How effective are Loyalty Program in Building Customer Loyalty within Grocery Retailing Setting
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ABSTRACT
The main of study is to evaluate the effectiveness of loyalty program in the building and development of customer loyalty and the industry/sector selected for this study is grocery retailing. The research has adopted quantitative research design due to nature of study and data collection method for this study is primary method as well as secondary method. The sample size for study is 200 respondents from grocery stores and sampling technique is judgemental sampling and data collected from respondents is analysed using appropriate statistical tools which include Microsoft Excel and SPSS through which correlation and regression techniques are applied to attain aim of study. The results showed that independent variable including corporate image commitment trust and customer satisfaction are strongly correlated with dependent variable of customer loyalty. Furthermore all of the above mentioned independent variables have a significant impact on customer loyalty.
Keywords: Customer Loyalty Loyalty Programmes Commitment Trust Corporate Image and Customer Satisfaction
Table of Contents
CHAPTER 1: INTRODUCTION
Introduction
Many of the retailing sectors nowadays are incorporating loyalty programmes to augment the loyalty of customers (Dorotic Bijmolt and Verhoef 2012: 217). It is expected that these loyalty programmes significantly affect the purchase intentions of the customers. Numerous studies have been carried out which mentioned that most of the retailing industries have incorporated these programs but inadequate information regarding the influence of loyalty programmes on consumer behaviour lead the researcher to conduct a research based on different types of customer loyalty programmes and their influence to the customer purchase intention (Andreu Sánchez and Mele 2010: 241). Therefore the core aim of this study was to conduct a research which identifies the extent how these programmes assists in the elevation of customer loyalty.
According to Mandhachitara and Poolthong (2011:122) the topics of customer loyalty and the customer loyalty programmes have received significant consideration from the past decade. The researcher has determined the relationship between customer loyalty and loyalty programmes which is profitable for grocery retail sector. This chapter comprises of a number sections which aim to provide a detailed introduction of the research topic. This chapter encompasses research problem contextual background significance rationale aims and objectives and research questions of the study. Furthermore the chapter is then concluded by presenting the structure of the research.
Contextual Background
In United kingdom certain trends are obvious among the retail industry including; E-commerce will be seen as an emerging trend in 2017 the experience through the retail stores will continue to rise and evolve conversational commerce that is speak to buy will be more obvious trend in the consumer market cost pressures will be reduced by the use of technology agile at scale will be the new normal with innovation responsiveness quality and diversification as the key drivers of the retail industry (Pantano 2014 :344).
In this globalized world retail sector and grocery stores are playing a significant role in order to enhance service quality and product assortment (Varley 2014). A rise in customer demand is noticeable nowadays and the need to improve customer satisfaction is essential along with the product diversity and quality. It can be said that retail industry has a significant role in enhancing the growth of service sector. It is crucial for the retailers to understand the needs and wants of the customers so that their loyalty and satisfaction may be achieved. When the customers become loyal and satisfied a long term relationship is developed between the sellers and buyers. It involves increase in their loyalty through behavior and attitude involving repeat purchases.
According to Kim Holland & Han (2013: 313) customer loyalty and satisfaction is highly affected by two variables including service and product quality. These two variables appear successful for any marketing strategy. According to the Global industry classification standard (GICS) retailers are classified as organizations responsible in procurement enlargement ownership management and operation of shopping malls outlet malls and vicinity shopping centers. The retailers may be classified into different groups in relation to the involvement of consumers during the purchasing phase. For instance the grocery and apparel involves low involvement of the consumers while the furniture and electronics involves high involvement from consumers during the purchasing phase. The retailing industry is highly competitive now days and market research may be helpful in understanding the trends in the existing market related to variety seeking switching supplier and consumer needs and wants.
Product and services plays a significant role in increasing customer loyalty and satisfaction (Picon Castro & Roldan 2014:746). Organizations consider if they improve their services customer satisfaction and loyalty may increase with high profit margins. On the contrary business environments are observing change in technological trends with new innovative products and designs and organizations need to cope with the environment by introducing innovative products to their businesses. Also pricing strategies are considered an essential part of retail industry in order to sell their products and gain profit margins. Organizations use effective strategies to sustain and survive within the existing markets.
