In retail the customer loyalty is not expected. It is the result of the company creating such conditions for the customer so that the latter continue to purchase from the organization -preferably for lifetime.
For retailers the benefits of having loyal customer base are enormous. These are just few of them:
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Companies can boost profits by almost 100 percent by retaining just 5 percent more of their customers”(, 1996)
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It costs much less to keep a customer than it does to- recruit one.
1 Loyalty Programmes
- Advertising costs are reduced. A loyal customer acts as an advocate of the company and helps attract new customers. (Word –of- mouth advertising)
(Lecture notes, 2004)
The question is: “Can the customer loyalty be created and retained for life these days?” or
“Is the loyalty a ‘Holy Grail’ and the retailers can only achieve a slight
margin of preference for certain time?”
A small survey into the types of consumers according to their degree of loyalty, the loyalty schemes with its advantages and drawbacks will possibly shed more light into this topic.
According to J.Cross (2004) there are four main types of customers:
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Switchers
In any market there are customers who are loyal to the suppliers with lowest price. The customers are loyal as long as the prices are low.
- Habituals
Some people become loyal to a particular product, service or retailer purely out of habit, routine.
- Variety Seekers
This type of customers prefers to vary choices. For example, young people can be loyal to whatever the latest trend is .New brands make them to switch.
- Loyals
These customers will be loyal to the company or brand even if there are lots of competition or low prices around.
Accordingly, the retailers implement loyalty strategies aimed at getting loyalty customer base-“loyals.” (Humby 2003:10):
- Pure loyalty strategies are primarily aimed at existing customers and focus on the retailer's product and service offer; the service provided by store staff plays a critical role in such relationships. For example, John Lewis (Account Card) often follows pure loyalty marketing.
- Push loyalty strategies are intended at pushing customers towards the retailer and focus on the retail location or channel; e.g. offer a combined credit card and loyalty card or making prices cheaper on Website
- Pull loyalty strategies are aimed at pulling customers towards the retailer or particular purchases and focus on retailer promotion; for example, “buy one get one free”
- Purge loyalty strategies are primarily aimed at the retailer purging all unnecessary costs and focus on providing all customers with the lowest possible price. For example,. Asda with “always low prices”
An individual retailer may have elements of more than one of these strategies, though there will usually be a focus on one or two. For example, Tesco in the UK, while clearly focused on price and product, can be considered to have a combined push and pull strategy as far as loyalty marketing is concerned. Wal-mart style discounting is obviously ‘purge loyalty’
Loyalty schemes
The retail marketplace is maturing and due to a slow down in growth is becoming more and more competitive. As a result retailers seek different ways of improving sales and profits. They are adopting different loyalty schemes that aim to:
- Build greater customer loyalty and retention;
- Develop methods of creating long-term relationships
- Lead ultimately to increased sales and profits (Gilbert, 1999:128)
In the 1950s the Co-op led the way with the cash dividend schemes (‘divi’) for Co-op Society members, who received money back in proportion to the amount they had spent, similar to the way today's loyalty cards operate. ()
Tesco became the first supermarket to issue loyalty cards in 1995, with the launch of its Clubcard.It was followed by Sainsburys’Reward Card. and afterwards most major companies followed their example. There are now several other cards, including Boots Advantage Card, Nectars, Debenhams (Omar, 1999)
Some of these programs brought major competitive advantage in the early stages of induction but they ended up providing little advantage to the retailers.
Why did this happen?
First of all, too many cards have been launched on the market; they have become more like a trend than a long-term strategy.
The list of retailers launching loyalty cards is growing day by day. In the UK only there are 35 million loyalty cards and almost three-quarters of the shopping population have at least one card. (Wray, )
For marketers the scheme has become ‘me-too’ tool, for customers-‘every house should have one’ concept. (Foss, 2001:398) A growing number of consumers belong to several card schemes that dilutes, neutralizes the impact of individual schemes. If the customers carry more than one card, how can they be loyal?
Second, nowadays the consumers are faced with plenty of choices and they look out for best deals.
Research carried out by Mori- the loyalty consultancy - reveals that the loyalty cards do not influence the individuals’ decision to shop in particular place. 8 out of 10 loyalty cardholders claim to be more concerned with getting a better price than collecting loyalty points. ()
Furthermore, 7 in 10 say that they are not swayed by loyalty cards when deciding at which store they should shop. Just under half (46%) of loyalty cardholders say that in the current economic climate, they don't feel that having a loyalty card from a particular store makes them more likely to shop there, leading to the conclusion that these consumers are not always influenced by the collection of loyalty points but by other factors, which could include location and price. ()
Safeway, which launched its ABC card in 1995, had abandoned it by 2000; and Asda, number two in the UK supermarket league tables, ditched their loyalty scheme in 1999, using its massive purchasing power to reduce prices instead.(Www.bbc.co.uk/cgi-bin/search/results. asda+loyalty+scheme)
Third, the customers do not see any value in shopping schemes and are convinced that supermarket raise prices to pay for loyalty schemes (Humby, 2003:13)
“Shoppers know there's no such thing as a 'free lunch' and that loyalty cards are strongly suspected of pushing up prices,” said the Asda deputy chief operating officer Richard Baker in his statement, explaining the reasons why they have decided to quit the loyalty programme.(www.foodanddrinkeurope.com/news/news- -loyalty-cards)
The same source claims that 93 per cent of Sainsbury shoppers and 95 per cent of Tesco shoppers said they would choose lower prices over loyalty cards.
