Dissertation thesis Research project – Consumer behaviour towards loyalty programmes

Keywords – Dissertation research thesis Customer behaviour loyalty programmes in retail sector UK. Consumer loyalty, loyalty schemes consumer purchase behaviour

In the modern competitive market conditions, organisations are concentrating their marketing objectives on customer retention rather than customer acquisition as these organisations are trying to protect their existing market share. Further the costs associated with new customer acquisition are significantly more than the retention of existing customers or protecting the existing market share (Min et al., 2016; Ovchinnikov et al., 2014). Many industrial segments, directly selling to end consumers such as the retail, telecom, hospitality, branded white goods segment are all shifting from the a mode of acquiring customers to retaining customers by trying to alter consumer behaviour towards organisations and brands.

The research study by Sun et al. (2014) indicates customer retention to have a significant impact on the profits of an organisation and the contention is supported by others such as Jahromi et al. (2014). According to the study, retention and management of existing customers is cost-effective than customer acquisition as the cost connected with maintaining loyalty and retaining customers is spread over the entire life cycle of the customer. At the same time Persson (2013) suggest that the cost of customer retention declines over a period of time and sales to the loyal customer base provides significant cost reduction to the organisation in reducing marketing costs. Hence organisations are focusing on generating loyalty from customers and ensuring the repeated patronage or repurchase behaviour. According to Cetin and Dincer (2014) generating loyalty from consumers has other unintended positive consequences such as word of mouth marketing, thus attracting new customers without significant cost.





Based on the realisation that customer retention is more profitable, organisations started implementing programmes to modulate consumer behaviour and enhance or increase the number of loyal customers. The various schemes intended to attract and retain customers in various industry segments are generally classified as “loyalty programmes”. The ultimate objective of loyalty programmes is to modulate consumer behaviour towards the organisation, its products, services and brands to ensure repurchase. The earliest known standardised programme to retain customers is in the airline industry where American Airlines of United States developed a loyalty scheme.

The success of this loyalty scheme or the frequent flyer programme as it is known in the airline industry has been borrowed by other industry segments in retailing, hospitality, financial services and other industries that have mass customer base and where customers have recurrent purchases of products and services. Customers have to purchase a variety of products from retail organisation such as Tesco, Sainsbury, Asda and Morrison’s. Similarly there are regular repurchases from telecom companies, hospitality companies and financial service providers. The loyalty schemes in these organisations have similar character and objectives.

Rationale for topic

In the present market conditions almost every organisation has implemented their own loyalty programme and there are now questions about their effectiveness to ensure true loyalty or positive consumer behaviour towards the organisation, its products, services and brands. While customer retention is inherently cost-effective, developing and maintaining a loyalty programme is in itself a cost base for the organisation. Further the spread of loyalty programmes implies that these schemes are in itself considered as products or services expected from the organisation, rather than special marketing programmes intended to modulate consumer behaviour (Yoo and Bai 2013).

Loyalty has several forms and the mere continuous purchase of products/services from an organisation cannot be characterised as true or premium loyalty. Consumers might purchase products from an organisation due to several other factors such as lack of other avenues, low prices, good quality and services and so on. Hence in certain conditions, offering loyalty schemes to consumers may not be significantly beneficial to an organisation as it is simply an add-on product/service to a customer who is purchasing products/services from the organisation mainly as a result of other factors such as brand image, lack of alternatives etc.

Further certain research studies also indicate that many organisations do not have strategic objectives when developing their loyalty schemes. According to the study by Breugelmans et al., (2015) the design of the loyalty programme has to have strategic objectives, which are not the case for many schemes implemented by organisations. Some of the loyalty programmes are mere copies of their competitors. Further certain organisations treat their loyalty schemes as mere promotional tools intended to attract customers rather than retain customers, which negates the concept of loyalty schemes which are to motivate positive consumer behaviour. Apart from this Kang et al., (2015) indicates that customers are becoming loyal to the loyalty scheme rather than to the product/service/brand or to the organisation.



The proliferation of loyalty schemes and the recent research studies indicate that loyalty schemes may not have a significant impact on modifying or motivating positive consumer behaviour or to generate true loyalty. The present research study evaluates consumer perceptions towards the loyalty programme in the retail industry, by considering the behaviour of customers of Tesco towards the Clubcard loyalty scheme.

Aims and objectives

The aim of the research is to evaluate consumer behaviour towards loyalty schemes. The objectives of research are

  • To analyse the concepts of consumer loyalty and loyalty schemes
  • To evaluate the behaviour of consumer towards loyalty schemes
  • To analyse the changes in consumer purchase behaviour due to loyalty schemes

 

Table of Contents

Acknowledgements. 2

Introduction. 5

Rationale for topic. 6

Aims and objectives. 7

Research question. 7

Literature review.. 8

Introduction. 8

Background to loyalty schemes. 8

Loyalty scheme concept 8

Loyalty schemes and consumer behaviour 9

Impact of loyalty scheme on consumer behaviour 10

Attitudinal and behavioural aspects of loyalty. 11

Spurious loyalty. 13

Latent loyalty. 13

Sustainable loyalty. 14

Process. 15

Methodology. 15

Research approach. 15

Research strategy. 15

Research methods. 15

Data analysis. 16

Results of survey. 17

Discussion and Evaluation. 22

Conclusions and Recommendations. 24

Finding. 25

Limitations. 25

Recommendations. 25

References. 26

Appendix. 32

Questionnaire. 32

 

Introduction

In the modern competitive market conditions, organisations are concentrating their marketing objectives on customer retention rather than customer acquisition as these organisations are trying to protect their existing market share. Further the costs associated with new customer acquisition are significantly more than the retention of existing customers or protecting the existing market share (Min et al., 2016; Ovchinnikov et al., 2014). Many industrial segments, directly selling to end consumers such as the retail, telecom, hospitality, branded white goods segment are all shifting from the a mode of acquiring customers to retaining customers by trying to alter consumer behaviour towards organisations and brands.

