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The Impact Of Loyalty Card On Customer Retention

Chapter 1: Introduction

1.1 Background

Loyalty cards are very powerful and effective tools of marketing. Use of loyalty cards is becoming increasingly popular among organisations today. The use of the loyalty programmes such as loyalty cards encourages customer loyalty and retention. Today, loyalty card has become an important element of management of customer relationship for businesses related to the hotel industry, airlines sector, apparels and retailing sector. As per Gustafsson et al (2015), over the past few years, loyalty cards have proved to be an incredible tool of marketing for rewarding and retaining the present customers and attracting new ones. They act as incentive tactics which prove to be beneficial for the customers based on the purchases they make repeatedly. The loyalty cards are a part of loyalty programmes that encourage the customers to make buying decisions in a more dynamic and strategic manner at the time of making purchases with the outlet or company. The loyalty cards are tools of relationship marketing that provide rewards to the buyer on repeated or cumulative purchasing (Gustafsson et al 2015). The rewards and benefits of loyalty cards include great discounts, promotional offers, reward points, gift vouchers, product exchange offer and a lot more based on the intention of repurchase, constraint of customer, relationship of the customer with the store, third party offer, spending amount, etc. The technique of rewarding customers for repeated purchasing ultimately enhances customer retention.

As per Morgan & Hunt (2014), loyalty programmes like use of loyalty cards directly enhance the loyalty of the customer towards a particular organisation by offering different types of rewards as an incentive to the customer for shopping regularly at that company’s outlet. According to Morgan & Hunt (2014), loyalty programmes also help companies ........

ty and retention. Today, loyalty card has become an important element of management of customer relationship for businesses related to the hotel industry, airlines sector, apparels and retailing sector. As per Gustafsson et al (2015), over the past few years, loyalty cards have proved to be an incredible tool of marketing for rewarding and retaining the present customers and attracting new ones. They act as incentive tactics which prove to be beneficial for the customers based on the purchases they make repeatedly. The loyalty cards are a part of loyalty programmes that encourage the customers to make buying decisions in a more dynamic and strategic manner at the time of making purchases with the outlet or company. The loyalty cards are tools of relationship marketing that provide rewards to the buyer on repeated or cumulative purchasing (Gustafsson et al 2015). The rewards and benefits of loyalty cards include great discounts, promotional offers, reward points, gift vouchers, product exchange offer and a lot more based on the intention of repurchase, constraint of customer, relationship of the customer with the store, third party offer, spending amount, etc. The technique of rewarding customers for repeated purchasing ultimately enhances customer retention.

As per Morgan & Hunt (2014), loyalty programmes like use of loyalty cards directly enhance the loyalty of the customer towards a particular organisation by offering different types of rewards as an incentive to the customer for shopping regularly at that company’s outlet. According to Morgan & Hunt (2014), loyalty programmes also help companies gather considerable useful information, including the name and address of a customer and his/her purchasing preferences. This information is then used by these firms to tailor promotions, advertising, investment and product offerings to the customer preferences and needs thereby enhancing customer loyalty and retention. According to Gustafsson et al (2015), loyalty cards help organisations tremendously by:

  • Enhancing the shopping frequency of the customers by offering rewards on each subsequent purchase. This increases the spending of the customer.
  • Gaining new customers as people are attracted to companies that offer discounts and rewards on purchases.
  • Enhancing the image of the company as people like companies that offer rewards to customers
  • Boosting up effectiveness and success of the marketing strategies of the companies

All these benefits ultimately increases customer retention in one way or the other and also help organisations build and maintain good relationships with their clients and customers.

