Critically analysis the impact of loyalty programs on customer retention in UK retail industry (GC01448)

Table of Contents

Introduction.

Research Problems.

Aims.

Research Objectives.

Research questions.

Methodology.

Research instrument

Hypotheses.

Research approach.

Population and Sampling.

Introduction

The use of loyalty programs as a powerful tool of relationship marketing is becoming popular to encourage customer loyalty (Roking 2015). The use of loyalty programs can introduce benefits to both customers and companies. Customer loyalty is an important issue for the success of any retail organization, because it is known that drawing new customers is more expensive than keeping existing ones (Singh and Imran 2012) Singh and Imran (2012) estimate that on average online retailers in the UK lose 25% of their customers every year, and a small increase in customer retention can increase profits by more than 25%. Relationship marketing aims to create lifetime customers because when customers have a relationship with a company, they are ready to forget any other competitors offer. Customers are motivated to do that because it gives them greater efficiency in decision making, reduces information processing, achieves a greater cognitive consistency in decisions, and reduces the perceived risks associated with future decisions. (Singh and Imran 2012)

To build loyal customers companies use several types of loyalty programs. 57% of airlines and 41% of hotel chains reward consumers for a range of engagement behaviors. A typical approach uses Platinum, Gold and Silver tiers, typically based on purchase volumes. (Shaw Ray, 2015) In spite of the fact that the average UK household has over 21 loyalty program memberships, fewer than half of these are active. Key reasons for that are loyalty programs include lack of reward relevance, rigid reward structures, and poor quality customer service. More than half of consumers admitted that they had abandoned at least one loyalty program according to a survey and social media scanning by Consulting Date. However, Loyalty programs need to be designed with more targeted rewards, differ according to different groups of members based on their value, and they need to provide greater value at higher customer value tiers, by rewarding best customers to encourage higher spending levels. In order to do that the organization needs to understand their customer’s needs and behaviors, by creating customer profiles with relevant data on customer interactions to have a complete picture of a customer’s preferences. (Ray Shaw, 2015).

Research Problems

Due to the rapid increase in competition in the retail market, retailers offer several types of loyalty programs and frequent buyers programs to increase sales of products through customer repurchase over a period of time. Despite the widespread loyalty programs in the retailing sector, there is little empirical research that focuses on the measurement of the influence of these programs on customer retention. The key to measuring the influence of loyalty programs is that they work as dynamic incentive tools relying on providing benefits based on cumulative purchasing over time. Loyalty programs encourage consumers to shift from single-period purchasing decisions to multiple-period purchasing decisions. This study is an attempt to investigate the impact of customer loyalty programs on customer retention. For the purpose of this study, consumer retention as a dependent variable will be measured by: the probability of recommending the company to others, the probability of repurchase, and the probability of switching. Independent variables are the loyalty programs (point system, tier system, charge an upfront fee for VIP benefits and non-monetary programs).

Research Aims

The purpose of this study is to obtain a deep understanding of the impact of customer loyalty programs on customer retention. This study will clarify the role of loyalty programs and their impact on customer retention. Then, this study will make recommendations about the most influential.

Research Objectives

To explore loyalty programs used by marketers in UK retail industry
To analyze the importance of loyalty programs in the UK retail industry
To analyze the importance of customer retention in the UK retail industry
To evaluate the impact of customer loyalty programs on customer retention in the UK retail industry
To provide recommendations for UK retailers which can be used as a guideline to achieve higher customer retention

To achieve these objectives, this study will focus on finding primary data by building a questionnaire (Instrument) to collect data from the targeted sample. The questionnaire consists of three parts; the first part is about demographical factors. The second part is about the type of loyalty card that the customer has. The third part is about the attitude of the participant about each statement regarding different types of loyalty programs. The instrument relies on a five –points Likert Scale, representing a range from 1- strongly disagree to 5- strongly agree, in order to measure the impact of loyalty programs on customer retention.

Research Questions

Which loyalty programs are used by marketers in UK retail industry?
What is the importance of loyalty programs in the UK retail industry?
What is the importance of customer retention in the UK retail industry?
What is the impact of customer loyalty programs on customer retention in the UK retail industry?
How can UK retailers use loyalty programs more effectively to achieve higher customer retention?

Methodology

Research instrument

To achieve the goal of this study, the focus will be made on finding primary data by building a questionnaire (Instrument) to collect data from the targeted sample. The questionnaire consists of three parts; the first part is about demographical factors. The second part is about the type of loyalty card that the customer has. The third part is about the attitude of the participant about each statement regarding different types of loyalty programs. The instrument relies on a five –points Likert Scale, representing a range from 1- strongly disagree to 5- strongly agree, in order to measure the impact of loyalty programs on customer retention………………………….

Proposal for Undergraduate