The paper "How Tesco’ s Loyalty Schemes Affect Customers" is a perfect example of a marketing case study. A research conducted by Click Fox in 2012 regarding the effect of various customer loyalty schemes by various companies towards various schemes and how this affects their buying decision indicated that more than half of customers would consider increasing the amount of business they did with a brand for a loyalty reward. In fact, 46% of the customers had already become addicted to a brand owing to loyalty schemes at the time of the research.
This is an indication that customer loyalty has a big role to play to a company’ s bottom line and hence the reason various companies adopt various kind of loyalty schemes in a bid to boost customer loyalty to their products. This has been proved right by a report from Bain & Company that indicated that businesses grow their customer retention rates by as low as 5% are bound to increase their profitability with ranges of 25% to 95%. To boost customer’ s loyalty, companies adopt various loyalty programs that range from reward for total spending schemes, paid upfront reward programs among others.
It should, however, be noted that not all the loyalty programs adopted by companies succeed. Some companies have failed to achieve their goals of introducing loyalty programs and have even performed worse after introducing such schemes. As such, this research is aimed at investigating why some loyalty schemes fail while others succeed. In so doing, the project looks at the effect that Tesco’ s loyalty schemes usually have on the company’ s customers and hence why the company has succeeded where others have failed. Literature review There is a lot of literature revealing that many investigations have been conducted towards improving the general understanding of loyalty programs as well as the effect they have on customer loyalty and hence retention.
Liu (2007) conducted a study in a convenience store and concluded that use of loyalty programs would lead to increase in the level of purchases done by moderate and light buyers while helping increase their loyalty towards the business using the loyalty scheme. A study conducted among Dutch households by Smidts et al (2007) revealed that the establishment of loyalty program membership schemes would significantly impact the customer’ s share of wallet with the grocery store providing the loyalty scheme.
In their study of members of a large scale loyalty program, Sharp and Sharp (2007) reported a mixed effect of the program on customer’ s purchase behaviour. These views are supported by Brown (2000) and Kalakota and Robinson (1999) who state that the aim of loyalty schemes is twofold including increasing sales revenue through increased usage levels and product range sought by customers and helping build a closer bond between current customers and the brand hence helping maintain a current customer base. A lot of literature exists on the structure and organization of loyalty programs.
For instance, Johnson (1998) identifies five different types of loyalty programs that he calls rebate program, reward program, partnership program, appreciation program and affinity program. Jones (2005) states that the differing types of loyalty schemes have unique structures that businesses can use in achieving specific goals. According to Hoffman and Lowitt (2008), organizations need to consider a number of factors including the cash value of the reward, reward choice, the aspirational value attached to it, its relevance to the customer as well as convenience in designing loyalty schemes.
Noble and Philips (2004) state that loyalty schemes are likely to fail if designed with a short term orientation and when they fail to be aligned to customer’ s interest. This would make customers switch to competitor programs that offer the same benefits. On the other hand, Wendlandt (2007), attribute failure of loyalty schemes to customers concern for time, the unattractiveness of the program benefits as well as perceived personal losses including loss of privacy or status.
Wendlandt (2007) attribute such failure to loss of customer’ s freedom in choosing brands as well as the presence of contractual bonds such as minimum purchase levels. Demoulin and Zidda (2009) on the other hand state that perception of the scheme’ s advantages, its complexity, number of loyalty cards in a customer’ s possession and the proximity of the customer to the store offering the scheme would greatly influence such a store’ s acceptance and hence its success. Oliver (2009) on the other hand states that customer loyalty as far as attitudinal loyalty or the customers' disposition towards the store offering the scheme and behavioural loyalty or actual purchases made from the store in question would influence the chances that the customer will accept the program and hence its success.
Dick and Bisau (2004), hold a similar view that attitudinal loyalty measures including a customer’ s commitment to the store would influence the decision of the customer to either accept or reject the royalty program and hence its success more than the customer’ s behavioural loyalty towards the store would.
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