ABSTRACT
This paper provides a background of the proposed study. The purpose of the study is to determine the effects of loyalty scheme in the UK giant retailers such as Tesco, Sainsbury and ASDA. A review of literature is also provided, discussing the importance of customer satisfaction and loyalty, and some of the factors that affect customer loyalty. The study will be using the descriptive research approach. Both quantitative and qualitative methods will be used. In order to determine the effect of loyalty scheme to the customers, the researcher will conduct survey and interview. Sample will be composed of 90 shoppers and grocers who patronize the three retailers.
INTRODUCTION
In today’s business world, the value and importance of customers is not something that should be set aside by companies. Marketing plans and strategies would be incomplete without paying much consideration to the customers. Customers will and should always be a part of the agenda in any marketing plan of any company. Customer retention is potentially one of the most powerful weapons that companies can employ in their fight to gain a strategic advantage and survive in today’s ever increasing competitive environment (Lindenmann, 1999).
This paper discusses in detail the research proposal on the importance of customer loyalty in boosting sales. The proposed research will focus on loyalty schemes in the UK supermarket, particularly the three giant retailers (Tesco, Sainsbury, ASDA Walt Mat group). In this paper, the background, context and theme of the study are presented; the objectives of the study and the research statements are formulated. Here, vital concepts, questions and assumptions are stated. Finally, the scope and limitation of the study, methodology to be used and the significance of the research are discussed.
Purpose of the Study
Generally, the purpose of the research is to conduct a descriptive study on the effects of customer loyalty on the retail industry. Specifically, the study will investigate how the scheme has affected the competitiveness in the retail sector. To achieve this, the researcher will conduct a survey and interview. Moreover, the study will furnish discussions made by other authors regarding customer satisfaction, customer loyalty and marketing strategies.
Statement of the Problem
Companies spend millions trying to understand and influence customers–to hold on to them and to encourage them to spend more. Every marketing organization wants to develop loyal customers: customers that buy consistently over time, generally at regular prices, commonly ignoring the pleas and platitudes of competitors. Everyone knows customer loyalty is good.
However, even satisfied customers often drift away from the company or the brand. The same holds true for customers who have exhibited brand or company loyalty through their purchases over time. Sometimes they simply stop buying. No apparent change in life-style, economic level, personal situation, or other factors seem to explain the shift in purchasing behavior. With this, supermarkets in the UK are implementing loyalty schemes. This study will attempt to determine to what extent loyalty scheme affects retail sector.
Objectives of the Study
The objectives of this study are:
1. To examine loyalty schemes in the UK retail industry.
2. To review literature on customer loyalty.
3. To gather data on the effect of loyalty scheme on the competitiveness of the retail sector.
LITERATURE REVIEW
Customer Loyalty
Much of the basics of brand loyalty seem to stem from research conducted initially by the Chicago Tribune in the late 1940s and early 1950s, based on consumer diary panel data that recorded consumer household purchases. Initially reported in Advertising Age in a series of articles in 1952-1953, that data was subsequently published in the Harvard Business Review in 1956.
By the mid 1960s, much of the research on brand loyalty focused on the economics of information, i.e., the cost and ability of consumers to search for information about alternatives and to understand brand choices. Farley’s (1964) work on “Brand-Loyalty and the Economics of Information” is an example of that stream of work. In the early 1970s, Jacoby and Kyner (1973) raised the issue of brand loyalty versus repeat purchasing behavior. They suggested that psychological factors could help explain why loyalty occurred.
In 1978, Jacoby and Chestnut (1978) published what has become the base of our understanding regarding how consumers relate, decide, and purchase brands exhibiting customer loyalty in their book, Brand Loyalty: Measurement and Management. Much of the theory base for brand loyalty stems from attempts to model basic consumer behavior, that is, how consumers evaluate alternatives and make purchase decisions. Howard (1963) and Howard and Sheth (1969) developed extensive models to explain the process. Their work has often been used as a way to explain why and how customers make purchase decisions and become brand loyal, switchers, or something else.
