University of Bath

Dissertation title: Creating customer loyalty - the challenge of today's businesses

Context/background



Manufacturers try to build a product brand – Boots only buy from Boots they have the power
Sainsburys food from Sainsburys store power at retailer farmers no brand value Tesco has got brand value
Strong brand = mars

In today's competitive markets, choice is in abundance and brand is meaning less to the well informed consumer of today. Companies are realising that the term "consumer value" does not just relate to the value a consumer can bring to a company but the value a company owes to that consumer when he has purchased their product. To know more about their consumer to tailor their offering more specifically, the loyalty card has become an essential marketing tool in attracting and retaining customers. The recent "boom" of loyalty cards has meant that the consumer looks less at gaining satisfaction from product purchase and more at the extra benefit's a product can offer. However companies are looking to entice their consumer to buy by offering more benefits rather than the basic product. The Boots advantage card was introduced not to win more customers but to encourage existing customers to spend more in an ever increasingly competitive market. One of the newest loyalty schemes introduced has been Nectar a multi chain loyalty card which is Sainsbury's attempt to catch up with Tesco's customer winning club card. There is also the question of integrity - loyalty schemes have been accused of being solely a data collection exercise so there is a concern that the "big brother" side of loyalty cards may eventually discourage customers from joining.




Management Issue

There are a number of different types of loyalty card. Firstly the manufacturing led cards such as Shell and the coffee houses such as Costa coffee which is put in place to encourage the consumer to return and buy that branded product from that store. In contrast the Retail led cards such as Boots encourage consumers to shop in that store regardless if the brand they are buying – the power is subsequently removed from the manufacturer and placed in the hands of the retailer. This is an issue with British farmers whose brand and quality have been transferred to the retailer, thus leaving them with little or no supplier power. This has been the case in most loyalty card initiatives except when the brand is very strong such as Mars Bar where consumer loyalty is with the brand rather than the retailer. There has also been a third loyalty card introduced and that is the multi chain card such as Nectar which encourages loyalty and quick acquisition of points. So is it a question of gaining power or gaining customers?

• Consumer issue:
With the average consumer carrying about 15 loyalty cards around with them what value does a loyalty card have to the consumer. Why is a loyalty card valuable and what makes it valuable to the consumer is it having special offers to use in store or being able to use it in more than one store?





Research Objectives

 The main loyalty schemes currently in place that have been successful - Boots, Tesco Clubcard and the current launch of Nectar - why have they been successful?
 The problem in introducing loyalty schemes where price becomes a fixation - the airline industry which has been dominated by low cost airlines and made consumers less concerned with the other areas of the marketing mix and fixated on price. Therefore what value has a loyalty scheme in this industry?
 Financial industry - how do they cope in the rush for loyalty? Companies such as Goldfish, mbna, offer point redemption and some of the most successful credit cards have been the charity partnered ones – particularly the RSPB who take a cut of the percentage made from their cards being used. The financial industry have introduced ISAs to encourage customers to save with them every year they are also offering a range of products to increase switching costs and encourage further savings.
 The problem with privacy how does a consumer feel having every detail of their shopping trip recorded?

Research design

It will be necessary to research the background of the loyalty cards to gain an insight into how and why they work/fail. It will also be of primary importance to use primary data such as the consumer view on loyalty schemes and how certain stores have benefited from loyalty schemes and promotions.




Theoretical input


Primary data
 Focus groups with consumers and loyalty card users
 Questionnaires with consumers and loyalty card users
 Interviews with managers within the organisations that have introduced loyalty schemes - BA, Boots, Sainsburys, Tesco (This is yet to be granted) I will approach store managers as well to gain access to how loyalty schemes are benefiting their store

Secondary data

 Marketing database and journals, marketing week, marketing News
 Marketing books -"The Marketing book" "Building brands directly" "Competing on value"



Value of the project

 Organisations are looking to continue with the idea of loyalty schemes in the future this research aims to highlight the pros and cons of investing in a loyalty scheme
 It will also look at the consumers point of view - how they feel and in turn how the companies should be handling their personal data


Timetable

Stage 1 - research the background of loyalty cards - literature survey. Write to companies concerned asking for information.

Stage " - prepare and carry out questionnaires and interviews

Stage 3 - analysis of findings - does it fit/contradict hypothesis

Stage 4 - writing up of findings

Introduction 3


"Throw it away!, cut it in half!, why be loyal to people you despise?" So ended Michael Moore's London stage show in March "003. Moore was referring to the British obsession with the plastic square that has climaxed in recent months with the launch of Nectar. Moore proceeded to cut up thousands of loyalty cards as donated by his audience shouting: "And repeat after me: I am loyal to myself. I am loyal to my community. I am not loyal to corporations."

His opinion of how loyalty cards are dominating our shopping experience, preventing us, the consumer, from really thinking about what we are buying and what that purchase means is one which is echoed amongst consumers and retailers alike. Safeway was forced to withdraw their ABC card as "shoppers had become bored with collecting points and much preferred straightforward money-off and other promotional offers". (WARC "000). This was the first organization to recognize that money could be better spent withdrawing from issuing yet another wallet filler and concentrating on in-store promotions.

Loyalty schemes are costly to set up but the benefits yielded from a successful one are great. It is the large corporations who are able to enjoy knowing intricate details about their customers and adapt their services and products accordingly. The large UK supermarkets are constantly fighting for a competitive edge and because of the huge costs of setting up a loyalty scheme to win and retain customers, smaller organisations barely get a look in; "Grocery retailing in the UK is a classic oligopoly, the top three or four firms accounting for around 60% of the market." (STONE "003) Therefore the ethics around a loyalty scheme cover not only data collection and use but also the domination of few in an industry that provides what we cannot live without.

These large retailers are retaliating. Tesco says that loyalty cards actually give the consumer more power as data collected via these cards can tell the supermarkets what consumers want to buy and how they want to buy it. They are able to continually adapt to consumer needs and a loyalty card, they say, makes it easier for them to implement what the consumer wants, and less time consuming for the customer. After the initial application stage, the customer only has to present his card every time he makes a purchase. Simple.

So the question of value is one which has become important when assessing loyalty schemes. Are they, as Moore suggests, making us slaves to corporations who should know better? Or are they providing real benefit for the consumer who ultimately has a choice whether to partake in these schemes or not?

This research will attempt to identify the true value of the plastic square. Does a loyalty card really benefit Joe Bloggs in his weekly shop and is the information collected really being used to close the gap between what a consumer wants from a retailer and what he actually gets. Alternatively, loyalty cards could merely be a means to groom us to have more expensive tastes and ultimately the value gained via loyalty lies with the corporation rather than the customer.