An analysis of UK loyalty card schemes with particular consideration of their long term future.
Independent Study 26334
An analysis of UK loyalty card schemes with particular consideration of their long term future.
Student Number: 200214349
Module Number: 26334
Module Leader: David Tucker
Supervisor: David Tucker
Date of submission: Tuesday 28th March 2006
Acknowledgements
Thanks to David Tucker, supervisor, for his support with this research. Thanks also to those who took the time to complete the questionnaires.
Table of Contents
List of Figures
List of Tables
Abstract
Loyalty card schemes have been implemented by many UK retailers during the last decade. Loyalty is linked to competitive advantage and profitability.
Issues raised in the literature review include the fact that customers possess many loyalty cards which suggests the schemes are not resulting in loyalty. According to journal articles, there are concerns over whether loyalty schemes have reached saturation point. This research aimed to ascertain if this is the case. Customer’s behaviour in regards to loyalty schemes was researched, including how many schemes have been discarded and how many have been refused. Research methodology involved the use of questionnaires.
Research findings confirmed that most people have a loyalty card with an average membership of 1.62 schemes per respondent. Customers are still joining schemes with 27% of loyalty cards acquired in the last year. Most people have not disposed of any loyalty cards, however many have declined offers of new loyalty schemes in the last six months.
To further validate the research findings, a larger study is needed, questioning groups other than students. Other research methods could also be used including diaries and interviews.
In order to entice customers to join and use loyalty card schemes, the benefits need to be worthwhile and scheme offerings should be differentiated.
Chapter 1: Introduction
Due to the nature of this study, in order to introduce the concept of customer loyalty card schemes, a literature review was completed first in order to gain background knowledge. The following section will introduce the concept of loyalty, provide some history and provide background on loyalty card schemes.
Why did UK retailers introduce loyalty schemes?
The definition of loyalty, history of loyalty schemes and how loyalty cards work have been included in appendix 1.0.
The overall objective of UK retailers is to make profit. They can increase profits by increasing customer retention rate, increasing the number of referrals, increase cross-sales and up-sales, enabling companies to use the customer profile to find more loyal and responsive customers (Hughes, 2003).
Some rules that need to be followed by companies embarking on a customer loyalty scheme are not to treat all customers all the same. Resources should be used to reward the most profitable customers, the most loyal customers do not need to be marketed to but just be retained. Control groups should be set up to measure success and show if the scheme has worked, work out lifetime value of customers and use this to evaluate the success of the strategy. Customers like to receive communications and any communication has been shown to increase sales and retention rates. It is not worth investing in offers to entice new customers as it has been found that, “offering discounts to attract new customers produces disloyal customers” (Hughes, 2003). Loyalty schemes should offer value to the customer and be supported by everyone in the organisation (Butscher, 2002).
Loyalty schemes aim to encourage customers to consolidate their shopping to one store in order to get rewards. For example, if someone used to buy flowers from their local flower shop, they may now buy them at Tesco in order to get rewards. There is usually a 1-4% sales increase in retailers that launch a loyalty scheme (Shabi, 2003).
Why concentrate on customer loyalty?
According to Payne et al, 1998, companies could be doing more to improve loyalty and retention of existing customers, which would result in competitive advantage and higher profitability.
Marketing programmes and promotions can’t create sustainable loyalty on their own; value is derived from product quality, service, sales support and availability. All these departments need to be coordinated to provide more value and earn customer loyalty (Payne et al, 1998).
Loyalty schemes do seem to work; there was a one percent fall in sales at Sainsburys and Tesco gained 60,000 new customers when Air Miles stopped being offered by Sainsburys and were added to Tesco’s Clubcard scheme.
There are still ten million regular users of Tesco Clubcard which is the same number as when it was launched in 1995, so the use of loyalty cards is not decreasing. In summary, “Loyalty does exist-but you can’t buy it, you have to earn it.” (Dunn, 2002).
How loyalty card information can be used
Loyalty card information can be used by retailers to find new markets, plan new ranges, manage fresh food and save money. They can also save money on market research, advertising and direct mail. Some analysis can be sold on to manufacturers (Shabi, 2003).
