Benefits of a Loyalty Program - Assignment Example

Name: Tutor: Title: loyalty Program Course: Date: Marketing Consultant Loyalty Program April 25, 2013 The Director, Online Grocery Store, Dear Madam Hereby is a submission of the report on advice in relation to the creation of a loyalty program for the grocery store. The report gives a detailed description of the benefits of a loyalty program, ways of managing the loyalty program and how customers perceive loyalty programs. The description is supported by a survey and its findings that are part of this report. Recommendations have also been included to guide you on the way the loyalty program can be set up. It is with great humility that you are requested to accept this report. Yours faithfully Executive Summary It is quite impossible for businesses to assume loyalty programs in the present market. This is due to many factors and influences from the market that make the market so dynamic and complicated to operate in. This calls for creativity and manoeuvrability so as to be ahead of the game in the market. For a grocery store, it may seem simple to operate it, but it is not simple without the right structures in place to operate it. This requires that such a business is run in a clever manner by incorporating several means to promote the business. Loyalty programs as advised are such a means to promote the business. It is highly recommended that the grocery store adopts the program. Table of Contents Chapter 1 5 Introduction 5 Aims 5 Scope 6 Chapter 2 7 Literature Review 7 The benefits of loyalty programs 7 Management of loyalty programs 8 Customer Perceptions 11 Chapter 3 13 Survey Design 13 Chapter 4 14 Results of the survey 14 Chapter 5 15 Conclusion 15 Recommendations 15 Chapter 6 17 Bibliography 17 Chapter 7 20 Appendix A 20 Appendix B 22 Loyalty Program Introduction Loyalty programs have been used over a period of time by industries, companies and firms in all business sectors primarily to put up, enhance and sustain associations with their customers for the present and long-term future of the existence of these businesses. Loyalty programs can be termed as well put up marketing tactics that prize customers for the way that they frequently buy or seek services from the businesses. The reason that many of the businesses mention for utilising loyalty programs is that they are a means to make profit. This is because they believe that if a customer is loyal and buys or seeks services from the business over a period of time, the customer shall use up more money for the goods or services while at the same time reducing the amount of money required to serve him or her. However, it has been studied and shown that customers who are loyal are not necessarily profitable just in the same way that not all customers who bring profit are loyal. Loyal customers, it is believed, have a greater probability to market the business on their own initiative than customers who are non-loyal hence this is a reason for firms to come up with loyalty programs. In general, loyalty programs are used by marketing arms of firms to provide a means that builds a relationship between the firm and the customer hence markets the firm (Kumar 2008). Aims The aim of this report is to give a detailed description on loyalty programs. The benefit of loyalty programs on the viewpoint of the customer and the business is looked at in this report in regard to the advantages and disadvantages. The manner in which loyalty programs are managed is looked at in the report by comparing brick-and-mortar against online services in regard to their advantages and disadvantages. This report describes the perceptions that customers have on loyalty programs. Do they trust, value or adopt these loyalty programs? Trusting and valuing of the loyalty program is very important if the customer is going to adopt the practices that the loyalty program sets out. Without them, then the loyalty program cannot work or result in the desired outcomes. It is the aim of this report to describe these virtues in regard to loyalty programs and point out their importance in the adoption of the loyalty programs. Scope The aims of this report cannot be attained without looking at the broader scope of loyalty programs. What are loyalty programs? What do they represent in business? How are they implemented? What effect do they have on the market share of a business? Do they help in improving the profits that a business gains or do they reduce these profits? This requires that loyalty programs as a topic be evaluated based on the available literature that touches on them. The way in which businesses manage and organize these loyalty programs will be assessed in this report looking at how the customers view the programs, their attitude and their reaction towards loyalty programs. The ways in which the business and the customers benefit from loyalty programs together with the efforts that the businesses put up to sustain the programs is an