Nexus Drinks - Customer Loyalty and Relationship Marketing - Case Study Example

Customer Loyalty and Relationship Marketing Letter of transmittal Dear Mr Smith As agreed on 4th April 2012, I’m submitting to you a report entitled ‘Customer Loyalty and Relationship Marketing’. The report investigates whether Nexus Drinks has implemented customer loyalty programs and any other relationship marketing plan to enhance and increase the profitability of the company. In addition, the report highlights on the benefits of the loyalty programs both to the company and to the customers. Finally, the report examines how to implement a working customer loyalty and relationship marketing in the company, the cost implications and the overall returns of the programs. It’s my sincere wish that you will find the content of this report satisfactory and hence make the necessary changes as provided in the recommendation section of the document. Yours Sincerely, John Shundra, Director Customer Relationship Marketing Nexus Drinks 450 Victoria Street, Melbourne. Executive summary The report starts by highlighting a brief history of the company and how the company treats its customers. Nexus Drinks is a fictitious company that manufactures and retails its energy drinks to the customers. The customer loyalty programs and the relationship marketing of the company are also highlighted. The literature review gives background information of customer loyalty and relationship marketing, how it is implemented within a company and its benefits to both parties. The report narrows down to customer loyalty programs and the benefits of such programs. The profitability of retaining customers is as well discussed as one of the strategy to customer loyalty program. The finding of the interviews are analysed in a discussion at the conclusion part of the report. Due to the scope of the report, it is important offer recommendations to the company’s management in how to conduct working relationship marketing and to give them the feedback of our findings in a comprehensive manner. Finally, the qualitative data does not include the demographics effects of customer loyalty and relationship marketing. Table of contents Contents 1.0 Introduction 4 1.1 Background Information 4 1.2 Aims 5 1.3 Scope 5 2.0 Literature based evidence 5 2.1 Customer Loyalty and Relationship Marketing 5 2.1.1 Managing Value through Loyalty Programs 6 2.1.2 Customer Benefits and Sacrifices in the Value Equation 7 2.1.3 Benefits of Retaining Customers 8 2.2 Survey Findings 9 2.2.1 Research methodology 9 2.3 Existing Loyalty and Relationship Marketing Programs 10 3.0 Conclusions 12 4.0 Recommendations 13 References 15 1.0 Introduction 1.1 Background Information Nexus Drinks is fictitious company organization which manufactures energy drinks amongst soft drinks and fruit drinks. Nexus Drinks hypothetically has been among the leading companies in the energy drink’s market. The history of the company runs back in 2000 when its first products were introduced to the market. The company is owned by a private developer and the brand name has been gradually acknowledged for its high market share of energy drinks all over Australia. In addition the company is expanding to new markets not only in Australia but also overseas. Though the company is not well advertised in social media, it is well known for its sports and athletics sponsorship. The company has 500 employees and in comparison with other companies, the company has the highest number of employees who are well paid. The workers have flexible working schedules in terms of hours and shifts. Moreover, the employees are allowed to take any drink that they want as long as they are in the premises. The company’s departments include; statistics in sales and marketing department, research and development department, administrative department and executive leadership department among other departments. In terms of finances, the company receives its funding from the private developer though it is very rare since the company makes large proceeds from its energy drinks. As indicated by the financial report of the company, there has been a tremendous increase in the cash and the short term investments especially for the last 3 years. The raw materials and the finished goods closing stocks have also increased which as well resembles increase in production. Both internal and the external environment of the company shows a well-organized communication and the culture of the company though it lacks the internal website as compared to other competitive companies. Nexus Drinks like other companies does not operate in isolation, it is therefore affected by external environment like economic factors, demographic environment, legal and political environment, technological factors and on highest competition. Finally, the relationship between the customers and the company’s is relatively good and though not much has been done to improve the customers’ loyalty to the products, some of the products users have undying craving for the products which depicts loyalty for the product. 