Why have some loyalty card schemes failed?
In the 1980’s, with improvements in technology, most supermarkets collected information about customers purchasing habits but many did not know how to use it properly. The principle is that, “Database Marketing is effective in building customer loyalty and repeat sales only if the customer benefits from it.” (Hughes, 2003). If the loyalty card scheme doesn’t present value to the customer, they will ignore communications, and not use the loyalty card (basically, refuse to become loyal). This is possibly a reason some companies have been unsuccessful in database marketing (Butscher, 2002).
Table ...
This is a preview of the whole essay
Why have some loyalty card schemes failed?
In the 1980’s, with improvements in technology, most supermarkets collected information about customers purchasing habits but many did not know how to use it properly. The principle is that, “Database Marketing is effective in building customer loyalty and repeat sales only if the customer benefits from it.” (Hughes, 2003). If the loyalty card scheme doesn’t present value to the customer, they will ignore communications, and not use the loyalty card (basically, refuse to become loyal). This is possibly a reason some companies have been unsuccessful in database marketing (Butscher, 2002).
Table 1 Reasons for database failure
Chapter 2: Literature Review
Existing theories on customer loyalty
Although repeat purchases can indicate customer loyalty, this may also be the result of high switching costs or a lack of suitable alternatives. Customer retention does result in higher profitability as it is more expensive to retain existing customers than to acquire new ones. Companies have been found to increase profits from 25%-85% by improving customer retention by just 5% Thorsten and Hansen, 2000). However, retained customers are not loyal customers. Customer retention is an outcome of loyalty (Thorsten and Hansen, 2000).
Positive effects of customer loyalty include more stability, more feedback and more marketing flexibility. It also includes more trust, deeper customer penetration, more recommendations and cost savings. Also lower costs when acquiring new customers, lower costs for customer management, increased revenues and lower price elasticity (Thorsten and Hansen, 2000; Payne et al, 1998).
Negative effects of customer loyalty are inflexibility to changes in the market, inactivity, skewed customer structure, negative word of mouth and high costs of bonding activities such as running/maintaining a customer database (Thorsten and Hansen, 2000).
Current situation and issues surrounding loyalty cards
While customers are willing to use the schemes in order to get the rewards it has been found that, “multi-card ownership apparent” (Byrom, 2001: 334).
“Customer promiscuity” has occurred as customers sign up to many loyalty schemes, none of which result in loyalty (Byrom, 2001: 334).
In some retailers, up to 90% of all transactions involve the use of a loyalty card, but there may be regular customers that do not use loyalty cards or occasional customers without one. This needs to be considered when retailers use the information collected by the cards (Byrom, 2001).
There are more than 150 loyalty programmes running in the UK. Mintel research demonstrates that loyalty to individual stores is decreasing. The issue is whether loyalty schemes are successful in generating real loyalty (emotion) to a store or are they just generating repeat purchases? Loyalty fatigue is when loyalty schemes reach saturation point, so the advantages originally gained with the loyalty scheme have decreased. It has been found that convenience, location, quality, price and if they already shop there, are more important factors to customers than loyalty schemes. Evidence has shown that loyalty schemes tie existing customers and convert secondary into primary shoppers. On average, customers participate in 2.2 schemes (Wright and Sparks, 1999). However, many loyal customers are not members of loyalty schemes perhaps for reasons of not thinking the rewards are worthwhile or concerns about the use of information. Multiple card holders tend to be the early adopters. As the number of loyalty cards possessed increases, the chances of people being loyal decreases and they are less likely to carry them. If the schemes are different, and offer different benefits they can be successful. There has been a rise in recent years in the number of coalition cards which can be used in several stores (Wright and Sparks, 1999).
The findings above will form the basis of the primary research questionnaire and comparisons will be made with Wright and Sparks work throughout this essay.
Future of Customer Loyalty Programmes
“Customer loyalty programmes have a bright future”. New terms are constantly being introduced such as Customer Relationship Marketing (CRM), one to one marketing and mass customisation and this shows that customer loyalty marketing still has a future (Butscher, 2002).