The research study by Sun et al. (2014) indicates customer retention to have a significant impact on the profits of an organisation and the contention is supported by others such as Jahromi et al. (2014). According to the study, retention and management of existing customers is cost-effective than customer acquisition as the cost connected with maintaining loyalty and retaining customers is spread over the entire life cycle of the customer. At the same time Persson (2013) suggest that the cost of customer retention declines over a period of time and sales to the loyal customer base provides significant cost reduction to the organisation in reducing marketing costs. Hence organisations are focusing on generating loyalty from customers and ensuring the repeated patronage or repurchase behaviour. According to Cetin and Dincer (2014) generating loyalty from consumers has other unintended positive consequences such as word of mouth marketing, thus attracting new customers without significant cost.

Based on the realisation that customer retention is more profitable, organisations started implementing programmes to modulate consumer behaviour and enhance or increase the number of loyal customers. The various schemes intended to attract and retain customers in various industry segments are generally classified as “loyalty programmes”. The ultimate objective of loyalty programmes is to modulate consumer behaviour towards the organisation, its products, services and brands to ensure repurchase. The earliest known standardised programme to retain customers is in the airline industry where American Airlines of United States developed a loyalty scheme.




The success of this loyalty scheme or the frequent flyer programme as it is known in the airline industry has been borrowed by other industry segments in retailing, hospitality, financial services and other industries that have mass customer base and where customers have recurrent purchases of products and services. Customers have to purchase a variety of products from retail organisation such as Tesco, Sainsbury, Asda and Morrison’s. Similarly there are regular repurchases from telecom companies, hospitality companies and financial service providers. The loyalty schemes in these organisations have similar character and objectives.

Rationale for topic

In the present market conditions almost every organisation has implemented their own loyalty programme and there are now questions about their effectiveness to ensure true loyalty or positive consumer behaviour towards the organisation, its products, services and brands. While customer retention is inherently cost-effective, developing and maintaining a loyalty programme is in itself a cost base for the organisation. Further the spread of loyalty programmes implies that these schemes are in itself considered as products or services expected from the organisation, rather than special marketing programmes intended to modulate consumer behaviour (Yoo and Bai 2013).

Loyalty has several forms and the mere continuous purchase of products/services from an organisation cannot be characterised as true or premium loyalty. Consumers might purchase products from an organisation due to several other factors such as lack of other avenues, low prices, good quality and services and so on. Hence in certain conditions, offering loyalty schemes to consumers may not be significantly beneficial to an organisation as it is simply an add-on product/service to a customer who is purchasing products/services from the organisation mainly as a result of other factors such as brand image, lack of alternatives etc.

Further certain research studies also indicate that many organisations do not have strategic objectives when developing their loyalty schemes. According to the study by Breugelmans et al., (2015) the design of the loyalty programme has to have strategic objectives, which are not the case for many schemes implemented by organisations. Some of the loyalty programmes are mere copies of their competitors. Further certain organisations treat their loyalty schemes as mere promotional tools intended to attract customers rather than retain customers, which negates the concept of loyalty schemes which are to motivate positive consumer behaviour. Apart from this Kang et al., (2015) indicates that customers are becoming loyal to the loyalty scheme rather than to the product/service/brand or to the organisation.

The proliferation of loyalty schemes and the recent research studies indicate that loyalty schemes may not have a significant impact on modifying or motivating positive consumer behaviour or to generate true loyalty. The present research study evaluates consumer perceptions towards the loyalty programme in the retail industry, by considering the behaviour of customers of Tesco towards the Clubcard loyalty scheme.

Aims and objectives

The aim of the research is to evaluate consumer behaviour towards loyalty schemes. The objectives of research are

  • To analyse the concepts of consumer loyalty and loyalty schemes
  • To evaluate the behaviour of consumer towards loyalty schemes
  • To analyse the changes in consumer purchase behaviour due to loyalty schemes

Research question

What is the effect of loyalty schemes on consumer purchase behaviour in retail sector in UK?


Literature review

Introduction

The following sections provides the theoretical framework for the research, initially considering the concepts relating to loyalty schemes in general, the underlying theoretical factors connected with loyalty scheme and consumer behaviour and finally an analysis of the influence of loyalty schemes on consumer purchase behaviour.

Background to loyalty schemes

As indicated in the introduction, marketing concepts and practices have become more aligned to customers and there is an emphasis on ensuring long-term retention of customers and maintaining relationship. One reason for such a change in paradigm is the realisation that customer loyalty contributes to better relationship and inherently increases customer lifetime or association with the organisation/brand enabling higher amount of repurchases (Mende et al., 2013), opportunities for cross selling, up selling and positive word of mouth (Sheth 2015) and most importantly higher profitability (Kandampully et al., 2015). However as per Wang et al., (2014) customer life-cycle with an organisation is not everlasting as there could be dissatisfaction with product/service/brand/organisation, better value addition from competitors (switching) or even significant changes resulting in the lack of the requirement of organisation’s product/services (termination). As a result of the indefinite customer life-cycle with organisations, marketing managers try to stimulate consumer behaviour through the phases of acquisition, development and retention. According to Babin et al., (2015) & Kandampully et al., (2015) one of the most effective and successful strategies adopted by organisations to develop and maintain customer relationship throughout the life cycle is loyalty scheme, enabling or encouraging repeat purchase behaviour.