aspect that is looked at by this report. To identify the results of loyalty programs, the report includes a survey done on people that helps to understand customer perceptions on loyalty programs. Chapter 2 Literature Review The benefits of loyalty programs When loyalty programs are set up by businesses, their main aim is to gift their customers for buying from them. This signifies a symbiotic relationship between the customer and the business where both of them benefit from the relationship. It is important to note that this relationship benefits the customer and the business on the long term because the programs are not instantaneous but they are implemented over a certain period of time. The timing is thus very important because it determines the benefits the loyalty programs have on the customer and the business (Filip 2011). The main objective of the loyalty program is satisfaction. This means that when a customer buys or seeks services from a business, the loyalty program is set up to satisfy him or her. Satisfaction as benefit ensures that customers are retained by the business hence it eliminates the cost incurred to woe new customers. It benefits the business by ensuring that the business can sustain its profits through the customers who are loyal. Through this loyalty, the business benefits too through the awareness of its product as it can help woe new customers to buy or get service from the business meaning that the business can be chosen for is loyalty programs in spite of competition from other businesses. When the efficiency of the loyalty program is calculated at certain periods over time, it enables the business to increase its rate of conversion and footfalls. This also improves the business product loyalty in the mentality of customers which is a great benefit to the business that helps improve the amount a business sells (Jeevenanda 2011). Loyalty programs also ensures that the period a customer buys or seeks service from the business is increased hence the business can attain the end of year returns. When customers are recognized by a loyalty program, it improves their loyalty, however this means that the business will have to continue with the program so as to retain the best customers, this is a disadvantage to the business (Schenck 2012). It is also worthy to note that when the loyalty program ends, it is most likely that the business shall lose its customers. In part of the consumer, he or she benefits by getting economic benefits from the programs. Economic benefits include getting free services or prizes from the business which helps the customer save. However on the side of the business this means it has to incur more costs to provide this to the customer. The customer also benefits psychologically by making the customer feel appreciated and recognized which can improve their health and improve the relationship between the customer and the business. Loyalty programs also benefits the customers psychologically by giving them the chance to treat themselves with comfort from the program. The business then benefits by being getting better valuation from its customers and competitors (Jeon 2008). The disadvantage is that if loyalty programs offer so many options and a small switching hindrance, it simplifies the probability of customers switching among several businesses. This threatens the relationship between the customer and the business negatively (Liu 2007). However, if the customer chooses to switch businesses, it increases the cost on the customers’ part which is a disadvantage to them. Switching costs include effort, money and time that the customer uses (Wirtz, Mattila & Lwin n.d). Management of loyalty programs; brick and mortar versus online environment When it comes to the management of loyalty programs, various ways can be used to do so depending on the suitability of the business to manage the loyalty programs through such ways. The most important part of managing a loyalty program according to Jyoti (n.d) is to understand the customer. For a business to understand its customers, it must analyse the customers. This assessment can be approached in different ways, either through a brick and mortar approach or through the internet. Analysing customers through the brick and mortar approach is very involving. This is because it requires the business to use manual resources to document the behaviour of its customers. This is a challenging aspect for brick and mortar businesses to match the documented customer behaviour such as the purchases made at a time and how frequently such purchases are done by the customer. This requires businesses to incur more costs in putting up means to document the behaviour of customers that includes the use of loyalty cards. Loyalty cards are an expense to the business and also a load on the customer to keep on carrying and using it which is a disadvantage to the brick and mortar management model (Blattberg 2008). Looking at the internet strategy, it