Customer Loyalty and Relationship Marketing of Starobe Company - Assignment Example

Letter of transmittal Chief Executive Officer, Starobe Company, Dear CEO, I would to present to you a report concerning the effectiveness of Customer Loyalty and Relationship Marketing. It was signed on March 30, 2012. I prepared the report in compliance with company requirements and standards. Its main purpose is to demonstrate benefits of employing Customer Loyalty and Relationship Marketing in the company. It covers the executive summary, background information of the company, aims and scope; evidence-based literature review, findings, conclusion and recommendations. Therefore, the action requested in the report is the approval of the use of CLRM strategy in the company. Sincerely, Executive summary This is a report of Starobe Company that concerns the possibility and effectiveness of employing Customer Loyalty and Relationship Marketing (CLRM). The company will be opened in Melbourne, Australia, and its main business is in banking. The company will majorly deal in receiving deposits, providing channels of lending activities, and mortgages. The company’s personnel will consist of the Chief executive Officer, directors, departmental managers, accountants, customer service personnel, sales officers, as well as subordinate employees. The company will open new branches in future in across Victoria, and its main target market constitutes professionals, farmers, and business people. In order to cope with the competition offered by the already existing firms in the area, Starobe Company will employ a wide variety of marketing strategies, such as, advertisement, use of social network sites like Facebook and Twitter, Sales Promotion, and trade shows. Most importantly, the firm intends to utilize a Customer Loyalty Relationship Marketing (CLRM) strategy in order to improve its client acquisition and retention rates, increase profits and sales, and promote its general performance. This report explores the effectiveness of loyalty programs by the company by using evidence-based literature review. It also determines the benefits of customer retention, as well as ways of managing value by use of loyalty programs. It will also analyze some of the survey findings achieved in relation to the effectiveness of CLRM strategy. It also identifies and describes some of the existing loyalty programs of companies, their benefits and limitations. Table of contents Lists of Tables and charts Tables and charts 1. Appendix A 2. Appendix B 3. Appendix C 4. Appendix D Introduction Background Information Starobe Company is a financial firm that is set to start this year, and it will be situated in Melbourne, Australia. The company will deal in banking activities, such as, taking deposits, channeling money into lending activities; and holding mortgages. The company personnel will comprise of the Chief Executive Officer, directors, departmental managers, accountants, sales persons, and subordinate staff. The main target market of the company consists of professionals, business people, and farmers around the city. The company’s expansion strategy involves establishment of various branches across Victoria region after some years of launching the main branch in Melbourne, which will be the Headquarters. The company targets a profit of Starobe Company $1million at the first year; $ 2.5million at the second financial year; and $5million at the third financial year. It also intends to employ various marketing strategies, especially the CLRM strategy in order to acquire and retain as many customers as possible. Aims The main purpose of this study is to explore the effectiveness of employing Customer Loyalty and Relationship Marketing. It intends to identify some of the loyalty programs that are used by organizations in the world today. Besides, the study is set to examine some of the benefits related to the use of loyalty programs in business, as well as their probable drawbacks. Additionally, the study attempts to identify some of the existing loyalty programs employed by various companies in the world, and how the programs have influenced their customer retention and acquisition. It also analyses the benefits of retaining clients. Scope The study will address the loyalty programs that are currently used by businesses in the world. It will also explore the benefits of retaining clients, as well as using loyalty programs in business. It will also explore ways in which loyalty programs helps in the management of customer value, and client sacrifices and benefits in the value equation. Nevertheless, the study will not address customer relationships management (CRM) and their benefits in business. Customer Loyalty and Relationship Marketing Literature-based Evidence Managing Value through Loyalty Programs Customer Loyalty and Relationship marketing is one of the tools that various companies employ in order to maintain their customer base, customer loyalty and customer value. Every company strives to create and maintain customer value so as to enhance their