Chapter 3: Research Aims and Methodology
Aim of the research
The aim of the research is to find out whether loyalty card schemes are reaching saturation point. Comparisons will be made between primary research findings as a result of this Independent Study and with Claire Wright and Leigh Sparks findings (1999).
Objectives of the research
The objectives of the research are to:
- Discover whether the loyalty card market is saturated
- Find out how many loyalty card schemes people are members of
- Find out how many loyalty card schemes are being discarded and schemes that are being refused by customers
- Find out customer views and behaviour towards loyalty cards
- Comparisons will be made between primary research findings and previous research results
Methodology
Both primary and secondary evidence was collected in order to produce this essay. Relevant previous research on customer loyalty strategies, in particular loyalty cards, in the form of journal articles and textbooks was used. This secondary research was compared to primary research in the form of consumer opinions obtained from questionnaires.
Wright and Sparks study, “Loyalty saturation in retailing: the end of retail loyalty cards?” 1999 was used as the basis of the report. After a thorough journal search on the internet, it was found to be the most recent journal article written on the subject. Other articles were also used to gain a greater understanding of the area of customer loyalty. The secondary research findings were compared with the primary research findings.
Primary Research
Questionnaires were used to understand consumer behaviour and feelings towards loyalty cards. Personal interviews and observation were not used to collect data as they would be more time consuming and questionnaires provided the data required in a form that could be analysed with ease. The questionnaires provided both quantitative and qualitative information (Bell, 1999 ).
Pilot Study
First, a pilot study (pre-test sample) was done on fifteen people to get feedback on the questionnaire so errors could be corrected and ascertain if there were any difficulties (Zikmund, 2003). The time taken to complete the questionnaire was also tested to ensure it wasn’t too time consuming. It was used to check respondents understood the questions. Items that didn’t produce usable data were removed. As a result of the pilot study, some questions were omitted, some were re-worded and some questions added (Bell, 1999). A copy of the original and final questionnaire can be found in appendix 2.0 and 3.0. Questions on income, age, marital status and number of dependents were either removed or changed as they were not required for analysis.
Structure of Questions
Fixed-alternative questions were asked as they are less time consuming to fill in and analyse, even though less information can be gathered from the responses (Burns, 2000). They either consisted of a list of items or a list of categories to choose from. The respondent was given specific limited alternative responses and asked to choose the one closest to his/her own viewpoint. Care was taken to ensure the questions consisted of simple language; the questions were non-leading or presumptuous, not ambiguous offensive or sensitive, and not burdensome. The funnel technique was followed whereby general questions were asked before specific questions in order to obtain unbiased responses (Zikmund, 2003 and Burns, 2000). Unfortunately, some of the questions were double barrelled to keep the questionnaire short but this was overcome by asking the respondents to indicate which cards each answer applied to. It was still simple to fill in and analyse. The questions tested the memory so the respondent may have forgotten which cards they possessed. This was overcome by including an introductory sentence at the top of the questionnaire reminding them what a loyalty card is, and tick boxes were used where possible throughout.
The appearance and layout of the questionnaire was clear to encourage respondents to read and fill in the questionnaire. Instructions were included at the top and instructions within the questions were put in bold for clarity. The questionnaire started with straightforward, easy questions with more complex topics covered later (Bell, 1999).
Final questionnaire
The questionnaires were given to respondents personally so it could be explained, any queries could be dealt with straight away and how the results were used could be explained. Respondents were asked to complete the questionnaire there and then to obtain a better response rate (Bell, 1999). The results were confidential, there is no way of identifying individual respondents but the findings were discussed.
Sample
The final questionnaire was completed by 100 people, a small sample of the total population. This was a compromise between time and size but makes it as representative as possible in the time available so conclusions could be drawn from the data (Bryman and Bell, 2003).
The data was collected in Hull as this was where the analysis took place. The total population for this research included those people currently living in Hull. Respondents were aged over eighteen years with no upper age limit as this is the age required to obtain a loyalty card. The sample population needed to be as representative as possible of the total population (Zikmund, 2003). People that didn’t have loyalty cards as well as those that did were questioned as they could also provide relevant opinions. The first three questions in the questionnaire ensured respondents were eligible for the sample, asking their gender, age and where they lived.