1.2 Aims The aims of this report is to examine the impacts of relationship marketing on customers loyalty and from the findings make a conclusion from which recommendations are highlighted showing the areas that require to be changed and if necessary, an over whole is done. 1.3 Scope The report only examines the impacts of relationship marketing on customer loyalty, the importance associated with it and the marketing strategy the company uses to ensure that customers become loyal to the products. It is worth noting that the report does not discuss any other aspects of business relationship with the customers. In addition, the report includes the findings, conclusion and the recommendations parts. 2.0 Literature based evidence 2.1 Customer Loyalty and Relationship Marketing The relationship marketing concept emerged within the field of service marketing and industrial marketing. It is a strategy that many companies use to attract, enhance and maintain customer relationships. According to (Gummesson 1991, pp. 15) relationship marketing is a strategy in which management of interactions, networks and interactions are of very important use in business management. The aims of relationship marketing include; maintaining, establishing and enhancing relationships with customers and any other partners so as to gain profit and to achieve the set objectives of the organization. (Rapp & Collins 1990, pp.7) view it similarly as the goals to create and maintain a lasting relationship between the organization and its customers. In both definitions, the relationship is characterized with reward on both sides i.e. customers to be provided with their favourite brands and the company to gain revenues. Therefore, the relationship is a symbiosis relationship in which the two parties benefits. The main objective of relationship marketing is to make customers loyal to the products. The customer’s loyalty to a product refers to the commitment of the customers to re-buy the products they prefer from the same company regardless of other marketing efforts which can influence them to switch from buying the product from the same company (Wong & Sohal 2002, pp.35). Relationship marketing is characterized by the fact that every customer is treated and considered individually, the activities of the company are entirely directed towards existing customers, the application is founded on interaction and dialogue between the customers and the marketers, and the goal is to maximize profitability through reducing customers’ turnover and strengthening customers relationships. 2.1.1 Managing Value through Loyalty Programs Any loyalty program invites the current customers to be put of members through encouraging them to be regular purchasers over a long period of time and eventually uses the benefits of continued relationship to both parties. Unlike other managing programs that are designed to yield a particular outcome, loyalty program does not offer new solution but instead form a longer relationship with profit. In that respect, the program works a positive feedback loop encouraging the members to spend more duration and money in the program. The programs yields high customer retention by making the customers come back to purchase their favourite products, retaining customers also yield high profitability since the process is more cost effective than establishing relationship with new customers. Loyalty programs are associated with customers’ insight through understanding customers by collecting information on buying habits, lifestyle and preferences (Zeithaml, et al 2001, pp. 57). With this information, the program will stay exciting and relevant and will give a window to give customers feedbacks. Finally, the programs enhance customer experience through privileges such as special check-ins and check out queues and hence better customer services. On the other hand, setting up a loyalty program comes with the following risks; raising the customers’ expectations, program execution, high visibility and staying relevant and differentiated among other risks. Avoiding the risks and embracing the above mentioned importance will help the program to increase as well as manage the value of loyalty program (Kothandaraman & Wilson 2001, pp. 34) 2.1.2 Customer Benefits and Sacrifices in the Value Equation To understand the three concepts, it is better to look each one of them into details then later bring them together to have an in-depth meaning of term customer benefits and sacrifices in the value equation. Customer value equation is an equation that compares the relationships between customers’ sacrifices and the benefits associated with loyalty (Grossman 1998, pp. 25). Customer value is the concept that considers customers as subjective trade-offs between the perceived benefit and the perceived cost components of an exchange or related series of exchanges. There are two alternatives i.e. customer value as the difference between benefits and costs and customer value as the ratio of benefits and costs. In both cases, the benefits are taken to be all relevant customer- perceived benefit elements either economic or non-economic and tangible or intangible. Similarly, the cost includes all relevant customer-perceived cost elements either price or non-price. At is juncture; it is worth noting that there have been several theories that have tried to argue around the concept of