Loyalty scheme concept

Definition of loyalty scheme provided by Cetin and Dincer (2014) consider it an integrated system or activities intended to ensure customer loyalty through personalised relationship where concentration is on customers. However Kandampully et al., (2015) have defined loyalty scheme as the activities concerned with identification, maintenance and increase of customer value by offering value addition to the customer in turn. Two major themes in the above definitions and even others are the concept of relationship, which has to be based on interaction and furthermore the longer period of time or entire customer life-cycle (Zhang et al., 2016). Therefore loyalty schemes can be considered as strategic tools used by organisations to manage the heterogeneous customer base.

However according to Nguyen (2013) loyalty schemes enable the organisation to capture consumer behaviour essentially from the data collected through the scheme and then implement discriminatory and individualised marketing practices. Hence there appears to be certain level of personalisation in implementing standardised loyalty scheme and as per Thompson and Chmura (2015) loyalty schemes are now more about identification of higher value providing customers to the organisation. Taking an example the study by Svensson and Tran (2014) indicates that loyalty schemes enable identification of more price sensitive consumers and discourage the provision of rewards to this segment enabling the organisation to sell to the broader segment.




Loyalty schemes create cost for switching and increases the length of customer life-cycle with the organisation (Kandampully et al., 2015; Blut et al., 2014) as well as cross selling and up selling opportunities along with the inherent concept of repeated repurchases. While these are the results intended through the loyalty schemes according to Carter et al., (2014) psychological and relational drivers have to improve trust, affective commitment and attachment to the company to create absolute loyalty and ensure the most important switching cost. There are differences among the researchers about the ability of loyalty schemes to introduce these psychological, sociological and relational drivers (Shamsudin et al., 2015; Altunel and Erkut 2015). As per Ballouli et al., (2016) loyalty schemes that contribute to certain achievement and a sense of appreciation or preference, and able to identify themselves more attached to the organisation are able to introduce substantial switching cost.

Loyalty schemes and consumer behaviour

Blackwell et al., (2005) have offered a theoretical explanation about the influence of loyalty scheme on consumer behaviour based on stimulus-organism-reaction (SOR) model. Rewards of loyalty schemes act as stimulus, affecting cognitive variables like motivation and decision-making on the consumers (organism) and then inspire them to respond through higher purchases or a change in behaviour to the organisation. This reaction has to be connected with the involvement in the loyalty scheme and the extent of the initial stimulus. While this model provides a theoretical basis, there are differences introduced by other studies, although only indirectly indicating the SOR model.

 

According to Shapiro and Varian (1998) the consumer purchase behaviour is heterogeneous as a result of differential social and cultural origins and consequently is not stimulated to the same extent for obtaining the same kind of reward. Further Lewis (2004) indicates that consumers evaluate the value they gain from the loyalty scheme with the corresponding expenditure and as a result of the concept of maximising utility value, the reward utility has to be higher than the overall cost to the customer to be involved in the loyalty scheme. Loyalty scheme introduces obligations to purchase repeatedly, the cost of switching and even providing personal information to the company which are all cost to the customer.

While the SOR model used to analyse loyalty scheme indicates sufficient strength especially in influencing consumer behaviour, there are inherently contradictory opinions based on several studies. According to (Nako 1997) and (Sharp and Sharp 1997) the substantial number of loyalty schemes offered by a range of organisations minimises its influence on consumer behaviour. As per Bolton et al., (2000) the reward programmes offered by organisations are again not significantly influencing consumer behaviour. One of the reasons for the limited influence of present-day loyalty schemes is the imitation of the scheme itself by competitors, hence reducing the effectiveness of the programme offered by one organisation as a result of competitor activity.




Further as per Meyer-Waarden (2007) the utilisation of loyalty schemes to promote certain products can have negative consequences on purchase behaviour. However some of the above contradictions to the underlying theory can be connected to improper utilisation of methodology. The study of Nako (1997) involves a discussion panel, failing to consider consumer heterogeneity. Similarly the study of Sharp and Sharp (1997) only consider the data generated from the loyalty scheme and hence does not account for consumers purchase from competitors.

Impact of loyalty scheme on consumer behaviour

From the perspective of loyalty schemes, which has the objective of creating loyalty, the possible influence on purchase behaviour could be differentiation loyalty and purchase loyalty (Sharp and Sharp 1997; Kumar and Shah 2004). Differentiation loyalty increases the indifference of consumers to competitors and even enables the organisation to retain higher prices. Raj et al., (1997) even suggest that differentiation loyalty ensures high volume purchasing. One reason suggested by Nako (1997) is the indifference shown to price as a result of earning rewards and consequently indicates a modulation of consumer behaviour. However as per Sharp and Sharp (1997) differentiation loyalty is the result of the lack of visibility to competitors as a result of patronage of a brand, store or organisation. This contention seems to be disputed by Chaudhuri and Holbrook (2001) especially connected with the retailers as consumers are exposed to competitor’s prices and offers in the modern market.

The concept of differentiation loyalty is difficult to measure and as per Sharp and Sharp (1997) precedes purchase loyalty and this seems to be the reason for many researchers to concentrate on the behaviour of purchase loyalty rather than differentiation loyalty. Furthermore the objective of loyalty scheme is to ensure repeated purchases and differentiation loyalty necessarily does not mean repeated repurchase (Yi and Jeon 2003). While organisations tend to focus on purchase loyalty according to Liu (2007) it has to be developed initially with the help of soft forces within the loyalty scheme and then reward the repeated repurchase behaviour. In the model developed by Meyer-Waarden (2008) consumer enters the loyalty scheme and a certain section, considered as futuristic enhances their purchases in line with the design of the rewards or to meet the conditions for getting reward which is the initial soft force through the loyalty scheme.