For the sampling frame the number of males and females in Hull was ascertained, and then the same proportion of males and females were interviewed. Based on the 2001 census, the total population of Hull aged over twenty years old was 177901, consisting of 85550 males (48.1%) and 92351 females (51.9%) so 48 males were questioned and 52 females were questioned (Census, 2001). This was done to try to make the sample more representative, although it is appreciated that students were mainly questioned and many were originally from outside Hull. It is difficult to make the sample truly random; those who were willing and available were questioned. However the limitations have been taken into account in the analysis. The questionnaire was self-completed by the respondents rather than the interviewer to reduce any interviewer bias from the wording or explanation of the questions.
The sampling method used was a form of non-probability sampling called convenience sampling. It uses people that are most conveniently available, ensuring a high response rate (Bryman and Bell, 2003). It is not ideal as it is biased and may not be truly representative of the whole population but due to time constraints was most viable. There were elements of stratified sampling used as the correct proportion of men and women were questioned. It would have been best to use simple random sampling, a form of probability sampling as it gives every person aged over 18 years in Hull an equal chance of being picked for the sample, but this would have been too difficult to administer in a project this size (Zikmund: 2003).
Chapter 4: Research Findings
Results of primary research
Once all the 100 questionnaires were completed, the results were analysed. In some instances, there appear to be more than 100 responses; this is because people may have multiple answers for the different loyalty cards they own. The response rate for the questionnaire was 100%, and all the questionnaires were completed sufficiently.
How long have you owned your loyalty card?
Figure 1. How long have you owned your loyalty card?
Wright and Sparks found 26% of loyalty cards were acquired within the last year (Wright and Sparks, 1999). Results found in this study concur; with 27% of loyalty cards being acquired in the last year. This may be influenced by the fact that mainly students were questioned who will mostly be at the lower age range of loyalty card holders so may not have been able to acquire the loyalty card earlier. It does however suggest that customers are not tiring of the schemes as many people are still joining them.
Which loyalty schemes are you a member of?
Figure 2. Which loyalty schemes are you a member of?
The total number of different schemes people are members of in Hull is 17, demonstrating the sheer variety of schemes available. Also some schemes may not have been included because they did not exist in Hull so there could be even more in the UK.
Tesco loyalty cards were owned by 32% of respondents which is much lower than Wright and Sparks who found 51% were (Wright and Sparks, 1999). This may be due to the different groups that were questioned in both studies. Wright and Sparks questioned an over representation of mothers and the unemployed, whereas this study was over represented by students (Wright and Sparks, 1999).
When Wright and Sparks completed their study, the Boots Advantage card was a very new scheme and only 22% of respondents owned one (Wright and Sparks, 1999). In this recent study, several years into the Boots scheme, 52% of respondents owned the card.
How many loyalty schemes are you a member of?
Figure 3. How many loyalty schemes are you a member of?
The percentage of respondents owning one or more loyalty card is 74%, while the average number of schemes respondents are a member of is 1.62 schemes. This is very similar to Wright and Sparks research which found 72% of people own at least one loyalty card and the average number of schemes is 1.8 schemes (Wright and Sparks, 1999).
How often do you use the loyalty card?
Figure 4. How often do you use the loyalty card?
As in Wright and Sparks study, this study found that most cards are used every time the respondent shops at the store, 77% in the older study and slightly lower at 51% in this study (Wright, and Sparks, 1999). This lower percentage and the fact 23% only use loyalty cards ‘sometimes’ or ‘rarely’ is worrying as it suggests that although customers are joining loyalty schemes, they may not be working as a high percentage of cards are not being used every time suggesting the schemes are not resulting in loyalty.
When was the last time you used the loyalty card?
Figure 5. When was the last time you used your loyalty card?
In the study it has been found that over half of loyalty cards have been used in the last month (57%). However, 18% of loyalty cards have only been used during the last year or possibly so long ago that the respondent can’t remember when they last used the loyalty card. This suggests that nearly one in five people who have loyalty cards are either not loyal to the store or just don’t bother using the loyalty card, therefore the scheme isn’t working.
Do you carry all loyalty cards around with you at all times?