performance, and achievement of their set goals and objectives (Pease, 2001, pp. 4-12). One way of creating and managing value in business organization is through the employment of loyalty programs. Loyalty programs or retention programs are widely used in the world today, for instance, there are preferred client card program by apparel firms; flyer programs by airline companies; stamp card by a sandwich shop; third party programs, credit-card-bases points; annual membership fee by membership-based firms; and points by department stores among others (Lindgreen, & Wynstra 2005, pp. 738-748). The primary, common goal of the aforementioned loyalty programs is to get a client who is currently a buyer of the company involved to buy once again from the business. Lawson-Body and Limayem (2004, pp.1-4) says that loyalty activities can lead to a customer’s repeated visit to the firm; increased number of purchases made through up-selling and cross-selling; increased frequency visits of clients to the firm; shift to higher margin services and products; and referring of family and friends to the firm by a loyal client (Pease, 2001, pp. 4-12). Therefore, loyalty programs are compilation of activities that can allow a firm manager to motivate the aforementioned behaviors among customers. Besides, Soman (2010, pp. 174-85) holds that each of the instances provided above is used by the firm to target present buyer of the service or product by use of certain form of method intended to incentivize the client to make repeat purchases of similar or other products or services from the same company. There are numerous specific variations in the loyalty programs used by organizations. Some of the firms allow clients to earn the motivation upon making a single purchase, whereas in others, they earn the motivation or incentive after a certain number of purchases. In addition, there are companies that implement the program through lowering prices of their products and services, while in others; loyal clients receive gifts and other kinds of recognition. What is more, there companies whose programs buy loyalty; the need the clients to dedicate upfront to a purchase like applying for a car or membership before beginning to reap the rewards. On the other hand, there organizations that recompense loyalty; they give their customers rewards dependent on the amount of purchases made. The programs also vary according to time perspective upon which loyalty is recompensed. Other factors that distinguish loyalty programs include the use of historical information in generating promotions, and employment of a third-party vendor. Soman (2010, pp. 174-85) notes that an appropriate loyalty program that is effective in the management of value ought to perform certain functions. First, a good loyalty programs should create differentiation. This implies that the program should have the potential of allowing the company to treat or handle different clients distinctly. Secondly, a proper loyalty program should also be able to facilitate promotional strategies to be pursued. This means that the program ought to identify which clients would grow in value because of a certain intervention, and employ the intervention on to the specific customers. Additionally, a successful loyalty program ought to bring promotional interventions that draw particular behavior. This implies that instead of vague objective of raising the number of sales or amount of profits, the targeted interventions ought to be intended to elicit particular behaviors, such as, increased basket size, and increased frequency visits to the firm. According to Koçoğlu and Kirmaci (2012, pp. 282-290), other ways in which firms maintain customer loyalty is through rewarding clients which bring or refer new customers to the firms; sending of thank-cards to clients; sending private or personal letters; reminding clients through phone; preparing occasions and events unique to clients; selecting the field that they are the best; assessing client complaints in-depth, and providing instant responses. As a result, the customers’ needs are met, and thus value and their loyalty will be successful managed (Kothandaraman & Wilson 2001, pp. 379-389). Customer Benefits and Sacrifices in the Value Equation A commonly maintained present conceptualization of client value views value to be consumer’s subjective trade-off between perceived cost exchange components and perceived benefit. There are two options that have been proposed to refer to value: value could be viewed as the variation amid benefits and costs, or it could be explained as the proportion of benefits and cost. This is conveniently described as follows: Ratio Model: V=B/S (Christopher 1996, pp. 55-66) Subtracting model: V=B-S; where B stands for perceived benefits, while S stands for perceived costs (Blois 2003, pp.16-22). Blois (2003, pp.16-22) also says that clients visualize value in four ways that include value as low price; value as anything they want in products; value as the quality achieved from the price paid; and value as what