Loyalty programs has their standing and used as an influential tool of relationship marketing to gain customer loyalty (Brashear-Alejandro Kang & Groza 2016:1190). Loyalty programs add benefits to both the organization and customers. Retaining old customers is cost effective than acquiring new ones. Maintaining customer loyalty is essential for the organization and it will help businesses gain profit margins.
According to an estimate 25% of the customers are lost each year for the retail businesses and a slight increase in customer satisfaction leads to 25% increase in profits gains. Organizations develop strategies to retain customers as when customers are retained it becomes easier to develop long term relationships with them (Matzler et al. 2015: 117). When long term relationships are developed customer become loyal to a specific brand and will not switch to other brand and may forget any provided offers. Loyal customers do not switch their brands as the existing brands increases their efficiency in decision making provides them with higher consistency in decisions mitigates the perceived risks associated to future decisions and decrease the information processing phase for searching a new product/brand (Reibe et al. 2014 :990).
Research Problem
According to Kumar (2010) in order to elevate the customer loyalty retailing sector has been introducing new loyalty programs for augmenting the purchase will of the customers. These loyalty programs include integrated techniques of marketing which strengthen the communication grounds with the customers resulting in higher customer loyalty. In the context of customer loyalty and loyalty programs several researches have been carried out and resulted in many conflicts within the researchers. Hence this is an on-going debate how significantly the loyalty programmes result in higher customer loyalty.
The chief aim of this research is to highlight the challenges and difficulties faced by the grocery retailing companies in order to increase the customer loyalty towards their businesses. However erstwhile conducted studies have also discussed this topic in detail but the researchers failed to mention all the challenges experienced by the retailing sector (Omar and Fraser 2010:211). This particular research in envisioned to present all the difficulties faced by the grocery retail industries in order to increase the loyalty of the customers.
Another core problem which is the basis of this research to be carried out was to enlist necessary loyalty programmes for building customer loyalty. Several researches have been conducted in the past which have laid upon the focus on the significance of loyalty programmes with respect to customer loyalty (Blocker Flint Myers and Slater 2011:216). However this research is aimed to provide significance of customer loyalty programmes and their effective role in building customer loyalty of grocery retailing industry of UK.
Aim and Objectives
With this into consideration the objectives surrounding the study are as follows;
- To investigate the concept of customer loyalty in grocery retailing setting
- To understand the prevalence of loyalty programs in the building customer loyalty in grocery retailing in United Kingdom
- To evaluate the effectiveness of loyalty programs undertaken by grocery retailers with respect to customer loyalty
- To propose recommendations based on the findings of the research study to further enhance customer loyalty through loyalty programs
Research Questions
The research questions for the enclosed study include the following;
- What is the concept of customer loyalty in grocery retailing setting?
- What is the prevalence of loyalty programs in building customer loyalty in United Kingdom retail stores?
- What is the effectiveness of loyalty programs as undertaken by grocery retailers in the context of customer loyalty?
- What are the possible recommendations to enhance customer loyalty through loyalty programs?
Rationale of the study
Consumers built loyalty based on their attitude and behaviour and give preference of one brand on the other. The customer loyalty is developed due to multiple factors including; satisfaction with a product/service its performance or easy availability or cosiness and familiarity with the brand. Customer loyalty is a complex process with a number of variables affecting it. Commitment trust and satisfaction are the variables that help in maintaining relationship with the customer and may positively influence repeat purchasing. Previous literature shows the work on customer loyalty but its relation between the antecedents that creates loyalty across the retail industry is lacking. Also less work has shown that quality satisfaction trust and commitment has a significant impact on customer loyalty across the retail segments. Therefore the study has focused on identifying the factors affecting customer loyalty among the retail settings. Customer loyalty programs may be helpful in developing long term relationships with the customer and used by organizations to develop loyal customer and gain profits. But the application of customer loyalty programs in retail sector is scarce and thus this study wants to identify the impact of loyalty programs in building customer relationships.