In the 1980s, with the availability of supermarket scanner data, the research focus shifted to consumer choice and behavior modeling, again, using primarily observable consumer purchase behavior. Goading and Little (1983) approached the subject as alternative choice models available to consumers. During that same period, direct marketers and catalogers began to develop very sophisticated approaches using regression, CHAID, CART, and other statistical techniques. There, the focus was almost entirely on observable consumer behaviors in the form of longitudinal purchase occasions. This was followed by Jones and Sasser’s (1995) and Reichheld’s (1996) seminal articles on the economic value of customer loyalty in the 1990s. Reichheld’s text “The Loyalty Effect” (1996) has set the direction and tone for much of the loyalty thinking over the past several years.
According to Coyles & Gokey (2002), to increase the customers’ loyalty, companies must do more than track today’s typical metrics: satisfaction and defection. For despite all the money invested to promote loyalty among high-value customers, it is increasingly elusive in almost every industry.
A better appreciation of the underlying forces that influence the loyalty of customers–particularly their attitudes and changing needs–can help the food retail sector develop targeted efforts to correct any downward migration in their spending habits long before it leads them to defect. Such an appreciation also helps the industry improve its current efforts to encourage other customers to spend more. Improving the management of migration as a whole by focusing not only on defections but also on smaller changes in customer spending can have as much as ten times more value than preventing defections alone.
Differentiating and measuring degrees of loyalty is an evolving craft. Companies first tried to measure and manage their customers’ satisfaction in the early 1970s, on the theory that increasing it would help them prosper. In the 1980s, they began to measure their customers’ rates of defection and to investigate its root causes. By measuring the value of the customers themselves, some companies also identified high-value ones and became better at preventing them from defecting. These ideas are still important, but they are not enough. Managing migration–from the satisfied customers who spend more to the downward migrators who spend less–is a crucial next step.
Factors Affecting Customer Loyalty
Service delivery is an interactive and dynamic process, that from the consumer’s point of view is much more than a passive exchange of money for a particular service. Characteristics of services often require customers to be actively involved in helping to create the service value — either by serving themselves or by cooperating and often working collaboratively with service personnel (Claycomb, Inks & Lengnick-Hall 2001). In high-contact systems customers can influence the time of demand, the exact nature of the service, and the quality of service (Chase, 1978; Lovelock & Young 1979). If consumers somehow become better customers — that is, more knowledgeable, participative, or productive — the quality of the service experience will likely be enhanced for the customer and the organization (Bowers, Martin & Luker 1990).
Organizations that capitalize on customers’ active participation in organizational activities can gain competitive advantage through greater sales volume, enhanced operating efficiencies, positive word-of-mouth publicity, reduced marketing expenses, and enhanced customer loyalty (Lovelock & Young 1979; Reichheld & Sasser, 1990). Customers who actively participate in organizational activities can directly increase their personal satisfaction and perceptions of service quality (Bowers, Martin & Luker 1990; Czepiel 1990; Mills, Chase & Margulies 1983; Solomon et al. 1985).
Allan (1985), Douglas (1976), McCall (1977), Rapoport and Rapoport (1976), and Zeithaml (1985) have provided piecemeal accounts of how wives with various labor force attachments manage various household tasks. In a study of demographics associated with grocery shopping, Zeithaml (1985) examined a limited set of time and task management strategies used by wives and husbands. However, it was Strober and Weinberg (1980) who introduced the general notion of the use of strategies to consumer research. Time management is conceptualized in this research as the explicit use of strategies which reflect the principles behind how time is allocated to getting the family food shopping done. Task management focuses on concrete actions which indicate how a variety of resources are controlled (e.g., costs, energy, time, and memory capacity).