customer benefits and sacrifices as they appear in the value equation. But for the purpose of the paper we consider the first one which is discussed above. Therefore, for the subtractive value equation model, the relationship between value and sacrifice when the benefit are held constant is a straight line that meets the value which is the vertical axis of the graph and the sacrifice which the horizontal axis of the graph at a point which taken to be constant value of benefit (Berman & Barry 2006, pp. 45). The relationship between value and benefit when sacrifice is held constant again for the subtractive value equation model is a straight line and similarly the point of intersection between the two is the constant value of the sacrifice. The other customer value equation is different since the elasticity of the value with respect to the benefit is always to the positive side of zero while the elasticity of value with respect to sacrifices is always to the negative side of zero. This depicts that, a small increment in benefits and sacrifices have the same quantative effects on the value. It therefore important to analyse the manner in which value changes with sacrifices or with benefits with all other variables put constant for any company’s managerial decisions. 2.1.3 Benefits of Retaining Customers The benefits associated with customers’ retention apply not only to business owner but also to the customers. These benefits include but not limited to; customer profitability as the company concentrates with a small number of customers that are loyal to the products, reduced cost of sales in the sense that the existing customers are in most cases more responsive. In addition, there is reduced cost of marketing since the relationship becomes more effective (Ndubisi 2005, pp. 30). Since the company management is not spending money for marketing the product, there is reduced cost of recruiting new customers and eventually saving to be made on mailing, follow-ups, marketing, fulfilling and service to the customers. The company will benefit from retaining customers since loyal customers are less sensitive to the product price. Therefore the no matter what the price is, the customer will still be craving for their favourite brands. Moreover, since the customers are associated with the company directly through loyalty program the customer will spend more with the company hence profit to both parties. On the side of the customers, since they have established loyalty with the products, they will gain in sense that if say there is a discount, they will be the first ones to enjoy the price reduction. Additionally, the customers will pass on the good reputation about the company and the services they provide. Through customers’ retention, the customers will enjoy services since they will get more individual services. In most cases, the loyalty programs are more price sensitive to the loyal customers hence the customers will not strain financially because the price are appealing. To add on the long list, since the customers have remained with the company’s product, the company will benefit because there will no competition with other equally good competitors. 2.2 Survey Findings 2.2.1 Research methodology (Nachamias et al 1996, pp. 12) stated methodology as the systems of explicit rules upon which the research is based. There are several research strategies which include; surveys, experiments case studies, ethnography and action research. Again, there are four distinct ways through which data can be collected. These are; questionnaires, observation, documents, and interviews. As (Denscombe 2000, pp. 83-158) indicates, the most suitable data collection method from very few respondents is interviews since they provide a detailed data and information. Further Denscombe (2000) believes that interviews are most suitable if the information is based on privileged knowledge i.e. information from key persons. The purpose of this research is to investigate how Nexus Drinks conduct customer loyalty program in the company. Therefore, the most suitable data collection method would be to interview with short answer questionnaires directed to regular customers of the company. In addition, we present our questionnaires to workers at the company’s restaurant inside the large Nexus Drinks premises. The questionnaire have 15 questions all aimed at gathering the impact of loyalty program the company has implemented. For the purpose of the research and the length of the questions, we interviewed 10 workers each working at a different department within the company. The feedbacks form the basis of our argument in this report. Questionnaire copy is attached in the appendices section of this document. 