they get for what they give. Therefore, perceived value refers to the client’s general evaluation of the product’s utility based on views of what is obtained and what is given out in exchange. This implies that values is a representation of an exchange of the significant give and get mechanism. Various customers will usually have distinct significant tradeoff components and will measure mechanisms differently. Both the sacrifice (give) and benefit (get) components included in the collection of various qualities; particularly the sacrifice constituents are financial and non-financial elements. Promotion researchers seem to emphasize on customer value since marketing theory and practice has basically focused on the conversion of the seller’s products and services into money. Nevertheless, with the increased attention to supplier-client association instead of merely making the sale, the supplier value perception has become of great interest (Christopher 1996, pp. 55-66). On the other hand, supplier value is termed as perceived exchange between many benefits and sacrifices achieved through customer relationship by major decision makers in the supplier’s firm. This is an easy movement of the sacrifice-benefit idea of client value to the supplier. Because the supplier is conceived as a firm, key decision makers in the firm are considered to be judges of value. Blois (2003, pp. 16-22) suggested the use of value equations in business-to-business tradeoffs, and asserted that both involved parties in the exchanges have a needs list, and as a result, they both may be viewed to have exchange value equation. Promotion literature has absolutely stressed on the client’s value equation, but so as to facilitate an exchange to happen, both parties to the process should anticipate more benefits than the sacrifices of the exchange. Therefore, Blois (2003, pp. 16-22), postulated value equations of the kind: Bs – Sas = Vs: Supplier’s value equation Bc – Sac = Vc: Client’s value equation Additionally, there are descriptive outlines of the probable of the sacrifices ad benefits in business-to-business markets. These are both life-cycle and short-term sacrifices and benefits, and both simply measurable in financial terms and indefinable sacrifices and benefits (Walter, Ritter, & Gemunden 2001, pp. 365-377). Benefit of Retaining Customers Customer Loyalty and Relationship Marketing is also said to influence a business’s acquisition and retention of customers. When a firm successfully acquires and retains customers, there are numerous benefits that the same firm can enjoy. To start with, Gibson (2011, pp. 118-125) says that the firm has a probability of a repeat business by the retained clients. This is one of the most likely advantages of retaining clients by an organization. When a company ensures that it offers effective services, clients’ needs are satisfied; hence development of loyalty (McBride 2007). Customers gradually develop loyalty if the company effectively identifies and meets their needs, and thus will keep visiting the business for more purchases. Repeat business is a model of a win-win business or service provider proposition, and the client. The business lowers the customer acquisition costs, where the client lowers the expenses incurred in the process of identifying a reliable vendor; hence, also saves on costs related to switching vendors. Furthermore, McBride (2007) says that customer retention benefits a business in fostering greater communication between customer and the business. Present markets are progressively shifting away from collectively produced standards services and products, to a more modified market in which services and products are designed to satisfy client’s specific needs. Having a repeat client is chance for a firm to develop a more determined association that is based on client’s particular requirements and needs. An assurance of a returning customer gives a firm confidence to propose enhancements, offer insights to enhance understanding of their needs, and as a result, design services and products that are appropriate. Besides, customer retention in business provided a chance for a purchaser and the vendor to co-create services and products. Additionally, Gibson (2011, pp. 118-125) argues that retention of customers in a firm is beneficial in that it reduces costs of client acquisition. This is because every time a business attempts to acquire a new client, it incurs certain expenses. These include expenses relating to advertising, follow-up activities, sales demonstrations, meeting and travel costs. If a company has a repeat client, it implies that the client is already aware of its processes and foresee a certain quality of products; hence lowering costs incurred in new consumer acquisition. Besides, Raab (2008, pp. 82-100) says that a retained consumer in a firm has the ability to open facilitate a new mode of advertising the business through a word of mouth. This implies that a repeat customer can verbally promote the business through comments and recommendations to friends and