Wright and Sparks found a higher percentage of cards were carried around by the participants at all times, 86%, compared to the findings of this study, 73% (Wright and Sparks, 1999). As more schemes are coming into existence, this may be decreasing the likelihood of people carrying the cards.
This could suggest that loyalty cards are reaching saturation point as less people are now carrying all their loyalty cards around with them. It could possibly be because they own too many or do not use them.
What is the minimum you have to spend before using your loyalty card?
Figure 6. What is the minimum you have to spend before using your loyalty card?
Most respondents said when using their loyalty card, there is no minimum amount they have to spend (63%). Only 8% would only use their loyalty card if they spent over £21. This may have been due to the different types of loyalty cards included in the study. With ‘points’ cards, respondents may be more likely to use them with every purchase but store cards may only be used for more expensive purchases.
How many cards have you not used recently?
Figure 7. How many cards have you not used recently?
50% of respondents have used all their cards recently. However, this means that half the respondents have not used one or more cards recently. Figures like this suggest some loyalty card schemes are not resulting in customer loyalty as customers are not regularly using their loyalty cards. This could be due to customers losing interest in some loyalty schemes.
Did you already shop at the store before you obtained the loyalty card?
Figure 8. Did you already shop at the store before you obtained the loyalty card?
Similar percentages of respondents shopped at the store before obtaining the card in both studies (88% v 84% in the new study) (Wright and Sparks, 1999). This is good as these respondents may be more likely to use the card.
Lower numbers of respondents who only rarely or occasionally shopped at the store obtained loyalty cards.
Has your shopping behaviour changed since owning the loyalty card?
Figure 9. Has your shopping behaviour changed since owning the loyalty card?
Results suggest most people’s (57%) shopping behaviour does not change at all when they obtain a loyalty card. Some (41%) say it changes their behaviour a little. Very few (3%) say it changed their behaviour a lot.
These results are difficult to draw conclusions from as people do not tend to like to admit to being influenced. The loyalty cards may also work subconsciously affecting the amount spent rather than increasing the number of store visits. A qualitative diary may have been a better way of analysing this (Wright and Sparks, 1999).
What was the reason for applying for the loyalty card?
Wright and Sparks found that the biggest incentive to join a loyalty scheme is rewards and benefits, followed by in store promotion, then credit and then initial discounts (Wright and Sparks, 1999). The recent study also found similar results, but with credit and initial discounts the other way around. Similarly, both studies found no evidence of customers wanting to build relationships with retailers, through “reinforcing sense of belonging”, buyers are simply attracted to the best benefits (Wright and Sparks, 1999).
Figure 10. What was the reason for applying for the loyalty card?
What encourages you to shop at a particular store?
Only 6% of respondents in the recent study shop at a particular store due to a loyalty card, compared to 20% in Wright and Sparks study (Wright and Sparks, 1999). This could indicate that loyalty cards are no longer influencing buying behaviour as much. If loyalty cards are losing their influence, it could be because they have reached their saturation point.
Figure 11. What encourages you to shop at a particular store?
How many loyalty cards have you disposed of in the last six months?
Figure 12. How many loyalty cards have you disposed of in the last six months?
The number of cards disposed in the last six months has increased from 8% in the previous study to 18.8% at present (Wright and Sparks, 1999). This could suggest that people are now reducing the number of loyalty cards in their wallets at a greater rate than seven years ago.
Reassuringly for retailers with loyalty schemes, the majority of respondents (82%) have not disposed of any loyalty cards in the last six months. These figures need to be monitored over the next few years but they currently suggest that customers are not tiring of loyalty schemes.
What were the reasons for disposing of the cards?
In both studies, disposal of cards has been for a number of reasons, mainly lack of store use, credit factors and due to the number of cards. None were due to disapproval of store refurbishment, replacement loyalty card or billing errors.
Due to the low number of people having disposed of loyalty cards in the last six months, the number of reasons provided was also low. It is therefore difficult to draw conclusions from this data.
Figure 13. What were the reasons for disposing of the cards?
How many loyalty card offers have you declined in the last six months?
Figure 14. How many loyalty cards have you declined in the last six months?