2.3 Existing Loyalty and Relationship Marketing Programs From the findings, Nexus Drinks has more than one existing marketing programs. In particular, the company’s management has implemented programs such as frequency marketing in which after a period of three months, the customers enjoy a chance to 3 favourites brands and get the 4th one for free. In other occasions, the company gives coupons to customers who purchase goods worth AU$ 100 and above. The programs encourage the customers to purchase more hence establishing loyalty of the customer to their favourite brands and creating a lasting relationship. The second program is direct marketing. In this program, the company gives discounts to all purchasers of their products regardless of whether the purchaser is loyal or not. The aim of the program is to satisfy the customers by providing them with an open window where they can enjoy the discounts. The final program is the customers’ loyalty marketing where the management through the markers use tries to ‘lock up’ with the company. The loyal customers are given points with every purchase of the company’s product. Though the program is not well implement due to the cost associated with it, the company tries its best to see to it that they reward the loyal customers. The points accumulated are redeemed to the benefit of the customers. To redeem the points, the customers are allowed to purchase their favourite brands using the points. The aim of the program, as stated is to lock the loyal customer within the program (Anderson & Narus 1999, pp. 20). Comparing the Nexus Drinks programs with those of competitors like Monster Energy and Red Bull, the programs implement here are nothing but a ‘shadow’. For the two competitors, they have introduced customer loyalty clubs. For example, Monster Energy has the Monster Energy Girls Club which advertises and promotes their products. The club also includes customers who are loyal to the Monster products. The club members are sponsored by the company to attend any sports and athletic events all courteously of the company. Monster Army is a group of athletes that represent Monster Energy brand all over the world. Finally, the company has sponsored some music bands which align themselves with other within the sports market. For Red Bull Company, they have even outsmarted Monster Energy in loyalty program. The company has program that entice not only the existing and loyal customers but as anyone wishing to buy their products. The loyalty programs within the Red Bull are well budget for and included in the annual report of the company. By so doing, the company kept track of the proceedings along the relationship marketing as well as loyalty marketing. 3.0 Conclusions From definition, relationship marketing involves strategies to enhance, maintain and encourage customers not only to those who are loyal but any customer who has an interest of purchasing a certain product. It is clear that though Nexus Drinks uses customer loyalty programs in their relationship marketing, much still need to be done. Starting from how they plan for relationship marketing to how they conduct customer loyalty programs. Findings indicate that, though the Nexus Drinks relationship marketing department is implementing the loyalty programs, most of the customers are not aware of such programs. Again, the way they go about the programs implementation does not yield the expected results. Comparing the way the company is marketing its products with the way its competitors are doing it, Nexus Drinks need to come up with a working customer loyalty programs. Since the aims of such programs are to establish a long lasting relationship between the customers and the company, through the product; they should let the customers know when the programs are working so that they can enjoy the benefits of being loyal. Most of the interviewed customers responded that they are not aware of the loyalty program in the company though they receive discounts and other rewards. Since the company has not been able to have a large variety of brands like big companies who are competitors (Red Bull and Monster Energy), the products they produce are not canned in cans that are attracting customers (a comment from one of the interviewee). A side from customer programs, the whole company’s marketing strategy has failed. Why? Because from the annual reports and other business transactions and the budget, the records shows no money budgeted for marketing and program implementation. Again from the findings, despite the company recording high returns and revenue collection from the sale of products, the company has done very little to market their products. As Monster Energy does, the company should establish a lasting relationship with the customers, which in the long run will reduce the cost of advertising and marketing at large. These can be achieved by customer retention programs among others that will create mutual contractual bond between the customers and the company. For a successful customer loyalty and relationship marking strategy to thrive in a global market, it must be characterized by strong firm-to-customer relationships (Webster 1992, pp. 15). In the modern and the global market, most of the companies are applying this concept of customer-to-firm relationship to gain invaluable information on how best to serve customers and keep them from defecting to competing brands (Ndubisi 2004, 53). In order for Nexus Drinks to accomplish this, it is important to budget for the customer loyalty and other relationship marketing programs that will enable the company to reduce the overall price of marketing through customer retention. Finally, for the programs to be effective, it is important to consider price reduction. This way the customers will feel free to purchase more brands since they are affordable. On the same point, to establish a customer’s website and customer clubs is important when maintaining the loyal customers. 