 

Customer retention can be defined as the ability of an organisation or product/service to retain its existing consumers (Bolton et al 2010). It basically refers to the activities and strategies that companies adopt for reducing customer defections. The main aim of customer retention strategies, activities or programmes that businesses adopt is to retain as many clients or customers as possible. High customer retention indicates that the customers of the business or product continue to purchase, tend to return, and do not switch to another business or product. According to Bolton et al (2010), customer retention begins with the very first contact or interaction a business has with a consumer/customer. It continues all the way through the entire lifespan of a business-customer relationship and successful customer retention efforts or strategies are developed keeping this entire lifespan in mind (McCall & Voorhees, 2010). Any organisation’s ability to retain and attract customers does not depend only on the services and products that it offers, but also on the manner in which it services its current customers, the reputation that company creates in the marketplace, and the value that its customers actually create or generate by  making use of the solutions.

 

It is very important for each and every business to keep the issue of customer retention at the forefront of its business strategy. As per McCall & Voorhees (2010), there exist a large number of effective techniques or strategies of customer retention, but one remarkably powerful and strategic approach or technique is the implementation of a customer loyalty programme. Loyalty cards are a part of customer loyalty programme which are designed and developed for building repeat business by way of offering rewards or special benefits (that are not available to the customers who do not participate) to the participating customers for making purchases. Loyalty cards greatly improve customer retention. Loyalty cards help generate more business. They work well as a tool of marketing for spreading the word about a product/service or business (McCall & Voorhees, 2010). Customers are made by the rewards and special benefits they get on making repeated purchases, while the hosting companies rake in more and more profits, as well as also gain the allegiance and affection of those customers.

1.2 Company Background

In this study, the organisation taken for evaluation is Silpo. It is chain of supermarkets in Ukraine that was developed in the Kiev in 2001. Silpo Retail Chain is ranked among the largest national food supermarket chains. Each and every Silpo supermarket is a self-service store. The Silpo chain is present in all areas of Crimea and Ukraine. The product variety at Silpo supermarkets consists of nearly 25, 000 food items and related products. The product range at each Silpo supermarket completely depends on the area of sales of each store. The parent company of Silpo is Fozzy Group - a group of organisations that owns as well as manages retail outlets in Ukraine. Fozzy Group is the largest group of food retain in Ukraine. Originally, the Silpo chain operates more than 270 stores in over 55 cities of Ukraine. The medium square of Silpo is 1200 square meters and the retailer offers wide-ranging products. The assortment of products on offer at Silpo varies from 5, 000 to 10, 000 names. Silpo offers low prices, high quality of products, great variety of household wares and groceries, favourable location and quick service. Silpo has instituted a large number of strategies for attracting new customers. In addition to this, the company has also implemented different types of loyalty programmes for retaining its existing customers and increasing profits. The focus of the researcher is to examine how the use loyalty programs have helped Silpo to retain customers.

1.3 Rationale for the study

With the rapid increase in the competition in the food retail industry, the food retailers adopt different strategies to retain customers. The retailers offer several types of discounts and loyalty programs to the customers to improve the product sales through customer. Amongst different techniques used by the marketers to retain customers, loyalty programs are the commonly and widely used ones. As per McCall & Voorhees (2010), a loyalty programme is a kind of special benefit or reward programme offered by an organisation to consumers or customers who make purchases frequently. These are the structured and well-planned marketing strategies which are designed by the companies for encouraging their respective customers to continue to make purchases or avail services from them. Specifically in retailing, loyalty programmes usually make use of marketing tools such as rewards card, loyalty card, advantage card and points card, The card holders are identified as members in loyalty programme (s). According to Mattila (2006), the loyalty programs encourage consumers to come back to the retailer over and over again. However, it has always remained a question that whether loyalty programmes help in improving the customer retention. The loyalty programmes are not always engaging to the customers as these might not convince them to stay back with the brand. Therefore, the marketers have been trying to determine whether or not loyalty programmes can be used as a customer retention strategy. This study is crucial since it aims at clarifying this ides and ensuring the importance of customer retention. Also, the focus of the study is to analyse the impact of customer loyalty programs impacting the customer retention and making recommendations about the most influential. With this, the researcher will focus on gaining a deep understanding of the impact of customer loyalty programs on the customer retention, taking the case of Silpo supermarkets chain into account.