68% of respondents were found to have declined at least one loyalty card in the last six months, slightly lower than the figure Wright and Sparks found (86%) (Wright and Sparks, 1999).
This could be due to less loyalty cards being set up or in existence in 2006 compared to 1999. 32% of respondents have not declined any loyalty card schemes in the last six months, either because none have been offered or because the respondent has joined all those that were offered.
The average number of cards declined in the last six months is 1.7 cards.
What were the reasons for you refusing the loyalty card?
Figure 15. What were the reasons for you refusing the loyalty card?
The reasons for refusing the loyalty card were very varied, with no one commonly cited reason so again it is not easy to analyse.
Whereas 26% respondents said that the reason was that they had too many cards in the older study, only 13% cited this reason in the newer study (Wright and Sparks, 1999). This could be influenced by the order of the alternatives in the two studies which could have been different, affecting the results.
Chapter 5: Limitations
It has been difficult to draw absolute conclusions from the data because of the limitations detailed below.
One respondent said they had to own a certain loyalty card because they worked at the store and it was compulsory for all staff, so if any other respondents had to do this it would affect the results.
In the question that asked whether the respondents shopping behaviour had changed as a result of the loyalty card, most people state it has not changed their behaviour at all. Often this is because people do not want to admit that they are influenced by loyalty cards (Wright and Sparks, 1999) so behaviour may have changed a little or even a lot as a result of the loyalty card. This could have been overcome by using diaries to observe shopping behaviour of the respondents.
In the questionnaire, as there were a fixed set of alternative responses that the respondents had to choose from, the order of the alternatives can affect the answer given (Zikmund, 2003).
Another limitation was that this study was based in Hull, so the results were not representative of the whole UK population.
One of the limitations of the study which was foreseen from the start is that students may be overrepresented in the sample as most questionnaires were completed on the University campus. Students tend to have certain types of spending habits; they don’t have as much spending power as middle age groups who may have children and may be earning. Middle age groups are more likely to have more loyalty cards as their family needs tend to be higher and spending power tends to be higher so this may affect the results. Many students were also originally from outside Hull so may have joined the schemes elsewhere and the store may not have a branch in Hull. As students also tend to be at the lower end of the age brackets, they will not have had as long to be a member of loyalty schemes.
A limitation of comparing to the study mentioned above in 1999 is that since then, many loyalty schemes have now ended and many new ones have started. Examples of schemes that have ended include the Safeway ABC card and the C&A with Compliments Card. Examples of schemes that were not included in Wright and Sparks’s previous study but have been included now are Subway and Morrisons loyalty schemes.
The limitations outlined above have made it difficult to draw conclusions from the data. The next section will detail recommendations.
Chapter 6: Recommendations
Based on the findings of the research, the following recommendations have been made.
Follow up research projects could be conducted periodically to update the findings. As new schemes are continually being introduced and some schemes ending, research will go out of date very quickly so needs to be re-done regularly.
The research completed was small in scale and although it was sufficient for analysis as part of an independent study project, it could be extended and the general trends identified could be substantiated with further research.
The research completed has concentrated on one geographical area, Hull and a certain type of consumer, mainly students so research in other areas with different types of consumer would make the results more representative.
Age analysis, income analysis and gender analysis could also be carried out for greater accuracy of results. Due to time limitations this could not be carried out in this study.
Personal interviews and diaries could be completed as well as questionnaires to confirm the results and ensure bias has not been introduced. This is a much more time consuming option but would ensure the results are more valid (Burns, 2000).
Following the recommendations above, could mean the results would be more reliable and the conclusions drawn could be more substantiated.
Chapter 7: Conclusion
The research set out to find out if loyalty card schemes are reaching saturation point. Primary research was conducted to find out how many loyalty card schemes people are members of, to find out how many loyalty card schemes are being discarded or refused by customers. Information has been gathered to describe customer’s behaviour toward loyalty cards.
The literature review showed the importance of customer loyalty, as it is more expensive to retain existing customers than to acquire new ones (Thorsten and Hansen, 2000). The positive effects of loyalty were listed. There were concerns over customers owning multiple loyalty cards in the literature, which will affect their behaviour and possibly the effectiveness of loyalty cards. The average numbers of loyalty card schemes customers were members of is 2.2 schemes (Wright and Sparks, 1999).
