customer as opposed to those that are not part of the customer’s normal purchasing messages. These rewards that are not attributed directly to the consumers may change their buying behaviour in for a short period and not in the long run. This is because such rewards attract the attention of the reward based on the prize and not the store or the brand name. Thus, after collecting the price, some customers are hardly encouraged to repurchase. Tangible rewards that are offered immediately such as free samples and free gifts are best suited to products that call for little effort to purchase and pose smaller risk to the buyer e.g. Toilet papers or chewing gums. Helmot (2001), notes however, that these rewards do not demonstrate the uniqueness of a brand hence consumers tend to pay more attention to the prize other than the product being promoted. A company can as well use loyalty programs as a way of familiarizing itself with customers with respect to how much they spend the kind of promotions the respond to and what they value. Gathering this information enables a company to know who are their most important customers and use this to prearrange or target them with the right reward offers. 6.0 Customer relationship management in business-to-business (B2B) environment. and comparison between CRM programs in a B2B environment and a B2C environment A customer’s expectations in purchasing consumer goods differ greatly from the complex purchasing cycle of a business product or service. The density of the B2B relationship calls for a more personalized prospecting effort, procedure of sales, and delivery services. Consolidation among the business customers in b2b situation further increases the complexity through the customer’s increased bargaining power (Sheth & Pavatiyar, 2005). The complexity brought about by B2B relationships leads to customer experience principles that are commonly attached to B2C scenarios as of less importance. Interactions with customers in B2B relationships happen more often and across more touch points and have the possibility of involving a number of people from varying departments in the purchasing decision Some of the main differences between B2B and B2C relationships that have a direct impact on consumer buying process as noted by Sheth & Pavatiyar (2005) are; Transactions in B2C environments are driven by a single or two decision makers while in B2B transactions, a number of stakeholders are engaged who have different opinions and agendas with respect to the same customer. In B2C sales are considered a standard product offering while in a B2B environment products and services tend to be more personalized. In B2C delivery of services are very specific and are not customized to specific customer but to a group of customers characterized by the same attributes while in B2B consumers emphasize strongly on service levels monitored and measured by key performance indicators. The services can as well be personalized to an individual customer or group of customers. 7.0 Ethical Considerations in CRM Customer relationship management benefits both the supplier and customer. The supplier minimizes costs by availing only those products required by customers and when they are wanted while the saving is diffused to the customer. In implementing such a system substantial information about the customer should be collected and stored. Due to the sensitivity of the information about customers, this data is kept private as possible in ethical companies (Gordon, 2002). This is achieved by storing the data in locations that are hard to access. Forman et al (2009) indicates that an ethical company also needs to put in place reliable procedures to ensure a customer’s data is safely disposed when its no longer needed like when they withdraw from the program. On acquiring data with respect to a particular customer it is stored in the company’s database. It should only be stored with the knowledge and consent of the customer. This data belongs to the customer and they should be afforded a chance to control it. Ethical companies also ensure that sensitive information regarding a customer are gathered in a secure manner and sent back to the database in a secure manner. 8.0 Differences between online and traditional stores. In traditional stores an individual carried what they bought while in an online store you don’t have to carry what you buy as it is delivered. With traditional stores one had to drive to the store while online stores one can shop at the comfort of their homes. Unlike in traditional stores, online shopping limits someone from feeling or touching what they intend to buy. In traditional shopping one can see what they are buying hence noticing incase of a defect unlike in online shopping. 9.0 Conclusion To develop a customer oriented culture, businesses need to pay attention to what the customers says both internally and externally. This can be done by requesting customers to give a feedback on how they perceive products or services of the organization. A company can then maximize on the value of this feedback by; communicating the same to employees so as to put in place improvement plans in countering the issues raised by the customers. If the feedback is not communicated in an ineffective manner in the organization it may results in some employees not understanding what impact it has on their roles and responsibilities. The frequency of customer feedback is also vital for the implementation of a customer oriented culture. This means that acquiring feedback from customers should be a continuous exercise. After acquisition of this feedback the employees should be then linked with the customer feedback as they tend to relate with the customers mostly as they are the ones to deliver what a customer requires. 10.0 Recommendations In the modern world total quality marketing is a major approach to fulfill customer’s satisfaction as well as the profits to be generated by a company. Companies are therefore expected to be in a position to identify what their customers perceive as quality and to what extent they expect this quality. They should also enhance their competitive advantage by offering goods of high quality than their competitors. This calls for effective and total management as well as total commitment of the employees. This applies to online marketing as well whereby online royalty programs should be designed in such a way as to add value to the consumer and motivate them to switch brands. Findings from customer feedbacks can be essential in putting in place counter measures thereby improving in goods and services offered as well as building a culture of change around the customers. This applies for both online and offline sales of an enterprise. Companies need to align their attention to customer’s feedback and the customer oriented culture of the organization. This calls for functional marketing and customer care strategies in implementation of an effective and genuine customer culture. Businesses should always pursue to spend part of their marketing budget to retain customers rather than attract new ones. This is because, with old or existing customers, they already have a relationship with them. It has also been noted as indicated by Goolsbee (2000), that customers who are repeat customers spend 33% more than new customers, he also indicate that trying to sell something to a potential customer costs six times more than selling it to an existing customer. 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