1.4 Research Aim, objectives and questions

Research Aim

The aim of this study is to analyse the impact of loyalty programmes on the customer retention. The company taken for evaluation is Silpo, which is a retail chain based on Ukraine.

 

Research Question

The research question for this study is as under.

What is the impact of loyalty card on customer retention?

 

The sub research questions for the study are as under.

  1. What are the loyalty card programmes of Silpo?
  2. What is the current customer retention strategy of Silpo?
  3. What is the impact of loyalty cards on customer retention?
  4. What are the recommendations for Silpo to improve it loyalty cards programme and customer retention?

 

Research Objectives

The objectives for this study are as follows.

  • To analyse the loyalty card programme of Silpo
  • To analyse current customer retention of Silpo
  • To analyse the impact of loyalty cards on customer retention
  • To provide recommendations for Silpo to improve it loyalty cards programme and customer retention

 

1.5 Hypotheses

The hypothesis of the study is developed as under.

H0: There is an impact of loyalty programmes on customer retention.

The loyalty programmes are developed by the marketers to encourage increased usage of a company’s products or services. The more a customer buys, the more rewards he is likely to get from the company. Hence, the purpose of the loyalty program is to develop expectancy of positive outcomes related to making a purchase. When customers realize that their purchase has helped them achieve positive outcome, they tend to stay back. This leads to customer retention. Hence it is the first hypothesis.

 

H1: Consumers increase their usage of the brand after involving them in a loyalty programme.

When the customers enroll in the loyalty programmes and experience positive results out of it in terms of purchase or discounts, they increase their usage of the brand. Hence, the usage of the brand increases after involving in a loyalty programme, which is our second hypothesis.

H2: The buyers who have moderate usage of the brand are first to increase their loyalty than those with high or low brand usage.

The consumers who are considered moderate buyers by the marketers experience high usage of the brand when a loyalty programme is introduced. The moderate buyers tend to enroll in the loyalty programmes faster than the high or low purchasing consumers. Therefore, the consumers who have moderate usage of brand are first to increase their loyalty; hence, the third hypothesis.

1.6 Significance of the Research

Although the loyalty programmes are widely used by marketers but there is limited research conducted on its long-term effectiveness. This study is beneficial for the organizations, especially retailers to examine the long-term impact a loyalty program on consumer’s usage levels and their loyalty to the firm. The purpose of the study is to help the marketers to understand the role of loyalty programmes in the customer retention.

With growing competition in almost every industry, it has become vital for the companies to adopt exclusive strategies to sustain in the long run. The companies that are not able to take strategic or efficient moves often end up failing and getting out of the competition. Amongst the different strategies taken up by the companies, loyalty programmes are most common (Mattila, 2006). This field is highly explored by the researchers but it is not yet clear whether or not loyalty programmes are effective in long-term. This study is a move to explore the importance of loyalty programs for customer retention. In the recent time, nearly all the companies have instituted some kind of loyalty programme.

From the world’s major airlines, supermarkets to local dry cleaners, each company strives to retain its existing customers and attract new ones by offering them the option of being a part of the company’s loyalty club or rewards program. As per McCall & Voorhees (2010), a loyalty programme is a kind of special benefits or rewards programme offered by an organisation or business to customers who are frequent buyers. It is a long-term and well-planned marketing effort which offers incentives or special benefits to customers who display loyal buying behaviour (McCall & Voorhees, 2010). A typical loyalty programme may give a repeat or loyal customers, free merchandise, special discount coupons, or advanced access to new, innovative services or products. There are two main functions that the loyalty programmes provide. One of the functions includes customer rewards or special benefits for brand loyalty. The second key function of these programmes is to provide the issuing company with a wealth of customer data. The loyalty card programme of Silpo has also helped this supermarket chain to make a lot of profit and gather database of a huge number of customers (McCall & Voorhees, 2010).