It was found in other research that there is a future for loyalty card schemes but as the number of loyalty cards people possess increases, the chances of people being loyal decreases and they are less likely to carry them. Therefore retailers need to try to differentiate their schemes and offer greater benefits to ensure their schemes are successful (Wright and Sparks, 1999).
Tesco responded to the fears of customers not carrying the Tesco Clubcard by providing a loyalty card that can be attached to the keys instead of being carried in the wallet/purse.
Primary research consisted of questionnaires and found customers don’t seem to be tiring of loyalty card schemes as many are still joining them with 27% of loyalty cards acquired in the last year, similar to previous research results.
People on average, are a member of 1.62 schemes, and nearly three-quarters of respondents own at least one loyalty card.
Of concern for retailers, nearly a quarter of respondents only use their cards ‘sometimes’ or ‘rarely’ which may suggest the schemes are not successful in generating loyalty. Also the fact that 18% of loyalty cards were not used during the last six months is of concern. Less people are now carrying loyalty cards with them.
The biggest incentives for joining a loyalty card scheme for customers are rewards and benefits, in-store promotion, credit and initial discounts. Customers are not interested in forming a relationship with retailers.
Reasons such as convenience, location, product quality, range and price were now more influential to customers than owning a loyalty card, suggesting perhaps loyalty cards are not having the desired effect.
The majority of respondents have not disposed of any loyalty cards in the last six months, which suggests customers are not tiring of loyalty cards. However, 68% of respondents have declined at least one loyalty card in the last six months, making an average number of cards declined as 1.7 cards. This means retailers need to make an effort to improve the offerings in their loyalty card schemes to entice customers to join them.
Comparisons have been made throughout the analysis of results with Wright and Sparks work (1999). Findings in both studies have been fairly similar but as both studies were localised, further research is needed to validate the results.
In summary, research has shown there is still a future for loyalty card schemes but for schemes to be successful they need to offer benefits that appeal to the customer. Schemes need to be easy to join and well promoted. Finally, as wallets are already full of cards, different methods of collecting points are needed such as the Tesco Clubcard key ring to encourage people to carry the card and use the scheme.
References
- Bell, J., 1999. Doing your Research Project. Open University Press, Philadelphia.
- Butscher, S., 2002. Customer Loyalty Programs & Clubs. Gower, Aldershot.
- Brindley, C. and Smithson, A. 1997. Why have supermarkets introduced loyalty schemes? Business studies magazine, Anforme Business Publications. Volume 9, Number 4, pg 16.
- Bryman, A., Bell, E., 2003. Business Research Methods. Oxford University Press, Oxford.
- Burns, R., 2000. Introduction to Research Methods. Sage Publications, London.
- Byrom, J., 2001. The role of loyalty card data within local marketing initiatives. International Journal of Retail & Distribution Management. Volume 29, issue 6/7, pg. 333.
- Census. 2001. Population pyramids. [Online]. Hull: National Statistics. Available: [Accessed 20 January 2006]
- Cuthbertson, R., 1998. Loyalty Card Schemes in Retailing across Europe. European Retail Digest. Issue 20, pg 5-8.
- Dunn, E., 2002. You can’t buy loyalty. Brand Strategy. Issue 165, pg.3.
- Gordon, I., 1998. Relationship marketing: new strategies, techniques and technologies to win the customers you want and keep them forever. John Wiley & Sons, Ontario.
- Hughes, A., 2003. The customer loyalty solution: what works (and what doesn’t) in customer loyalty programs. McGraw Hill, New York.
- Payne, A., 1998. Relationship marketing for competitive advantage: winning and keeping customers. Butterworth Heinemann, Oxford.
- Reichfeld, F. 1996. The Loyalty Effect. Harvard Business School Press, Boston MA, cited in Hughes, A., 2003. The customer loyalty solution: what works (and what doesn’t) in customer loyalty programs. McGraw Hill, New York.
- Rowley, J., 2000. Loyalty Cards: making loyalty cards work. British Food Journal. Volume 102, issue 5/6, pg.390.