relatives. What is more, Raab (2008, pp. 82-100) asserts that a firm that retains its customers benefits by having pleased customers. Successful client retention strategies enable a firm to move from the consumer satisfaction zone towards a consumer delight zone. Studies demonstrate that client delight is only achievable through a ideal synergy existing between a purchaser and a vendor; when the vendor understands accurately what the purchaser requires, and when the purchaser understands what the vendor can produce precisely what he requires. If the firm can please its clients, it has better opportunities of having them revisit because they are aware that the company is different from the others in the competition (McBride 2007). Survey Findings In order to verify what is in the literature review, it was imperative to conduct a survey on a certain sample of people. Here, ten people were interviewed on the issues relating to the benefits of using CLRM strategy in an organization. The survey was conducted in some companies in Melbourne, and the population comprised of workers of the selected firms in the city like Starbucks. The information was collected by the use of questionnaires and face-to-face interviews. Some of the questions asked in the survey related to their perception on loyalty programs; their thoughts on CLRM; whether they employ loyalty programs in their firms; the kind of benefits they get from using the loyalty programs; and whether they have experienced any negative effects or challenges associated with loyalty programs. According to the survey findings, eight out of the ten respondents said that they were aware of the loyalty programs. The seven out of then of participants responded that loyalty programs are beneficial in business. Two out of the ten respondents said that they did not know what loyalty programs are. Additionally, five of the respondents said that their companies employ more than one loyalty programs that included points, recognition, and cards. Additionally, eight of the participants in the survey responded that loyalty programs have numerous benefits in business that include customer retention, enhanced interaction, low customer acquisition costs; increased profits; and widened market size, and strong brand. These results are presented in tables in the Appendices section below. Existing Loyalty and Relationship Marketing Programs My Starbucks Rewards This is one of the most successful loyalty programs that businesses are employing in order to increase their customer acquisition and retention rates. The loyalty program is the current strategy that the company is employing has proved to be of great success as the company is making huge sales than when it was using the previous ‘Gold’ Loyalty Program. The company enrolls clients to the program free of charge, and they may load any quantity on the gift card, and register it so as to safeguard the balance and begin to collect stars. Since clients load cash on the card, it gives them a sense that they can access the drinks free whenever the visit the company and use their credits (Brooks 2010, pp. 1-20). According to Brooks (2010, pp. 1-20), every time their purchase coffee at Starbucks, they acquire one star. The more stars they acquire, the greater rewards are. When they subscribe to the company’s loyalty card, they get to the Welcome Level that involves a free birthday drink. Upon earning five stars on their loyalty card, they get to the Green Level where they obtain free refills of brewed tea or coffee; free choose milk and syrups whenever they order a drink off the menu; free trial offers; and a free drink whenever they purchase whole bean coffee. When clients have amass 30 stars, the get the Gold Level at which they obtain a free beverage for every 15 stars, a modified Gold Card that identifies them as preferred clients, and personalized coupons and offers (Brooks 2010, pp. 1-20). This program is beneficial in that it boosts the company sales, profits, consumer acquisition and retention, engages clients, and reduced costs of client acquisition. Nonetheless, use loyalty card is risky for business growth if the firm develops a wrong strategy. Too much promotional activities may be a turn-off, and can be disregarded by prospective customers. They can also reduce profits, as overuse of loyalty cards can render other marketing strategies useless. Customers get used to incentives so that they stop purchasing if they are removed. It might also lead to lowered brand value (Brooks 2010, pp. 1-20). Asia Miles This is one of the leading loyalty programs used by airline firms in the world. It offers clients a world of thrilling rewards fit their lifestyles. Customers flying with 21 Asia Miles partner airlines like Dragonair and Cathay Pacific earn Asia Miles to flight upgrades, awards, companion tickets and other awards. The program is free to join, and clients earn first class-150% of real miles flown; business class for 125% of real miles covered; Premium Economy Class for every 110% of real miles covered; and Economy Class