While the model of Meyer-Waarden (2008) indicates the initial influence of loyalty scheme on consumer behaviour, Reichheld and Teal (2001) seems to be of the opinion that entering the loyalty scheme introduces switching cost and along with the futuristic orientation of customers contribute to repeated repurchase. Hence rather than the initial motivation presented by the loyalty scheme, the researcher suggests that the influence of loyalty scheme is only after a period of time.

Attitudinal and behavioural aspects of loyalty

As per Hong and Cho (2011); Tanford and Malek (2015) and Jones et al., (2015) another measure or dimension of loyalty is attitude. The concept of loyalty has to be considered both from the attitudinal and behavioural perspective as per these researchers and several others. There are also researchers suggesting that loyalty has to be considered purely from the attitudinal perspective (Kumar et al., 2016; Hong and Cho 2011). One of the reasons for considering attitude as a measure and dimension of loyalty is the research studies indicating different behaviours or lack of uniformity of behavioural dimension in conjunction with loyalty schemes and loyalty.

The research conducted by Zakaria et al., (2014) using customer satisfaction as a representative measure to evaluate consumer loyalty has clearly suggested that switching or defection is not simply connected with satisfaction or dissatisfaction. The study considered the relationship between loyalty programme, customer satisfaction and retention and has not found significant substantiation for the implementation of loyalty schemes in the retail sector. Similar conclusions have been reached by Chen and Hu (2010) and Omar et al., (2011). On the other hand the study by Khan et al., (2014) also have arrived at very similar conclusions, but considering the fact that the researcher evaluated satisfaction levels and repurchase behaviour, finding no consistency in the relationship goes on to state the importance of other variables such as choice, convenience, price and income in connecting satisfaction with the repeated purchase behaviour. This study is complemented by the conclusions of Marian et al., (2014) who considered the role of price in consumer satisfaction and behaviour and the study by Wu et al., (2014) who considered perceived value and transaction costs in repurchase behaviour. Both these studies have provided validation to the contention that behavioural evaluation simply does not provide a true indication of loyalty.




While behavioural studies do indicate unreliability in analysing consumer loyalty, one main factor could be the inclusion of the attitudinal measure such as satisfaction which may not be able to predict the behaviour (repeated purchases) (Lin and Wang 2006). Another consideration put forward by Meyer-Waarden (2008) is that behavioural measures are not sufficient to provide an explanation of either repeated repurchases or the lack of it in the context of loyalty schemes. However satisfaction is an attitudinal measure and considering it when evaluating behaviour does not provide the required level of reliability to many of the studies according to a meta-analysis conducted by White and Yu (2005). Moreover as per Amine (1998) loyalty is indication of commitment rather than behaviour, consequently moving to the assumptions that loyalty has to be considered from attitudinal, cognitive and behavioural perspectives. The developments in the thought process along this direction seem to have contributed to modern studies that combine both attitudinal and behavioural measures to evaluate loyalty.

Consequently Dick and Basu (1994) have categorised loyalty based on two measures mainly relative attitude and patronage behaviour. As per the researcher relative attitude is different from the singular dimension of attitude as the focus is on attitude to not only a single object (brand, store or organisation), but considers the attitude to competitors or alternatives. Zins (2001) provides support to this viewpoint of relative attitude and further states that relative attitude measures satisfaction. On the other hand as per Amine (1998) higher relative attitude among the competitors has a probability to influence behaviour. The second measure is patronage behaviour, which has not been clearly defined by the proponents. However further studies seem to consider verifiable and visible measures such as recency of purchase, frequency and financial or monetary values, share of wallet and sequence of purchase (Kumar 2010).

Considering the two dimensions of relative attitude and patronage behaviour, loyalty is categorised as no loyalty, spurious loyalty, latent loyalty and sustainable loyalty. According to the study by Yi and Jeon (2003) loyalty schemes have an important role in the context of no loyalty or spurious loyalty. Further according to O’Malley (1998) loyalty schemes do not have a significant impact in the case of latent or sustainable loyalty. A clear example is suggested by Yang and Peterson (2004) is the case of retailers as the offers provided by companies does not provide significant differentiation perception to the consumers and hence are unable to erect any kind of switching barriers or provide increased retention. Hence fuel retailing is the case of no loyalty, but with the introduction of loyalty schemes, spurious loyalty can be generated. According to Dick and Basu (1994) many retailing situations involve no loyalty and the loyalty schemes are able to generate spurious loyalty.

Spurious loyalty

In spurious loyalty Yi and Jeon (2003) indicates that the relative attitude or positive perception towards the product, brand, store or organisation is low; however the patronage behaviour is high (repeated repurchases), which could be due to the result of factors such as convenience of location, lack of alternatives, price and quality. However according O’Malley (1998) an organisation cannot rely on spurious loyalty as the customers could easily defect in the case of competitor offers. Introducing loyalty schemes in the case of no loyalty conditions such as retailing through offers, deals and even convenience factors can influence consumers to make repeated repurchase; however the lack of differentiation in retailing situations does not lead to true loyalty.