Time management strategies which have been identified are setting role priorities (Hall 1972; Holmstrom 1972), using scheduling and planning techniques (Bartos 1978; Hall 1972; Joyce & Guiltinan 1978), lowering standards (Allan 1985; Hall 1972), and increasing efficiency (Nickols & Fox 1983). A few studies have been done on the use of such strategies by wives (e.g. Harris & Stevensen 1983; Holman & Wilson 1982), but comparisons between husbands and wives to get the family food shopping done are not evident.
Blaylock and Smallwood (1987) suggested that food shoppers prepare lists, use ads and coupons, budget, compare unit prices, and shop for specials as cost-saving techniques. Zeithaml (1985), however, found that husbands, compared to wives, did less “planning,” defined as use of lists, a budget, and newspaper ads. The Food Marketing Institute (FMI) had similar findings in 1983 (Blaylock & Smallwood 1987). In another industry study, Dietrich (1981) reported that males were less likely to make lists and use newspaper ads than females.
Store orientation is viewed from the perspective of a food shopper’s propensity to switch stores or shop around for specials and the store’s characteristics of importance. Previous research on store loyalty found working women to be more loyal than nonworking women (Harris & Stevensen 1983; McCall 1984) and women to be less store loyal than men (Fitch 1985). Blaylock and Smallwood (1987) reported females shop for specials more than males, suggesting that females may be more likely to shop at different stores.
Donegan (1986) reported that up to two-thirds of male shoppers considered low prices, good produce and meat, convenient location, one-stop shopping, and a good selection of national, store, and generic brands to be important. She also reported that men thought that to shop economically it was important to stay conscious of exact prices, buy store and generic brands, and to travel to different retail outlets to purchase only items on special. Other industry studies found important store characteristics for men and women were a good produce department (Fitch 1985), low prices, one-stop shopping, a nearby location, prices on packages, the presence of special departments (bakery and deli), a variety of store brands, the ability to finish shopping as soon as possible (Dietrich 1981), and a good selection of nationally advertised brands (Donegan 1986). However, it has also been found that male, compared to female, shoppers considered late hours (Dietrich 1981), location, quick checkout, and parking important and double value coupons, other price incentives (Dietrich 1981), and value-added services as less important (Fitch 1985).
METHODOLOGY
Research Approach
For this study, descriptive research method will be utilized. In this method, it is possible that the study will be cheap and quick. It can also suggest unanticipated hypotheses. Nonetheless, this method will be very hard to rule out alternative explanations and especially infer causations. This descriptive type of research utilizes observations in the study. To illustrate the descriptive type of research, Creswell (1994) states that the descriptive method of research is to gather information about the present existing condition.
The purpose of employing this method is to describe the nature of a situation, as it exists at the time of the study and to explore the cause/s of particular phenomena. The researcher opts to use this kind of research considering the desire of the researcher to obtain first hand data from the respondents so as to formulate rational and sound conclusions and recommendations for the study.
To come up with pertinent findings and to provide credible recommendations, this study utilizes two sources of research: primary and secondary. Primary research data was obtained through this new research study. Questionnaire survey and in-depth interview will be conducted. On the other hand, the secondary research data will obtained from previous studies on the same topic.
This research will base its findings partially through quantitative research methods because this permits a flexible and iterative approach. During data gathering the choice and design of methods will be constantly modified, based on ongoing analysis. This will allow investigation of important new issues about employee training and questions as they arise, and allow the researcher to drop unproductive areas of research from the original research plan.
This study will also employ qualitative research method because it intends to find and build theories that will explain the relationship of one variable with another variable through qualitative elements in research. Through this method, qualitative elements that do not have standard measures such as behavior, attitudes, opinions, and beliefs within the UK retail industry sector will be analysed.
Furthermore qualitative research is multimethod in focus, involving an interpretative, naturalistic approach to its subject matter. This means that qualitative researchers study things in their natural settings, attempting to make sense of, or interpret phenomena in terms of the meanings people bring to them. Accordingly, qualitative researchers deploy a wide range of interconnected methods, hoping always to get a better fix on the subject matter at hand.