for between 100% and 50% of real miles flown (Beiske 2007, pp. 35-45). Beiske (2007, pp. 35-45) says that apart from buying duty-free products and flying on Cathay Pacific, clients may earn Asia Miles just by doing what they usually do, such as, staying at hotels, dining, or spending on their credit card. In fact, there are more than 400 partners in 9 classes globally from which clients can choose. For instance, with 15,796 Asia Miles, clients can get a round-journey Economy Class ticket from Hong Kong to Taipei. This program is influential since it boosts the companies’ customer basing through raised acquisition and retention rates; low client acquisition expenses; improved profits and general performance. Nevertheless, too much employment of the program can endanger the firms’ growth, lower their brand value, or reduced profits if other marketing strategies become useless (Soman 2010, pp. 174-85). Conclusion Explicitly, many companies are employing CLRM strategy in their marketing campaigns, today. As a result, companies are making a lot of profits, as well as improving their overall performance through the use of loyalty programs. Customer retention is beneficial to a business in that it creates a probability of a repeat business; reduces costs of acquiring new clients; fosters enhanced communication between the business and clients; increase sales; raises profit levels; and acquires pleased clients. Additionally, loyalty programs help in the management of customer value, and influences benefits and sacrifices of clients in value equations. Presently, certain companies are using loyalty programs like in Starbucks, there is the My Starbucks Rewards, while in Cathay Pacific, there is the use of Asia Miles so as to enhance customer loyalty and improve business performance. Nonetheless, loyalty programs ought to be used appropriately because they are capable of endangering their business growth; reducing profits and lowering the brand’s value. Recommendation Since the facts above demonstrate that loyalty programs have many benefits than drawbacks to a business, it is imperative that Starobe Company adopts the CLRM strategy so as to boost its performance, cope with competition by existing firms, and to acquire and retain as many clients as possible. Therefore, the company should design its strategy appropriately so as to reap its full benefits. It should also use alternative marketing strategies so as to avoid excessive use of loyalty programs. References Beiske, B 2007, Loyalty management in the airline industry, GRIN Verlag GmbH, München. Pp. 35-45. Blois, K 2003, ‘Using value equations to analyze exchanges’, Marketing Intelligence and Planning, vol. 21, no.1, 16-22. Brooks, R 2010, The power of loyalty: 10 essential steps to build a successful customer loyalty strategy, Entrepreneur Press, Irvine, Calif. Pp. 1-20. Christopher, M 1996, 'From brand values to customer value', Journal of Marketing Practice: Applied Marketing Science, vol. 2, no. 1, pp. 55-66. Gibson, P 2011, The world of customer service, South-Western Cengage Learning distributor, Mason, Ohio Andover. Pp. 118-125. Koçoğlu, D & Kirmaci, S 2012, ‘Customer Relationship Management and Customer Loyalty; A Survey in the Sector of Banking’, International Journal of Business and Social Science, vol. 3, no. 3, pp. 282-290. Kothandaraman, P, & Wilson, DT 2001, ‘The Future of Competition: Value-Creating Networks’, Industrial Marketing Management, vol. 30, no.2, pp. 379-389. Lawson-Body, A & Limayem, M 2004, ‘The Impact of Customer Relationship Management on Customer Loyalty: The Moderating Role of Web Site Characteristics’, JCMC, vol. 9, no.44, pp. 1-5. Lindgreen, A., & Wynstra, F 2005, ‘Value in business markets: What do we know? Where are we going?’ Industrial Marketing Management, vol. 34, no.7, pp. 732- 748. McBride, S 2007, Sales Promotions: The Benefits of Loyalty Programs, Sales News, retrieved on March 30, 2012. http://archive.salesnewz.com/2007/0607.html Pease, J 2001, Customer Value Management; New Techniques for Maximizing the Lifetime Profitability of your Customer Base, Business Objects. Pp.4-12. http://www.businessobjects.com/pdf/solutions/white_paper_cvm_new_technique s.pdf Raab, G 2008, Customer relationship management: a global perspective, Gower, Aldershot, Hampshire, England Burlington, VT. Pp. 82-100. Soman, D 2010, Managing customer value: one stage at a time, World Scientific Pub, Singapore Hackensack, NJ. Pp. 174-185. Walter, A, Ritter, T, & Gemunden, H-G 2001, ‘Value Creation in Buyer-Seller Relationships’, Industrial Marketing Management, vol. 30, no.4, pp. 365-377. Appendices Appendix A Aware of loyalty programs Number Percentage (%) Yes 7 70 No 3 30 Total 10 100 Appendix B Use of loyalty programs in their firms Number Percentage (%) Yes 8 80 No 2 20 Total 10 100 Appendix C Are loyalty programs beneficial to their firms? Number Percentage (%) Yes 8 80 No 2 20 Total 10 100 Appendix D Use of more than one loyalty programs by their firms Number Percentage (%) Confirmed 5 50 Objected 3 30% Unsure 2 20 Total 10 100 Read More