Furthermore according to Yi and Jeon (2003) spurious loyalty situation such as retailing contribute to potential switching and hence organisations would be highly competitive in such conditions. Many organisations would defend their customer base and at the same time attacks the customer base of competitors to attract them through offers. As per Davis-Sramek et al., (2009) retailing situations are mostly offering spurious or no loyalty and organisations are simply wasting financial and other effort in maintaining customer base through loyalty schemes and related offers, deals and promotions. On the other hand O’Malley (1998) has a contrary opinion and suggests that the retailing situations where there is no loyalty or spurious loyalty requires the implementation of loyalty schemes to ensure defending the existing customer base.

Latent loyalty

Latent loyalty according to Dick and Basu (1994) occurs when there is a positive relative attitude; however there is no corresponding patronage behaviour. The studies by Huddleston et al., (2003) suggest the influence of situational factors such as location inconvenience, lack of availability and even price as the reason for the lack of repeated purchases. The organisation related factors could be the main reason for the occurrence of latent loyalty and increasing the availability of the product could contribute to similarity in relative attitude and patronage behaviour. In such conditions according to Dick and Basu (1994) loyalty schemes do not have significant influence as even with the loyalty scheme the consumer may be unable to procure the product or brand or access a store due to other factors beyond their control.

Sustainable loyalty

Sustainable loyalty is a requirement of the organisation were consumer have higher relative attitude and repeated repurchase behaviour. According to Dick and Basu (1994) in the case of sustainable loyalty, mainly as a result of a good brand, product, price and quality or the combination of marketing functions, consumer behaviour is to remain loyal. As there is a positive preference based on attitudinal and behavioural factors, external influence such as competitive offers and hence loyalty schemes introduced by the organisation may not have significant impact on the repurchase behaviour. As per Dick and Basu (1994) in the case of sustainable loyalty, there is no evidence to suggest that repeated repurchases have increased through loyalty schemes. On the other hand the study by Hart et al., (1999) does offer certain evidence to clearly suggest that loyalty schemes improve the relative attitude and have an impact on repeated repurchases where the sample clearly suggest that loyalty schemes have increased their frequency of purchases along with value of purchases. Another study by Sirdeshmukh et al., (2002) indicates the increase in the share of the wallet and purchase sequence in spite of sustainable loyalty and mainly as a result of loyalty schemes.

 

 

 


Process

Methodology

A quantitative research based on a positivist philosophical position and a deductive approach was conducted. The positivist philosophical position assumes that positive knowledge is based on natural phenomena their properties and relations and hence necessarily through reason and logic (Saunders et. al. 2009); which when applied to research studies suggest the need for using statistical techniques and a rigorous framework.

Research approach

Deduction or deductive reasoning is a logical process of arriving at a conclusion based on concurrence of multiple premises (Bryman and Bell 2011). Multiple factors have to be considered in analysing customer loyalty and the true level of loyalty based on the relevance of Tesco Clubcard and hence the need for applying deductive logic. The research has adopted a deductive reasoning approach moving from more general to more specific (Saunders et. al. 2009), initially considering the theoretical aspects connected with loyalty and the associated consumer behaviour. The stimulus-organism-reaction (SOR) model of Blackwell et al., (2005) offers the theoretical explanation about the influence of loyalty scheme on consumer behaviour and Dick and Basu (1994) have categorised loyalty based on relative attitude and patronage behaviour has no loyalty, spurious loyalty, latent loyalty and sustainable loyalty. The observations generated from the survey are used to evaluate the behaviour of consumers as a result of loyalty scheme in the retail sector in UK.

Research strategy

Two different strategies of research are qualitative and quantitative. Qualitative research collects subjective/non-numerical data from a lesser number of very informed, authoritative respondents providing in-depth details about the research, which is analysed to identify specific factors for a narrow problem (Saunders et. al. 2009). Quantitative research collects data from a larger section of the population of the study, with the data being numerical/objective, using structured methods and hence the ability to use mathematical/statistical tools to analyse the data to arrive at generalised conclusions (Bryman and Bell 2011).

Research methods

Based on the literature review, theoretical explanation about the influence of loyalty scheme on consumer behaviour – stimulus-organism-reaction (SOR) model of Blackwell et al., (2005) and the different types of customer loyalty (Dick and Basu (1994) categorisation) were used for developing a structured questionnaire for collecting data from potential respondents for the research. The potential respondents for the study are customers (both Clubcard members and otherwise) of Tesco. A justified sampling method was adopted, where the respondents of the study was selected from North London, accessible to the researcher. Tesco customers were identified by the researcher personally from Tesco stores and their ability, willingness and acceptance to complete the questionnaire were the main basis for selection of the sample. The questionnaire was provided to randomly selected respondents through a convenient sampling method. About 120 customers of Tesco retail outlet was approached, of which 50 customers positively responded through participation in the survey. The questionnaire was designed to collect data relating to the behaviour of customers considering Tesco Clubcard loyalty scheme.

Data analysis

The researcher collected data through the self-completed questionnaires from the justified sampling and analysed the data using a correlation method. Correlation analysis was be used to identify the impact of various variables on each other. The different variables included in the questionnaire are the holding different reward/loyalty schemes, average spent on Tesco products, awareness of competitor’s offers and products, shopping experience, importance of accessibility to store, the range of products, satisfaction with Tesco and so on. Correlation analysis has provided a better understanding of the type of loyalty exhibited by the customers to Tesco.

 

Results of survey

A survey was conducted among 50 random customers outside Tesco store, with the following demographic characteristics. There was a roughly equal distribution when considering the demographics respondents; however the age, gender and annual income of the respondents cannot be considered as representative of the UK population. Nevertheless the survey was able to capture the responses of almost every age-group, even if the gender ratio is skewed to female respondents and majority of respondents with annual income between £20,000 and £40,000.