P.Looby (The Independent, 2004) takes one step further by saying that if the cards were scrapped supermarket prices would drop.
Finally, customers may object to the data, which is being compiled about them.
J.Daley (The Independent, 2004:7) claims that the increase of loyalty cards has very little to do with value and much more to do with information.” By registering your loyalty card - with your name, address and a few other basic details - your local supermarket or Boots outlet can build up a profile of your spending habits and work out how they might extract even more money from you, by pushing targeted offers your way...Do you as a customer really benefit from it?”
From the retailers prospective the information produced by a loyalty scheme is enormously valuable if it is analyzed and used well. Probably this is the biggest advantage of a loyalty card. By using the data the marketers can track the individual customers’ buying habits and target them with tailored offers and promotions.
For example, Tesco is using its Clubcard data to determine the layout and product assortment carried out by individual stores. The company sees this as a pull strategy with customers. (Brassington, 2003:385)
But numerous sources claim that the data collected from consumers is not used efficiently.
H.Davis (Loyalty Guide, 2002) points out that the marketers focus too much time on technology matters and ignore the importance of understanding and analyzing data.
According to K.Jones (2002:23) the potentials of customer base are still to be exploited. The data quality is poor-inaccurate or incomplete records, duplicate entries, etc. It means wasted mailings, inefficient marketing, and high overheads.
Last but not the least- incomplete information also means lost opportunities.
One of the most essential drawbacks of loyalty programs are the high costs associated with running them E.Ripley, author of the Datamonitor report, says that the major weakness of all loyalty schemes is the high set-up cost, high administration cost and potentially high exit cost. (http://money.guardian.co.uk/)
The report cites Sainsbury's reward card as an example, saying that this cost in excess of Ј100m annually to run. It has now been dropped for the Nectar card scheme, which itself has been weighed down by difficulties since its launch.
Conclusion
In order to survive in today’s highly competitive environment the businesses try to form good loyal relationships with the customers. For this purpose the retailers launch various loyalty programs aimed at getting loyals customers for lifetime.
The companies can greatly benefit from using the loyalty schemes, but because of the reasons mentioned above (the number of cards, poor planning, customers’ distrust, high costs, inadequate use of information) these schemes do not do much in sense of gaining customer loyalty. So, the retailers should not place too much trust in them.
Moreover, nowadays the consumers are surrounded with great variety of choices, offers and incentives, which makes it extremely difficult to be loyal to one retailer for long period. Even the ‘habituals’ (“lazy loyalty” by C.Daffy) who can be ‘loyal’ will switch to a smarter competitor who might recognize the situation and make switching easy.
So, the retail loyalty in my opinion is” Holy Grail” and the businesses can only try to achieve slight margin of preference, temporary competitive edge by retaining the customers with good quality products, services and low prices. This can add up towards a massive contribution to the financial success of the business.
No matter how tempting all the loyalty plans may seem the fundamental marketing truth remains the same: “The best way to establish loyalty is to give people what they want at a price they are prepared to pay” (Brassington ,2003:385)
Bibliography
Brown, Stanley, A., (2000). “Customer Relationship Management” Wiley, Etobicoke Ont.
Brassington, F., Pettitt, S., (2003) “Principles of Marketing” Harlow: FT/Prentice Hall
Daffy, C., (2001) “Once a Customer, Always a Customer” Dublin: Oak Tree Press
Foss, B., Stone, M., (2001) “Successful Customer Relationship Marketing” London: Kogan Page
Gilbert, D., (1999) “Retail Marketing Management” Harlow: FT/Pitman
Humby, C. et al., (2003) “Scoring Points” London: Kogan Page
Oliver R. (1997) “Research” New York: McGraw Hill
Omar, O (1999) “Retail Marketing” London:FT Management
Reichheld, R. (1996) “The Quest for Loyalty” Boston: Harvard Business School Press
Daley, J (2004)” Is a toaster a fair swap for your loyalty as a shopper?” The Independent (http://proquest.umi.com)
Davis, H. (2002) “Marketing is all about intellectual use of data” Loyalty Guide
Jones, K (2002) “Are you exploiting the potential of your customer base?” Loyalty Guide
http://www.at1.uk.com/Loyalty_Fundamentals.htm
www.bbc.co.uk/cgi-bin/search/results. asda+loyalty+scheme
www.foodanddrinkeurope.com/news/news- -loyalty-cards
)
report by E.Ripley)
Cross J. (2004) Lecture notes Southampton, University College