Population and Sample
The population for this study will be composed of regular shoppers and grocers (those who do shopping or grocery at least twice a month) of Tesco, Sainsbury and ASDA. To make sure that the sample for this study is representative of the population, the researcher will conduct a random sampling. The sample will be composed of 30 customers for each retailer, numbering to 90 respondents. For the interview, the researcher will purposively select two sales managers for each retailers.
Data Collection Method
For this research design, the researcher will gather data, collate published studies from different local and foreign universities and articles from books and journals; and will make a content analysis of the collected documentary and verbal material. Afterwards, the researcher will summarize all the information, make a conclusion based on the hypotheses posited and provide insightful recommendations on employee training.
Methods and Procedures
For this study, a survey and interview will be conducted. The process will include identifying the general population for the survey, designing of the instrument (survey-questionnaire) and validation of the instrument. After the validation, the researcher will present the instrument to the supervisor for approval, before administering the instrument. Finally, with the help of a statistician, the researcher will make the statistical analysis. After gathering the results, a preliminary analysis of the results of the survey and interview will be conducted. Then the supervisor will check the preliminary analysis. Afterwards, I will conduct detailed analysis of the results.
The data collection instrument will be a structured questionnaire that would be based on Likert scale. A Likert Scale is a rating scale that requires the subject to indicate his or her degree of agreement or disagreement with a statement. By rating scale we mean the scales that are usually used to measure attitudes towards an object, the degree to which an object contains a particular attribute, (Like or dislike), toward some attribute, or the importance attached to an attribute. The equivalent weights for the answers would be:
Range Interpretation
4.50 – 5.00 Strongly Agree
3.50 – 4.00 Agree
2.50 – 3.49 Uncertain
1.50 – 2.49 Disagree
0.00 – 1.49 Strongly Disagree
The use of the questionnaire would provide the project owner the ability to test the views and attitudes of the respondents. The distribution and collation methods used to manage the questionnaire process would ensure anonymity.
For validation purposes, the researcher will initially submit a sample of the set of survey questionnaires for approval; the survey will be initially conducted to five respondents. After the questions are answered, the researcher will ask the respondents for any suggestions or any necessary corrections to ensure further improvement and validity of the instrument. The researcher will again examine the content of the survey questions/statements to find out the reliability of the instrument. Afterwards, the researchers will exclude irrelevant questions and changed words that would be deemed difficult by the respondents, to much simpler terms.
The researcher will exclude the five respondents who will be initially used for the validation of the instrument. The researcher will then tally, score and tabulate all the responses in the provided questionnaire.
For the interview part, open-ended questions will be used to obtain as much information as possible about how the interviewee feels about the research topic. Interviews took a maximum of 30 minutes. The questions that will be used during the interview will be based on the research questions for this project. The researcher will make sure that they will be reviewed, refined and approved by the project supervisor. The researcher will design a semi-structured interview. Here, the researcher will encourage the interviewee to clarify vague statements and to further elaborate on brief comments. The interviewer will not share his own beliefs and opinions.
Action Plan
To carry out the overall aim the researcher will first assess and evaluate the customer satisfaction and loyalty in the UK retail industry. Then a review of related literature on employee training programs and employee satisfaction will be undertaken. Afterwards, the researcher will identify main issues and problems. The researcher will design the instrument to be used in survey and interview; it will be validated and approved by the supervisor. After the approval, the researcher will conduct the survey and interview with the help of some friends. The researcher will make sure that the information given by the respondents and interviewees will be confidential. Finally, after the presentation and analysis of the data, the researcher will generate significant conclusions and insightful recommendations.
This proposed study is expected to be completed within four months. The literature provides a wide array of resources so the literature review will not pose a problem in the completion of the study. Furthermore, since I have connections in the retailers to be studied, colleagues and important officials to be interviewed will no longer be a problem. The questionnaire can also be validated and administered in a relatively shorter time.
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