Number Percentage
Age 18 – 25 10 20%
25 – 35 15 30%
35 – 45 8 16%
45 – 60 12 24%
Above 60 5 10%
Gender Male 20 40%
Female 30 60%
Annual income Less than £20,000 8 16%
£20,000-£40,000 22 44%
£40,000 – £60,000 16 32%
More than £60,000 4 8%

Table 1 – Demographic details of respondents

Considering the prime demographic characteristic of age, it appears that more number of respondents from the higher age brackets have Tesco Clubcard. While only 60% of the respondents in the age group 18-25 have Tesco Clubcard, the percentage increases along the higher age groups and is 100% among the respondents above 60 years. On the other hand when considering as a percentage of the total members, 25-35 age group represents the highest proportion (32%); nevertheless this is in alignment with the proportion of the respondents from the segment (30%) out of the total sample.

Have Tesco Clubcard
Yes No
Nos % Nos % of respondents in segment % of respondents out of total scheme members Nos % of respondents in segment % of respondents out of total non-scheme members
Age 18 – 25 10 20% 6 60% 16% 4 40% 33%
25 – 35 15 30% 12 80% 32% 3 20% 25%
35 – 45 8 16% 6 75% 16% 2 25% 17%
45 – 60 12 24% 9 75% 24% 3 25% 25%
Above 60 5 10% 5 100% 13% 0 0% 0%

Table 2 – Correlating age and Clubcard membership

Considering gender demographic, a higher proportion of Clubcard members are females (80% versus 70% for male). There is no significant deviation with respect to membership, as the percentage of both male and female respondents having Clubcard membership is in alignment with the percentage of the sample.

Have Tesco Clubcard
Yes No
Nos % Nos % of respondents in segment % of respondents out of total scheme members Nos % of respondents in segment % of respondents out of total non-scheme members
Gender Male 20 40% 14 70% 37% 6 30% 50%
Female 30 60% 24 80% 63% 6 20% 50%

Table 3 – Correlating gender and Clubcard membership

A higher proportion of low annual income earners are members of Clubcard, as the annual income increases, the percentage of membership within the segment reduces; from 100% for annual income earners less than £20,000 to only 25% for annual income earners more than £60,000). Annual income earners in the segment £20,000-£40,000 represent the largest segment with Clubcard membership among the total sample and are higher than the proportion within the sample.


Have Tesco Clubcard
Yes No
Nos % Nos % of respondents in segment % of respondents out of total scheme members Nos % of respondents in segment % of respondents out of total non-scheme members
Annual income Less than £20,000 8 16% 8 100% 21% 0 0% 0%
£20,000-£40,000 22 44% 19 86% 50% 3 14% 25%
£40,000 – £60,000 16 32% 10 63% 26% 6 38% 50%
More than £60,000 4 8% 1 25% 3% 3 75% 25%

Table 4 – Correlating annual income and Clubcard membership

Average monthly spends at Tesco and Clubcard membership seems to be highly correlated as higher spenders have more involvement with loyalty scheme of Tesco. Within the sample, the segment of consumers spending less than £10 are not represented in the consumers holding Clubcard scheme, whereas the higher spenders, those in the segment £100-£200 and more than £200 are all involved in Clubcard scheme. Further the percentage of respondents considering the total Clubcard holding members is also higher among the high spenders at Tesco.

 

Have Tesco Clubcard
Yes No
Nos % Nos % of respondents in segment % of respondents out of total scheme members Nos % of respondents in segment % of respondents out of total non-scheme members
Average monthly spent at Tesco Less than £10 5 10% 0 0% 0% 5 100% 42%
£10-£50 8 16% 4 50% 11% 4 50% 33%
£50-£100 20 40% 17 85% 45% 3 15% 25%
£100-£200 12 24% 12 100% 32% 0 0% 0%
More than £200 5 10% 5 100% 13% 0 0% 0%

Table 5 – Correlating average monthly spent and Clubcard membership

93% of customers without membership in other loyalty schemes are members of Tesco Clubcard. 55% of customers with membership in competitor loyalty schemes have Tesco Clubcard. Within the customers having Tesco Clubcard, 68% do not have competitor loyalty scheme. 45% respondents with loyalty scheme from other supermarkets do not have Tesco Clubcard. 83% of non-Tesco Clubcard members have loyalty cards from other supermarkets.

Have Tesco Clubcard
Yes No
Nos % Nos % of respondents in segment % of respondents out of total scheme members Nos % of respondents in segment % of respondents out of total non-scheme members
Loyalty cards from other supermarkets Yes 22 44% 12 55% 32% 10 45% 83%
No 28 56% 26 93% 68% 2 7% 17%

Table 6 – Correlating membership with competitor loyalty scheme and Tesco Clubcard membership




83% respondents with the card scheme are not aware of benefits of competitor loyalty scheme or probably not exposed to competitor offers. Further in the segment of customers that are not aware of the benefits of competitor loyalty scheme, 53% or higher proportion of the sample are members of Tesco Clubcard.

 

Have Tesco Clubcard
Yes No
Nos % Nos % of respondents in segment % of respondents out of total scheme members Nos % of respondents in segment % of respondents out of total non-scheme members
Aware of benefits of competitor’s loyalty schemes Yes 26 52% 18 69% 47% 8 31% 67%
No 24 48% 20 83% 53% 4 17% 33%

Table 7 – Correlating awareness of competitor scheme with Tesco Clubcard membership

Those consumers purchasing all the retail requirements from Tesco are all members of the Clubcard scheme, whereas the 65% of consumers who purchase from even after retailers are also Clubcard members. On the other hand out of the total non-members, all the respondents seems to have the behaviour of purchasing from different retailers and hence no loyalty.