4.0 Recommendations Every customer loyalty programs and relationship marketing strategy is aimed at increasing the customers’ retention rate hence high returns to both parties (Christopher 1996, pp. 8). Though this report has not examined into possible influences of socio-demographic factors on the relationship between relationship marketing and customer loyalty, other researches show that female tend to be more loyal than men. It is therefore recommendable for the company to start customer loyalty programs that are well managed and budgeted for, mostly targeting the women customers. There should be also a program that works to reward the pre-teens who consume the products. Again, since the company sponsors sporting events, it is advisable for the company to start loyalty club with the athletes and the sportsmen. In addition, the company should use social media and other advertising ads in order to entertain many customers to pay our products. Most importantly, the company will require budgeting for the programs and including the budget in the annual report of the company. Furthermore, manufacturing companies especially food industry can use interview data to tailor some specific products and services that will meet the needs of customers. By so doing, it will be delighting to the customers and they will like to stay and continue to enjoy such products and services. Eventually, the company will get positive impacts on the overall performance of the company. References Anderson, J. C., & Narus, J. A. 1999. Business Market Management: Understanding, Creating, and Delivering Value. Upper Saddle River, NJ: Prentice-Hall. Berman & Barry. 2006 Developing an effective customer loyalty program. California Management Review Fall, Vol. 49 Issue 1, p123 Christopher, M. 1996. From brand values to customer value. Journal of Marketing Practice: Applied Marketing Science, Vol. 2, pp. 55-66. Denscombe, M 2000. Good the Research Guide; for small scale –social research projects. Philadelphia: Open University Press. Grossman, R.P.1998 “Developing and managing effective consumer relationships”, Journal of Product & Brand Management, Vol. 7 No. 1, pp. 27-40. Gummesson, E 1991 “Marketing revisited: the crucial role of the part-time marketers”, European Journal of Marketing, Vol. 25 No. 2, pp. 60-7. Kothandaraman, P., & Wilson, D. T. 2001. The Future of Competition: Value-Creating Networks. Industrial Marketing Management, Vol. 30, pp. 379-389. Nachamias, D & Frankfort-Nachamias, C 1996 .Research Methods in the Social Sciences. Santa Crux: Arnold. Ndubisi, N. 2005 “Effect of gender on customer loyalty: a relationship marketing approach”, Marketing Intelligence & Planning, Vol. 24 No. 1, pp. 48-61. Ndubisi, N. 2004 “Understanding the salience of cultural dimensions on relationship Marketing, its underpinnings and aftermaths”, Cross Cultural Management, Vol. 11 No. 3, pp. 70-89. Rapp, S & Collins, T. 1990 .The Great Marketing Turnaround. New Jersey: Prentice-Hall. Webster, F. 1992. “The changing role of marketing in the corporations”, Journal of Marketing, Vol. 56 No. 1, pp. 1-17. Wong, A. & Sohal, A. 2002 “An examination of the relationship between trusts, commitment and relationship quality”, International Journal of Retail & Distribution Management, Vol. 30 No. 1, pp. 34-50 Zeithaml, et al 2001 .The customer pyramid: creating and serving profitable customers. California Management Review Summer, Vol. 43 Issue 4, pp.118 Appendices Research Questions 1. We would like to know your name and position in this organization 2. Please give us a brief background and history of this organization 3. When did your company start embarking on customer relationship management? 4. From your perspective, what are the benefits of the program so far? 5. How do you describe customer loyalty and retention when it comes to the expected benefits? 6. What do loyal customers mean to your company? 7. What type of relationship do your company have with your customers? 8. Does your organization have any specific strategies to keep customers loyal? If yes, which? If no, why not? Minimize customers switching brands Maximize customer retention Loyalty programs 9. What do your company do to keep customers loyal? Loyalty programs? Describe. Customer clubs Club cards? Customer club evenings? Discounts? Activities? Rewards? 10. Why do you believe customers choose your brand over others? 11. Do your company have any specific strategies for preventing customers from switching brand? If yes, which? If no, why not? Create value, benefits Create or strengthen relationships Create exit barriers Create satisfaction 12. Do your company put more efforts into keeping customers loyal than attracting new customers? 13. Which benefits loyal customers generates for your company? 14. Do believe that there are advantages with loyal customers? If yes, which? If no, why not? More profitable Increased profits Decrease in marketing costs Create switching barriers Positive word of mouth 15. Do your company budget for loyalty programs. Read More