This study is highly significant since it throws light on the importance of loyalty programmes and how these can be used to retain customers. The future researchers can consider this study as a base to explore the field of loyalty programmes and customer retention.

 

 

Chapter 2: Literature Review

2.1 Effectiveness of loyalty programmes

2.1.1 Definition

Loyalty programmes: Loyalty programmes are gaining immense popularity in retail business because of the ability of supermarkets to provide consumers with special benefits or loyalty incentives for repeated purchases (Bolton et al 2010). These programmes are the most popular and effective customer retention strategies used by businesses to maintain healthy customer relationship. As per Bolton et al (2010), loyalty programmes are programmes that attract customers to earn free rewards or avail special discounts for making repeat purchase with a firm, brand or business and thereafter maintain healthy relation and generate continued or return business. Loyalty programmes are among most attractive tools of marketing for many businesses around the world (Gustafsson et al 2015). These programmes are developed not only for guaranteeing customer satisfaction and retention but also for encouraging dynamic purchases.

 

Customer loyalty: It can be defined as a deeply and strongly held commitment for re-buying a preferred service or product in a consistent manner in the future. As per Gustafsson et al (2015), consumer loyalty is a commitment that can occur at a total of 4 different levels. These levels include cognitive level, behavioral level, conative level and affective level. Customer loyalty programmes are beneficial strategic tools for retaining customers. Well designed customer loyalty strategies of programmes make the relationship that the company shares with existing customers stronger and better, increase the customer expenditure share, increase life cycles of the customers thereby ultimately strengthening customer loyalty (Keh & Lee, 2006). 

2.1.2 Loyalty programs and value enhancement

Loyalty programmes are considered to be very effective value sharing tools. They can enhance customers’ perceptions of what all the company has on offer. This function of value enhancement is very important for any business because the potential to provide high value is important for maintaining healthy customer relationships and retaining them (Keh & Lee, 2006). Enhanced perception value is critical to the success of any loyalty programme. There are two major stages in which loyalty programmes offer value to the consumers. At stage one, customers earn programme points at the time of making a purchase. As per Liu (2007), even though these programme points do not have any value till the time they are redeemed by the customers, recent research studies have indicated that they still have vital psychological meaning to customers. This psychological benefit results in a rise in the transaction usefulness or utility of a purchase and gradually the total value perception of dealing with the company (Liu, 2006). This is because customers can then redeem their points for special benefits or discounts. This increases the likelihood of the customers of staying in relationship with the company. In the second stage, customers receive both economic as well as psychological benefits from a loyalty programme. The special benefits encourage the customers to make repeat purchases and continue to buy products from the business or firm.

 

2.1.3 Loyalty programs and relationship commitment

In addition to the need for better and higher value, commitment of both the parties that share a relationship is another important condition for the development and sustainment of any relationship (Lewis, 2004). It is very easy for the customers in this very competitive business world of today to switch from one brand or business  to another. This is primarily because there are low switching barriers and wide variety of products and services available for the customers. As a result of this, a brand has to face a large number of challenges in maintaining long-lasting customer relationships because customers usually do not commit to one brand (Lewis, 2004). Loyalty programmes are effective marketing tools that have proven to be very effective in alleviating this lack of commitment or loyalty among customers. In addition to this, these programmes also help in reducing consumer defection by way of increasing switching costs. Due to the fact that loyalty programmes provide special benefits to the customers for making repeated purchases, most customers focus their purchases in a single programme for maximising the rewards or special benefits they receive (Leenheer et al 2007). The increased commitment of the customers towards a particular brand or firm make it difficult for the competing firms to entice consumers away from that brand.

 

Loyalty programmes are helpful in not only building customer commitment and increasing customer retention but also showcase the commitment of a brand or business, It is usually very expensive for a company to institute as well as sustain a loyalty programme (Leenheer et al 2007). A company needs to make extensive efforts and work very hard for managing a record of the points earned by various customers and issuing rewards to them. A brand is able to build a good brand image by maintaining such programmes. This  powerful brand image further strengthens the relationship between the brand and its customers.