 

Have Tesco Clubcard
Yes No
Nos % Nos % of respondents in segment % of respondents out of total scheme members Nos % of respondents in segment % of respondents out of total non-scheme members
Purchase all retail requirements from Tesco Always 16 32% 16 100% 42% 0 0% 0%
Sometimes 34 68% 22 65% 58% 12 35% 100%

Table 8 – Correlating purchasing and Clubcard membership

85% respondents who prefer Tesco are Clubcard holders, whereas 67% who does not seem to prefer Tesco are also holders of Clubcard. On the other hand 58% Clubcard holders prefer Tesco. Out of the customers who do not prefer Tesco, 67% are non-members of Clubcard scheme.

 

Have Tesco Clubcard
Yes No
Nos % Nos % of respondents in segment % of respondents out of total scheme members Nos % of respondents in segment % of respondents out of total non-scheme members
Tesco preferred supermarket Yes 26 52% 22 85% 58% 4 15% 33%
No 24 48% 16 67% 42% 8 33% 67%

Table 9 – Correlating preference and Clubcard membership




During the survey, sample respondents were asked the reason for the choice of Tesco. While those customers who indicated Clubcard scheme as the reason, all are members of the loyalty scheme. An important factor was that all customers who indicated convenient location as the reason for the choice are also members of Clubcard scheme. Out of the customers who suggested product variety and familiarity as the reason for choice, only 50% each are members of Clubcard. 25% of those who suggested customer service as the reason for choice are members of Clubcard. 67% of consumers who indicated pricing of products are Clubcard members. When considering each segment (each reason), convenient location seems to be highly correlated with membership in the loyalty scheme whereas familiarity with the store and customer service are having least correlation with Clubcard membership.

 

Have Tesco Clubcard
Yes No
Nos % Nos % of respondents in segment % of respondents out of total scheme members Nos % of respondents in segment % of respondents out of total non-scheme members
Reason for choosing Tesco Tesco Clubcard loyalty scheme 12 24% 12 100% 32% 0 0% 0%
Convenient location 14 28% 14 100% 37% 0 0% 0%
Product variety 6 12% 3 50% 8% 3 50% 25%
Familiarity with the store 8 16% 4 50% 11% 4 50% 33%
Customer service 4 8% 1 25% 3% 3 75% 25%
Pricing of products 6 12% 4 67% 11% 2 33% 17%

Table 10 – Correlating reason for choosing Tesco and Clubcard membership

All the customers who are satisfied with Tesco are members of Clubcard scheme whereas out of the total sample, 64% are not satisfied with Tesco and in this segment (dissatisfied customers), 63% have Tesco Clubcard membership.

 

Have Tesco Clubcard
Yes No
Nos % Nos % of respondents in segment % of respondents out of total scheme members Nos % of respondents in segment % of respondents out of total non-scheme members
Satisfied with Tesco Yes 18 36% 18 100% 47% 0 0% 0%
No 32 64% 20 63% 53% 12 38% 100%

Table 11 – Correlating satisfaction with Clubcard membership

Out of the 32% of the total sample who have referred Tesco, 63% are Clubcard members. On the other hand those within the segment of those who have not referred Tesco to anyone, 82% are Clubcard members.

 

Have Tesco Clubcard
Yes No
Nos % Nos % of respondents in segment % of respondents out of total scheme members Nos % of respondents in segment % of respondents out of total non-scheme members
Refer Tesco to friends or colleagues Yes 16 32% 10 63% 26% 6 38% 50%
No 34 68% 28 82% 74% 6 18% 50%

Table 12 – Correlating word of mouth with Clubcard membership

Discussion and Evaluation

Retail consumers might have membership with loyalty scheme of different retailers; however the data seems to suggest that membership with one retailer dissuades or pre-empts involvement with competitor loyalty schemes. A portion of the respondents are involved in multiple loyalty schemes, but there appears to some form of loyalty towards retail stores as a higher percentage of customers with Tesco Clubcard are not involved in loyalty scheme of competitors. This is significant and suggests the behaviour of consumers indicating loyalty, but probably to the loyalty scheme rather than the retailer. However according to (Nako 1997) and (Sharp and Sharp 1997) the substantial number of loyalty schemes offered by a range of organisations minimises its influence on consumer behaviour. Consumer awareness or exposure to promotions and offers of competitor retailers can have an impact on consumer loyalty. Data suggest that awareness of competitor schemes or exposure to competitor offers have a detrimental impact on loyalty as, with the increase in awareness of benefits of competitor loyalty scheme; there is an increase in the number of consumers who are non-members of Tesco Clubcard.

According to Shapiro and Varian (1998) the consumer purchase behaviour is heterogeneous as a result of difference in their characteristics and consequently is not stimulated to the same extent for obtaining the same kind of reward. This result is validated from the analysis and income seems to be a differentiator of Clubcard membership, which indicates consumer behaviour. Higher income seems to dissuade consumers from loyalty schemes, probably as a result of lack of attractiveness to the benefits. On the other hand low income earners seem to be attracted to the benefits of loyalty schemes.




Based on stimulus-organism-reaction (SOR) model of Blackwell et al., (2005) rewards act as stimulus, affecting cognitive variables like motivation and decision-making on the consumers (organism) and then inspire them to respond through higher purchases or a change in behaviour to the organisation. The data clearly indicates that involvement in loyalty scheme has an impact on higher spend and probably more share of the wallet. Consumers with loyalty scheme have a preference to purchase from the store and Clubcard members have a higher spend, probably suggesting the behaviour of higher frequency of purchases and higher volume. Nevertheless there is a segment of consumers who are not loyal in spite of holding membership in the loyalty scheme.