is much easier to collect customer data for use in loyalty programs management as opposed to the brick and mortar model. The customer must first register his or her details at a website so as to be allowed to access the loyalty program online. The purchasing trends of a customer are collected by software which then analyse them to help in managing the loyalty program. This raises the question of a breach of privacy on the customer’s part as so much information about the customer is collected without their knowledge. It downgrades the trust that many customers have on the use of the internet strategy however much they would like to participate in a loyalty program (Coronas & Oliva eds. 2005). The internet strategy provides numerous benefits for the loyalty program by having readily available information about the customers, simplifying the purchasing power, and allowing customer interaction on one platform like a website or a portal but it makes it hard for businesses to get hold of these benefits as profits. The internet strategy decreases the attractiveness of the structures put up by brick and mortar businesses hence decrease the impact of loyalty programs set up by these businesses. The internet strategy to manage loyalty programs gets rid of and reduces the need for certain resources that may need a lot of time to put up and are also costly. It eliminates the need for physical resources for implementing loyalty programs through sites such as websites that are easily accessible on the internet. However, it is challenging for them to control the dimension the loyalty program takes due to the fact that they cannot put up an entry blockade. This may have a spiralling effect on the loyalty program where its aims are diffused by so many numbers (Srinivasan et al. 2007). In spite of this, the internet strategy is very advantageous because it builds up a feeling of handiness whereby the customer finds it easy to depend on the loyalty program due to the handiness brought about by it. Due to the diversity and broadness of the internet, the effectiveness of many loyalty programs that are managed online is brought down. This is because it gives power to the customers to choose from a variety of loyalty programs that are largely available on the internet hence reducing the value of these loyalty programs as they are so many on just one platform. The switching costs that work very effectively in the brick and mortar strategies are reduced in the internet strategy where the customer with just several clicks can switch between certain loyalty programs which appeal to them. In the brick and mortar strategy, information about the loyalty program is available to the customer at the business and it is only about that loyalty program without the presence of other information that talks about other loyalty programs (Srinivasan et al. 2007). It is also easier for businesses to make losses than profits just as it is simple for them to make profits through loyalty programs managed through the internet. But for the brick and mortar model it is quite constant on the profits it generates through a loyalty program (Srinivasan et al. 2007). Internet strategy to manage loyalty programs offers the ability to sustain a low cost loyalty program organization when compared to the brick and mortar strategy. Brick and mortar strategy requires that businesses provide the customers with sales persons who enlighten them about the loyalty program. This is advantageous in that the business can easily get the feedback from the customer. Also, the business is able to guide a customer through the loyalty program individually as opposed to the internet model where the customer has the responsibility of guiding him or herself (Hill & Jones 2012). Customer perceptions; trust, value and adoption The way in which a customer perceives a loyalty program is very fundamental on whether that customer adopts the loyalty program or does not adopt the loyalty program. This is dependent on factors such as the trust the customer has on the loyalty program and the value the loyalty program offers to the customer. Thus for a loyalty program to be successful, then the relationship that the business creates between itself and the customers should have to be based on trust and value. Loyalty is a behaviour that customers show in their buying and seeking of services from a business (Reinartz 2012). If the customer trusts a business or service, it is easier for the business or service provider to roll out a loyalty program and have it readily accepted by its customers. This trust is developed by the business or service provider meeting the main necessities that the customer wanted in the past. Hence, the customer can trust the business or service provider to achieve the needs of the customer through the loyalty program (Shimomura & Kimita 2013). If the customer perceives that the loyalty program delivers value to his or her needs, then the customer is likely to adopt whatever