- Shabi, R. 2003. The card up their sleeve. [Online]. The Guardian. Available: [Accessed 24 October 2005]
- Stone, M., Woodcock, N., Machtynger, L., 2000. Customer Relationship Marketing: get to know your customers and win their loyalty. Kogan Page, London.
- Thorsten, H., Hansen, U., 2000. Relationship marketing: gaining competitive advantage through customer satisfaction and customer retention. Springer, New York.
- Wright, C., Sparks, L., 1999. Loyalty saturation in retailing: exploring the end of retail loyalty cards? International Journal of Retail & Distribution Management. Volume 27, Number 10, pp. 429-439
- Wright, C., Sparks, L., 1999. Retailers focusing on high-value and loyal customers. International Journal of Retail & Distribution Management. Volume 27, pg 447.
- Zikmund, W., 2003. Business Research Methods. Thomson, Ohio.
Bibliography
- Arnould, E., Price, L., Zinkhan, G., 2004. Consumers. McGraw Hill, New York.
- Albrecht, K. and Vanderlippe, J. 2002. Supermarket “loyalty” programs: Rewards for the wealthy [Online]. Seattle, CASPIAN. Available: [Accessed 24 October 2005]
- Davies, G., 1998. Loyalty cards can erode loyalty: only customer relationship programmes can build it. European Retail Digest. Volume 20, pg. 8-13
- Uncles, M., 1994. Do you or your customers need a loyalty scheme? Journal of Targeting. Volume 3, pg. 335-350.
Appendices
1.0 What is loyalty?
Loyalty can be defined as “when a customer chooses to buy a particular product from only one retailer” (Cuthbertson, 1998). However, there is a difference between a repeat purchase and a lifetime relationship (Rowley, 2000).
History of Loyalty Schemes and Database Marketing
The roots of database marketing began before supermarkets even existed. In small grocery stores, the owners would know customers names, ask about their families and concerns, put aside items for customers, and help carry shopping to cars and build relationships which resulted in customer loyalty (Hughes, 2003).
During the nineteenth century, the Co-operative movement introduced a dividend scheme (a mutual benefit scheme for members). During the 1960’s and 1970’s ‘Green Shield’ stamps were used by many retailers. They worked by rewarding the customer more stamps the more they spent, and when enough stamps were collected these could be exchanged for a household product (Brindley, Smithson: 1997; Cuthbertson, 1998).
During the late 1980’s and early 1990’s the UK experienced an economic recession. Consumers lacked confidence in regards to spending which resulted in retailers developing new ways of attracting customers. Retailers realised the importance of developing a relationship with the customer. This was known as relationship or one-to-one marketing. The main way UK retailers tried to do this was through customer loyalty schemes (Brindley, Smithson: 1997).
Database Marketing originated in the 1980’s as an idea that companies should move away from mass marketing and build loyalty through direct communication. Some of the initial drawbacks were that it can be expensive to implement and run and companies need to encourage customers to want to be in the database, by offering a benefit to them (Hughes, 2003).
How does a loyalty card work?
The modern loyalty card holds information such as name, address, products purchased, store location, time, frequency of purchases. Information is gathered using electronic point of sale equipment and held in databases. This allows supermarkets to build up a consumer profile, allowing individual customers to be targeted. Relationships can be formed with individual customers and information can be used for target marketing. For example, known pet owners can be targeted with discounts on pet food (Brindley, Smithson: 1997).
The basic idea of loyalty card schemes for customers is to earn some sort of points based on purchases and these points earn rewards. The best loyalty card schemes include status levels, as they encourage customers to work hard to achieve these status levels. The effect of a successful loyalty card scheme is to get as close to one hundred per cent of a customers custom as possible (Hughes, 2003).
There are two different types of benefits of loyalty card schemes, immediate rewards or long-term rewards which may involve saving towards a goal (Hughes, 2003).
There are three different main focuses for loyalty cards, attracting new customers, retaining existing customers and increasing the amount spent by existing customers (Cuthbertson, 1998).
2.0 Pilot study questionnaire (before amendments)
3.0 Final questionnaire