 

2.1.4 Loyalty programs and retail industry

The retail industry includes supermarkets, departmental stores, cooperative unions, shopping malls, hypermarkets and convenience stores in Europe. With the increasing competition in the European retail industry of today, the profit margins of retail companies or brands has been constantly declining and the companies are looking for new, innovative profit growth points through various sources of customer loyalty (Morgan & Hunt, 2014). For increasing sales and profit margins, European countries have a growing number of retail stores, both small and large scale, launching various types of loyalty programmes. There are a large number of national as well as international supermarket chains in different European countries which introduce different loyalty programmes such as loyalty cards, etc (Morgan & Hunt, 2014). In the ever increasing competition in the consumer market and retail industry of Europe, the loyalty programmes have become effective marketing tools for retailers to employ. As per McCall & Voorhees (2010), loyalty programmes have greatly helped the retail industry of Europe in targeting the customers effectively and accurately, with a view of increasing sales and profit margins. Loyalty programmes and customer satisfaction have a positive relation. This means that the customers who are happy with different kinds of rewards they receive as part of the loyalty programmes tend to be satisfied and are more loyal to the firm.

2.1.5 Types of loyalty rewards

As per McCall & Voorhees (2010), the types of loyalty rewards offered by different companies or firms can be differentiated as soft rewards and hard rewards or benefits. Hard rewards are the different types of loyalty rewards that include tangible elements like points, gifts, discounts, miles and collateral products. These are the rewards that provide the customers with something that is free of cost and would have otherwise cost the consumer money. Hard rewards or tangible benefits alone are usually not enough for creating emotional attachment to the service or product (McCall & Voorhees, 2010).  Moreover, the effectiveness as well as the success of any loyalty programme is dependent upon the quality and quantity of the rewards or benefits that are offered by it. Therefore, it is important for the company to make sure that the benefits have a superior value from the perspective of a consumer. On the other hand, soft rewards or soft benefits are the types of loyalty rewards that include tailored messages, preferential treatment, special communications and recognition (Mattila, 2006). The soft benefits generally offer additional benefits to the customers and make them feel more special among other people. These additional benefits include value added services. Soft benefits build a strong personal relationship between the company and its customers. These rewards are very important in the retail industry where the level of interaction between the company’s staff and customers is relatively demanding (Mattila, 2006). The loyalty rewards, be it hard rewards or soft rewards, work well and better if they are designed to attain the value perceived by the target customers.

 

2.2 Customer retention

2.2.1 Definition

It is very important for a company to find new customers, but it is even more important for that company to keep or maintain its existing customers and turn the new ones into its loyal buyers. In the past few years, customer retention is a concept that has gained immense value as well as popularity among firms that provide goods and services. Many research studies have indicated that more and more firms are increasingly turning towards using strategies of customer retention as a strategic tool (Sharp & Sharp, 2013). According to Taylor & Neslin (2005), customer retention is the propensity for consumers to keep buying or availing products and services from their service providers. It is the inclination of the customers towards the products or services of their service providers. As per Taylor & Neslin (2005), customer retention strategies focus on the existing customers of s firm or business with the aim of securing the loyalty of a customer over time. Customer retention and customer satisfaction have a positive relationship. High level of customer satisfaction results in high level of customer retention. As per Yi & Jeon (2003), the more satisfied the customers of a company or brand are, the more they remain committed and loyal to that firm. Hence, each and every business devotes lots of efforts on building, enhancing, as well as managing customer satisfaction of the customers. According to Bolton et al (2010), investing time and money in increasing the level of customer satisfaction is like investing in an insurance policy. If any kind of hardship or trouble is temporarily faced by the firm, its consumers are likely to still remain loyal and committed to it. Implementing an effective strategy of customer retention helps a company in identifying, as well as exploring opportunities of referral sales and also enhances its brand reputation (Bolton et al 2010). It also helps a firm build and maintains constructive relation with its customers, identify as well as rectify various flaws that exist within the processes and policies of the company. Most importantly, the customer retention strategies help a company understand the needs and wants of its customers,