he or she is offered and even market it. Through this perception of value, it defines the benefits that both the customer and the business gains from adopting the loyalty program. This means that the business gains a high market value for what it has to offer (Schwalbach 2010). When a loyalty program offers value to the customer, then the customer becomes loyal to the program. This way, the trust of the customer is captured hence stimulating the adoption of the loyalty program as it satisfies the key customer needs (Eid 2012). The above literature shows us that customer perception, trust, value and adoption are interconnected and can be studied through loyalty programs (Auka 2012). Chapter 3 Survey design The perception that the loyalty program earns from the customers and the effect it has on the business can be analysed through a survey on the customers and on the businesses returns and position in the market. This survey was done on ten people. The reason for this survey design is because as a business there is need for a well-built and wide scope of customers who are satisfied with what is offered to them. The reason certain questions were asked was to understand why customers buy certain products or services and if they do not, why so? The data was collected through documenting of the answers the customers gave from a questionnaire. The survey as indicated in appendix A included questions such as why the customer is not satisfied with the product. Would the customer buy from the business again? This helped in knowing the effect the loyalty program had and what effect the products had on the loyalty program. Chapter 4 Results of the survey Persons Questions A B C D E F G H I J 1 22 30 28 35 26 25 38 56 48 40 2 Male Female Female Male Female Male Female Female Female Female 3 Yes No Yes Yes Yes Yes No Yes Yes Yes 4 Yes No Yes Yes Yes Yes No Yes Yes Yes 5 Yes No Yes Yes No Yes No Yes Yes Yes 6 Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 7 Yes Yes Yes Yes Yes Yes No Yes Yes Yes 8 No Yes No No No Yes Yes No No No 9 Every Week Every Month Every Day Every Day Every Day Every Week Every Day Every Week Every Week Every Week 10 Service Value Service Service Value Trust Value Service Value Trust Chapter 5 Conclusion From the above report, it is quite clear that loyalty programs are beneficial to both the customers and the businesses that offer them. This can be termed as a symbiotic relationship as it is mutually beneficial to either party. It is also important to note that the success of a loyalty program is determined by how well it is managed. The approach that a business utilizes to manage the loyalty program affects the return that the loyalty program brings to the business. It also determines how the loyalty program is accepted by the customers. It can be concluded that not all loyal customers bring profit to the business, and that not all customers who bring profit to the business are loyal. The customer perception is very much determined by the length of time that a customer has been a recipient of goods or services offered by the business. Customers who have been with interaction with the business for a long period of time means that they have trust in the business, value what the business has to offer hence perceive the business positively. This makes them more receptive and ready to adopt loyalty programs offered by the business. Recommendations The following recommendations are suggested: 1. That the grocery store launches a loyalty program that offer gifts which are meaningful. This can be done by gifting customers when they have visited the grocery store a certain number of times. 2. The store may also include immediate gifts once they register for the loyalty program. This incentive motivates customers to join the loyalty program. 3. The grocery store should ensure that the immediate gifts are given to the customer there and then to build the impression that the loyalty program is real. 4. The loyalty program may also be tailored to benefit the customer personally. This can be done by involving the birthday dates of customers as days when they can receive a free trip to a holiday destination. 5. The timing of the period to offer the loyalty program should be done when the customers are perceived to be at their best economically. 6. The grocery store should also emphasize to the customer on the security of their personal details. This helps build trust towards the loyalty program. 7. If the store had previous programs that did well and are still ongoing. The loyalty program should be incorporated with them. This enhances the success of the loyalty program 8. It should also be important to ensure that the loyalty program is simple. 