Significance of Study
According to Al-Rousan and Mohamed (2010: 886) loyal customers are considered as the success factor of a particular business. Loyalty programmes and practices are key enhancers which augments the customer loyalty towards a particular product or service. This research is expected to play a significant role in building the understandings of customer loyalty and loyalty programmes. Furthermore this researcher also plays a vital role in developing the understanding of factors which influence customer loyalty. In present years in order to emerge in this competitive business environment retailing industries are incorporating different strategies to increase the purchase intentions of the customers (Sorescu et al. 2011:S3). In this regard this particular study can also be beneficial for the retail business managers to incorporate different offerings and products to obtain a significant position in this competitive environment.
This study also plays a significant role in order to provide an insight of the marketing strategies of different grocery and retailing companies. Furthermore the researcher has also expected this study to be beneficial for future researchers in this particular area by providing necessary data and information regarding customer loyalty and how customer loyalty is affected with the help of loyalty programmes. The researcher has also mentioned the key reasons of adopting customer loyalty programmes by grocery retailing sector which is also expected to assist future research works. Moreover this research aims to provide a better understanding of the customer motivation and encouragement factors influenced by customer loyalty. In the words of Jahanshahi et al. (2011:253) loyalty programmes increase the motivation factors of the customers to refer the products and services used by them and are satisfied with their services. Hence this research is also valuable to understand customer preferences and expectations from retailing services.
Defining Key Terms
Loyalty Program
For customers who regularly purchase products organizations develop a loyalty program to reward their valuable customers (Steinhoff & Palmatier 2016:88).
Customer Loyalty
For customers who regularly purchase products organizationConsumers built loyalty based on their attitude and behaviour and give preference of one brand on the other. The customer loyalty is developed due to multiple factors including; satisfaction with a product/service its performance or easy availability or cosiness and familiarity with the brand (Chen 2015:107). s develop a loyalty program to reward their valuable customers (Steinhoff & Palmatier 2016:88).
Corporate Image
By corporate image one refers to the reputation of an organization. The image is what people perceive about a brand when an organization is mentioned (Johnson & Zinkhan 2015 :346).
Customer Satisfaction
Customer satisfaction refers to how the organization’s products or services fulfil needs demands or expectations of the brands (Sengupta Balaji & Krishnan 2015:665).
Commitment
Commitment refers to the dedication and enthusiasm towards a specific cause or activity. Employee commitment refers to the dedication towards the work processes (Nasir Abbas & Zafar 2014:183)
Quality in Retail
Within the service and manufacturing organizations quality is considered an important element to increase firm competitiveness. Product and service together constitutes to the quality of organizations. Quality may merge both the tangible and intangible elements to develop loyal and satisfied customers. Quality increases competitive edge for organizations and is used as an essential tool to increase customer loyalty (Mitra 2016). Researchers are developing a focus to identify factors affecting quality of products and services.
Structure of Study
This research study is composed of five chief chapters. Each of the proceeding chapter is interlinked with the previous chapters focusing on different themes and aims of the research to be catered in each chapter.
The first chapter is the introduction in which the researcher has mentioned a brief introduction of the research. This chapter includes a detailed outline of the research which is to be followed throughout the research. This chapter includes a brief introduction of the research background of the study aims and objectives research questions problem statement significance and rationale of the study. Furthermore the researcher has also mentioned the definitions of important key terms and the outline of the study which is been followed throughout the dissertation.
Second chapter is the literature review of the study. In this chapter the researcher has provided the key concepts of customer loyalty and loyalty programmes. In this chapter the researcher has mentioned the factors which significantly affect the customer loyalty in retail grocery settings. Additionally several types of customer loyalty programmes were also discussed by the researcher. Later in this chapter the researcher has linked both the concepts of loyalty programs and customer loyalty. This chapter is then concluded by presenting the conceptual framework of the study.
Third chapter is the research methodology in which the research has presented the methods of collecting data and from the samples. This chapter plays a significant role in achieving the research aims. The outline of this chapter includes several sections such as research approach and strategy research design research philosophy methods of sampling and data collection research hypotheses and data analysis plan. This chapter is concluded by highlighting the ethical considerations and limitations of the study.
Chapter four is the critical analysis of the data obtained from the respondents. The researcher has applied SPSS tool for quantitative analysis of the data in order to address the research questions formulated in the first chapter.
Last chapter is conclusion and discussion. In this chapter the researcher has provided an overall summary of the research. Several recommendations were also provided in the end of this chapter.
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