 

2.2.2 Importance of Customer retention

Customers are the greatest, as well as the most important assets for any firm or brand. Hence, customer retention is integral and very important to the success of any retail business because it is very effective in increasing sales as well as profits. As per Gustafsson et al (2015), satisfied customers are the one who become loyal customers and repeatedly patronise the firm by way of increasing its sales and earnings. Firms or brands that have effective and powerful customer retention strategies also benefit through various social media websites and customers’ blogs. The main aim of any company in the competitive business world of today is to keep the customers interested as well as engaged with its products and services (Gustafsson et al 2015). The importance as well as the benefits of customer retention is as follows:

 

Improved Customer Lifetime Value (CLV): Customer retention is the key to increasing or enhancing Customer Lifetime Value (CLV). This is because a happy or satisfied customer is likely to be a loyal customer. CLV can be defined as the total worth of value of a customer to a business or firm over the course of their relationship (Keh & Lee, 2006).

 

Better reviews and ratings: High level of customer retention means more number of loyal customers. Loyal customers usually leave positive reviews of the services and products for their service provider.

 

Data: High level of customer retention means that a company has immense data on the buying behaviour of the target and existing customers, as well as on the purchase history which can help that company in formulating and implementing better future strategies (Keh & Lee, 2006).

 

Improved Brand Image: Loyal customers create positive word of mouth for their service providers and favourite brands. This ultimately results in improving the brand image of the company.

 

Recommendations: Loyal customers are the ones who are happy and satisfied with the services or products that their service providers provide them with. They are likely to recommend their service provider or their favourite brands to their family and friends.

 

Hence, customer retention is critical to the long term vitality of any company. a happy, loyal group of customers helps in the growth and development of a business. Loyal customers save a lot of time, money, as well as energy for any business. In addition to this loyal customers are the best source of referrals for any business.

 

2.2.3 Strategies for customer retention

There are various types of customer retention strategies that can be adopted by a firm. Some of the strategies for customer retention are as follows:

 

Use of customer clubs and loyalty programmes: Loyalty programmes are used by various businesses or brands to provide special benefits or reward their customers for being loyal to the company or repeated purchases (Leenheer, 2006). These programmes ultimately result in an increased customer retention rate. Most widely used types of loyalty programmes are loyalty cards. 

 

Monitoring of customer relationships: One of the most effective and powerful strategies used by businesses for increasing level of customer satisfaction and retaining customers is thorough analysis and evaluation of customer relationships. Two of the most effective and widely used tools of evaluating customer relationships include customer databases and surveys. By analysing customer relationships, firms and brands can identify various flaws that exist in their customer policies and work on enhancing customer relationships and increasing the level of customer satisfaction and retention.

 

Creating value processes: The process of value creation comprises of a total of three factors. The very 1t factor is the company’s ability to make available and sell a reliable or credible promise. As per Leenheer (2006), credibility is very important in the retail industry or any type of professional services. This credibility can get impacted by the reputation of the business, as well as by the employees assigned to the project. The 2nd factor is the group of activities or actions on part of the business needed for delivering the promise. The next factor is the learning and analysing from projects. It is very important for a company to learn from the process and then instill or institute this learning for improving the product as well as service quality with existing and future customers.