9. The grocery store staff should also be active participants of the loyalty program as they will help promote it. 10. The store could also offer incentives to the customers who are on the program like exclusive parking space for the customers, free deliveries and special numbers to call the store. Bibliography References Auka, DA 2012, Service quality, satisfaction, perceived value and loyalty among customers in commercial banking in Nakuru Municipality, Kenya, African Journal of Marketing Management, vol. 4, no. 5, pp. 185-203, viewed 25 April 2013, http://www.academicjournals.org/AJMM Blattberg, CR, Kim, B, Kim, P & Neslin,SA 2008, Database Marketing: Analyzing and Managing Customers, Springer. Chetan, S & China, BG 2011, Impact of loyalty program on retailing business in India: creating long term customer relationships, European Journal of Management, vol. 11, no. 4, pp. 1555-4015, viewed 25 April 2013, http://www.freepatentsonline.com/article/European-Journal-Management/272511401.html Coronas, MTT & Oliva, MA 2005, E-Human Resources Management[: Managing Knowledge People, Idea Group Inc (IGI). Eid, R (ed.) 2012, Successful Customer Relationship Management Programs and Technologies: Issues and Trends, IGI Global Snippet. Fillip, A 2011, Loyalty Programs. Role, Structure and Potential Benefits, International Journal of Economic Practices and Theories, vol. 1, no. 2, pp. 2247-7225, viewed 25 April 2013, http://www.ijept.org/index.php/ijept/article/view/12 Gomez, BG, Arranz, GA & Cillan, JG 1984, The role of loyalty programs in behavioral and affective loyalty, Journal of Consumer Marketing, vol. 23, no. 7, pp. 387-396, viewed 25 April 2013, http://www.emeraldinsight.com/journals.htm?articleid=1580836 Hill, CWL & Jones, GR 2012, Strategic Management: An Integrated Approach, 10th edn, Cengage Learning. Jeevananda, S 2011, Influence of Customer Loyalty Programs on Buying Desicions, Research Journal of Economics & Business Studies, vol. 1, no. 1, viewed 25 April 2013, http://www.theinternationaljournal.org/ojs/index.php?journal=rjebs&page=article&op=view&path[]=381 Jeon, SM 2008, The Influence of Perceived Loyalty Program Value on Satisfaction, Switching Costs, and Attitudinal and Behavioral Loyalty: An Empirical Investigation of a Casino Loyalty, Michigan State University. Jyoti, A n.d, Marketing Management, Gyan Publishing House. Kumar, V & Reinartz W 2012, Customer Relationship Management: Concept, Strategy and Tools, 2nd edn, Springer. Liu, Y 2007, The Long-Term Impact of Loyalty Programs on Consumer Purchase Behaviour and Loyalty, Journal of Marketing, vol. 71, pp. 19-35, viewed 25 April 2013, http://www.marketingpower.com/jmblog. Meyer-Waarden, L & Benavent, C 2012, Rewards That Reward Most customer-loyalty programs don't boost market share. Here's how to improve the odds, The Wall Street Journal. Ott, B 2011, Making Loyalty Programs Work, Gallup Business Journal, viewed 25 April 2013, http://businessjournal.gallup.com/content/149570/making-loyalty-programs-work.aspx#1 Schenck, BF 2012, Small Business Marketing Kit For Dummies, 3rd edn, John Wiley & Sons. Schwalbach, J (ed.) 2010, Corporate Social Responsibility and Stakeholder Dynamics, Springer. Shimomura, Y & Kimita, K 2013, The Philosopher's Stone for Sustainability: Proceedings of the 4th CIRP International Conference on Industrial Product-Service Systems, Tokyo, Japan, November 8th - 9th, 2012, Springer. Srinivasan & Gollakota, G, Gupta, V, Gollakota, K & Srinivasan, R 2007, Business Policy and Strategic Management: Concepts and Applications, 2nd edn, PHI Learning Pvt. Ltd. Wirtz, J, Mattila, AS & Lwin MO N n.d, How Effective Are Loyalty Reward Programs in Driving Share of Wallet? Forthcoming in Journal of Service Research, viewed 25th April 2013, https://www.google.com/search?q=How+Effective+Are+Loyalty+Reward+Programs+in+Driving+Share+of+Wallet%3F&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a Chapter 7 Appendices Appendix A 1. Your age group 18-35 35-50 50 and over 2. Your gender Male Female 3. Are you gratified with our products? Yes No 4. Shall you buy from the store again? Yes No 5. Would you encourage other people to buy from this store? Yes No 6. Did someone explain to you about the program on offer in the store? Yes No 7. Was the explanation sufficient enough for you? Yes No 8. Do you buy from other stores are within this locality? Yes No 9. How often do you buy from this store? Every day Every week Every month 10. What makes you buy from this store? Value Trust Service Appendix B 1. Your age group 18-35 years 60% of people 35-50 years 30% of people 50 and over 10% of people 2. Your gender Male 30% of people Female 70% of people 3. Are you gratified with our products? Yes 80% No 20% 4. Shall you buy from the store again? Yes 80% No 20% 5. Would you encourage other people to buy from this store? Yes 70% No 30% 6. Did someone explain to you about the program on offer in the store? Yes 100% No 0% 7. Was the explanation sufficient enough for you? Yes 90% No 10% 8. Do you buy from other stores that are within this locality? Yes 30% No 70% 9. How often do you buy from this store? Every day 40% Every week 50% Every month 10% 10. What makes you buy from this store? Value 40% Trust 20% Service 40% Read More