Preference towards the brand or the store is an attitudinal factor related to loyalty (Ballouli et al., 2016). The Clubcard holders prefer Tesco; however this does not seem to be very significant when considering the percentage of the sample. Hence there does not seem to be significant attitudinal loyalty to Tesco as a result of loyalty scheme. Further the data seems to suggest that convenience of location is an important factor leading to membership and preference for Tesco. This seems to be a behavioural function as location convenience leads to one main reason for choice of Tesco and the membership in loyalty scheme is probably as a result of this convenience of location. The data suggest that consumers have spurious loyalty rather than true loyalty to Tesco. Correlation data connecting satisfaction and Clubcard membership appears to suggest that satisfaction is a reason for joining loyalty scheme; however even dissatisfied customers are members of loyalty scheme.

Word of mouth marketing of brands of stores by the consumers is a clear indication of true loyalty. Referring brands and organisations through word of mouth is considered as true attitudinal loyalty. Membership in loyalty scheme seems to have a minor impact on the attitudinal function of referring the store to others. The overall data seems to indicate that in the retail sector, membership in the loyalty scheme does not lead to word of mouth. This is further indication of spurious loyalty.

Overall the data seems to indicate that Tesco has been able to develop spurious loyalty and Clubcard scheme is defending the customer base. There is low relative attitude, but higher patronage behaviour (Yi and Jeon 2003) as there are higher purchases by loyalty scheme members; however the inclusion in loyalty scheme is mostly a function of other factors such as convenience. Once the customers enrolled with the loyalty scheme, the rewards act as motivators to increase their share of the wallet and depend on the store contributing to repeated repurchase.

Conclusions and Recommendations

Loyalty has several forms and the mere continuous purchase of products/services from an organisation cannot be characterised as true or premium loyalty. Consumers might purchase products from an organisation due to several other factors such as lack of other avenues, low prices, good quality and services and so on. Hence in certain conditions, offering loyalty schemes to consumers may not be significantly beneficial to an organisation as it is simply an add-on product/service to a customer who is purchasing products/services from the organisation mainly as a result of other factors such as brand image, lack of alternatives.




In the retail context consumers have loyalty scheme membership with different retailers; but there is preference towards a retail store based on the analysis that a higher percentage of customers with Tesco Clubcard are not involved in loyalty scheme of competitors. However awareness or exposure to promotions and offers of competitor retailers has an impact on consumer loyalty. Consumer purchase behaviour is considered heterogeneous as a result of difference in their characteristics and income seems a main factor as low income consumers seem to be attracted to the benefits of loyalty schemes. Involvement in loyalty scheme has an impact on higher spend and probably more share of the wallet. Consumers with loyalty scheme have a preference to purchase from the store and Clubcard members have a higher spend, probably suggesting the behaviour of higher frequency of purchases and higher volume.

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The Clubcard holders have a preference to Tesco; but there does not seem to be significant attitudinal loyalty to Tesco as a result of loyalty scheme, as convenience of location appears to modulate membership and preference. Membership in loyalty scheme is probably as a result of convenience of location. Satisfaction with products could result in the same preference, but the products at Tesco is not differentiated from competitors and hence is not the main reason for joining loyalty scheme and is quite clear from the fact that even dissatisfied customers are members of loyalty scheme. Membership in loyalty scheme seems to have a minor impact on the attitudinal function of referring the store to others. The overall data seems to indicate that in the retail sector, consumers have spurious loyalty as the main factors are convenience of location, no word of mouth referrals,


Finding

UK retailers have developed spurious loyalty through loyalty schemes to defend their customer base resulting in low relative attitude, but higher patronage behaviour through higher purchases by loyalty scheme members. The membership in loyalty scheme is due to factors such as convenience. Once the customers enrolled with the loyalty scheme, the rewards act as motivators to increase their share of the wallet and depend on the store contributing to repeated repurchase.

Limitations

The research findings are based on a survey of convenient sample of customers at a single Tesco retail outlet. The characteristics of the population of UK have not been adequately captured through the sampling method which is a major limitation. There is the possibility that the real characteristics of loyalty of retail customers are at least slightly different from the findings.

Recommendations

Tesco and other retail organisations have to create true and differentiation loyalty from their consumers and along with loyalty schemes have to develop differentiation in their products and prices to ensure higher relative attitude and corresponding behaviour.

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Appendix

Questionnaire

  1. Age
18 – 25 25 – 35 35 – 45 45 – 60 Above 60
  1. Gender
Male Female
  1. Your annual income
Less than £20,000 £20,000-£40,000 £40,000 – £60,000 More than £60,000
  1. Your average monthly purchase spent at Tesco
Less than £10 £10-£50 £50-£100 £100-£200 More than £200
  1. Do you have Tesco Clubcard
Yes No
  1. Do you have any other similar loyalty cards from other supermarkets
Yes No

 

  1. Are you aware of the benefits from the competitor’s loyalty programmes?
  2. Do you purchase all your retail requirements from Tesco
Always Sometimes
  1. Do you know how your purchase value is converted to Tesco Clubcard points
Yes No
  1. Is Tesco you are preferred supermarket
Yes No
  1. What is the main reason for choosing Tesco as the preferred supermarket
Tesco Clubcard loyalty scheme
Convenient location
Product variety
Familiarity with the store
Customer service
Pricing of products
  1. Are you satisfied with Tesco Clubcard loyalty programme
Yes No

 

  1. Do you ever refer Tesco to your friends or colleagues?
Yes No