 

2.2.4 Customer retention and retailers

In the current competitive market, customer retention remains to be a key factor for any business operating in the retail industry. The retail market of Europe evolves from being product and service centric to building consumer relationships. As per Bolton et al (2010), there exists a cutthroat competition among retailers. Customer retention has now become one of the main metric of growth and success of a retail business. As per Gustafsson et al (2015), brand or consumer loyalty is no longer a concept to be accomplished once and relied on for the rest of the years. Today, retailers have to win the trust of their customers repeatedly with each and every interaction. The only way for them to survive, as well as grow in the retail industry is to attract more and more customers and retain the existing ones by way of providing them with best services and products. However, as per Gustafsson et al (2015), most retailers are not doing enough for keeping their customers engaged and retaining their customers. Many retail businesses perceive customer retention as a central topic in their marketing decisions as well as management. While a majority of retailers around the world have taken significant measures or steps aiming at optimising their appearance, as well as sales/distribution channels for target customers, when it comes to enhancing and increasing customer retention, the practices or strategies adopted by them are still behind the curve (Keh & Lee, 2006). Retail organisations need to take into account the following factors about the retail environment of today before instituting customer retention strategies. One, Competition in the retail market is fierce. Second, the expectations of today’s customers are higher than ever. Retailers in today’s competitive market need to lay their focus and attention on the consumer as an individual. They need to aim at providing the customers with an experience that is both gratifying, as well as seamless in light of their individual wants and needs. The retailers operating in today’s competitive business world must understand that it is no longer enough for them to blanket target customers with generic incentives or schemes. The retailers must understand that today’s customers crave consistent, tailored and convenient service and product, and they should institute diverse loyalty tools for meeting those expectations (Keh & Lee, 2006).

 

Most of the research studies about customer satisfaction and customer retention indicate that retaining customers greatly improves sales and profits of a company by way of minimising the cost incurred in attracting new customers (Keh & Lee, 2006). Retail companies that focus only on acquiring new customers will not be able to increase their profits if they continuously fail to retain those customers. As per Liu (2007), a small shift in the rates of customer retention of a company can make a huge difference in the level of that company’s profits which will only accelerate with time. A retained consumer is the one who is loyal because of his/her commitment as well as the attachment to the company. This customer is the one who then recommends other people to buy and rebuy the products as well as the services of the company.

2.3 Impact of loyalty cards on customer retention

A loyalty programme is a very important element of customer retention and customer relationship management for companies related to the retail market or industry. Loyalty programmes act as special benefits and incentive schemes which prove to be beneficial for customers based on the number of products or services purchased by them (Liu, 2007). These programmes are primarily instituted by companies with an aim of strengthening their competitive position by retaining more and more customers. Loyalty programmes such as loyalty cards encourage the customers for making more dynamic decisions at the time of making repeated purchases with the company or business. The typical goals of retail businesses when introducing a loyalty programme include enhancing customers’ knowledge; increasing sales of  their products and services; increasing purchase frequency and customer retention. All of these goals focus on increasing profitability of the business (Liu, 2007). Loyalty cards are the cheapest and most effective way for any company for running a loyalty programme. Such loyalty programmes are most widely used in the retail sector. Loyalty cards focus on acquiring, as well as keeping customers. Central to loyalty programmes such as loyalty cards is customer loyalty and customer retention. Customer retention directly influences profitability of a company. Today, organisations are putting in a lot of time, resources and money in developing strategies to satisfy as well as retain customers. One of the most effective and widely used strategies is the implementation of programmes aiming at improving customer loyalty for increasing customer retention (Lewis, 2004). Over the past years, card programmes or loyalty cards have been introduced by a large number of industries including retail industry. In the retailing sector, loyalty programmes have focused on issuing specially coded or special scanner readable loyalty cards. These loyalty cards enable customers to gather certain number of points against each purchase. On collecting certain number of points, the customers can earn a reward, rebates, member only deals, or special discounts in exchange of those points.  

 

Loyalty cards positively impact the customer buying behaviour. This is because they encourage the customers to make accumulated or repeated purchases as customers are able to find different kinds of benefits i.e. immediate and delayed or direct and indirect benefits attached with the company or brand. As per Lewis (2004), loyalty cards help in increasing the rates of customer retention which incredibly improves the profitability of a business which ultimately means that the relationship between loyalty programmes and customer retention is a positive one. Customers demonstrate committed and dedicated behaviour towards loyalty cards because of the various types of benefits they are able to perceive. In case of high end, premium brands, there are segments of people who stay loyal to prestige brands because it helps in group identification, maintain high status and self concept projection. Psychological, economic and sociological rewards offered to customers in exchange of loyalty card points lead to greater commitment, trust, as well as development of long term customer relationships. As per Leenheer et al (2007), loyalty programmes build an emotional bond between the customers and the company leading to high switching costs. As a result, customers stick to a particular brand which means greater rates of customer retention. Loyalty programmes such as loyalty cards are considered incredible value-sharing tools and can greatly enhance the perceptions of the customers of what the company has to offer. Loyalty cards, hence, enhance value of the company thereby helping in increasing the rates of customer retention.

2.4 Recommendations for the organisation to improve its loyalty cards programme and customer retention

As discussed in the above sections, it is much more time consuming and cost-intensive to acquire a new customer than retaining an existing one. However, most companies still do not focus much on their existing customers and do not work on actively rewarding or engaging their current customers. In this competitive business world, rewards and loyalty programmes are becoming increasingly important for companies to retain their existing, loyal customers. Although the Silpo Retail Chain has implemented different types of loyalty programmes for retaining its existing customers and increasing profits, it can still do a lot to improve its loyalty cards programme thereby further increasing the rates of customer retention. Some of the recommendations for the company to improve its loyalty cards programme and customer retention are as follows:

 

Make the Loyalty cards programme easy: Silpo should consider making its loyalty cards programme simple, easy, user-friendly and engaging. The company should understand that no matter how much its customers like the products that it offers, they are often not interested in enrolling into complicated programmes to receive rewards for their loyalty. The company should make use of technology for running its loyalty cards programme that is capable of adding value to customer experience  without having them jump through hoops. Silpo should map out all the steps it takes for the shoppers to earn the company’s rewards and then work on making the entire process easier.

Keep the programme timely: No doubt, customers love and cherish immediate gratification. Silpo should focus on reducing the amount of time it takes between completing the action of loyalty the company wants its customers to take, i.e. like/follow, referral or register, and receiving the corresponding rebate or rewards. This will help the company increasing the level of customer engagement and retention.

Make the loyalty cards programme highly valuable: Silpo should conduct a research for finding out what the company’s customers like and value the most. It could be anything from cashback and discounts to upgrades in products or services and charitable contributions. The main goal should be to make the loyal customers feel more important and valued than rest of the company’s customer base. In addition to this, Silpo should also try to make its loyalty rewards or perks currency ubiquitous. The more the customers earn through loyalty rewards, the more they spend on the products and services of the company. This will result in their stronger emotional attachment with Silpo.

 

Make the programme measurable: Silpo should evaluate its loyalty cards programme by monitoring the rate of reward redemption or retrieval before, as well as after making improvements in areas like value, time and relevancy of particular rewards. The company should analyse the findings and then plan on future reward offerings strategically. This will help the company improve its loyalty cards programme and customer retention incredibly. Besides this, the company should also consider comparing its loyalty cards programme with that of its competitors and then make necessary adjustments for bringing about improvement in the rate of customer retention.

 

 

References

Bolton, R. N., Kannan, P. K., & Bramlett, M. D. (2010). Implications of loyalty program membership and service experiences for customer retention and value. Journal of the academy of marketing science28(1), 95-108.

 

Gustafsson, A., Johnson, M. D., & Roos, I. (2015). The effects of customer satisfaction, relationship commitment dimensions, and triggers on customer retention. Journal of marketing69(4), 210-218.

 

Keh, H. T., & Lee, Y. H. (2006). Do reward programs build loyalty for services?: The moderating effect of satisfaction on type and timing of rewards. Journal of retailing82(2), 127-136.

 

Liu, Y. (2007). The long-term impact of loyalty programs on consumer purchase behavior and loyalty. Journal of Marketing71(4), 19-35.

 

Lewis, M. (2004). The influence of loyalty programs and short-term promotions on customer retention. Journal of marketing research41(3), 281-292.

 

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