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Undergraduate Major Project Lauri Karvonen

Undergraduate Major Project
Achieving Customer Loyalty in e-Commerce: How does KPMG
and PwC approach customer loyalty in...
Using materials provided by consulting firms KPMG and PwC conducted this research.
The objective of this resea...
List of figures
Figure 1. Growth per retail sector in 2013-2014 2.
Figure 2. Customer dispersion 5.
Figure 3. Characteri...
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  1. 1. i Undergraduate Major Project Achieving Customer Loyalty in e-Commerce: How does KPMG and PwC approach customer loyalty in 21st century business environment? Student: 1208196 Lord Ashcroft International Business School.
  2. 2. iv Abstract Using materials provided by consulting firms KPMG and PwC conducted this research. The objective of this research was to better understand the importance of customer loyalty in e-commerce and how it can be developed even further. From analysing the reports provided by these two companies it can derived that to create customer loyalty in e- commerce the retailer needs to have a well-established network of brick-and-mortar stores. Loyalty comes from the service and from the sense of being appreciated, which are hard to achieve in e-commerce. Social media will continue play even bigger role in the future in creating loyal customers, as it can create those much needed deeper, emotional attachments between the company and its customers. Retailer to gain competitive advantage it should not put too much effort on promotions and competing with price as those tend be just short-term solutions. To create long-term relationships with customers retailers should offer benefits that can be hard to achieve by its pure online competitors, such as same day delivery and wide network of click-and-collect point of sales. Retailer should tie all of its channels, whether they are in-store, online and mobile or catalogue, together to provide ‘perfect’ customer experience across all channels. To complete this research in an academic manner, pragmatist approach was used to collect and analyse the data.
  3. 3. v List of figures Figure 1. Growth per retail sector in 2013-2014 2. Figure 2. Customer dispersion 5. Figure 3. Characteristics affecting customers’ perception 11. Figure 4. KPMG omnichannel pricing model 24. Figure 5. The changing business model for retail 27. Figure 6. Evolution of retail 28. Figure 7. The traditional model of marketing 32. Figure 8. PwC’s new model of marketing 32. Abbreviations: GIRC: Georgetown Institute for Consumer Research Total Retail survey, 2015: Total Retail 2015: Retailers and the Digital Age of Distribution. Total Retail survey, 2014: Achieving Total Retail: Consumer expectations driving the next business model, 2014.
  4. 4. vi Table of Contents 1. Introduction 1. 2. Literature review 3. 2.1. Strategy and CRM 3. 2.2. Importance of loyal customers 5. 2.3. Satisfied and loyal customers 6. 2.4. Value, Trust and Emotional attachment in relation to loyalty 7. 2.4.1. Value 2.4.2. Trust 2.4.3. Emotional attachment 2.4.4. Factors of loyalty 2.5. How to create loyal customers? 11. 2.6. Loyalty programs, do they work? 12. 2.7. Conclusion 13. 3. Methodology 14. 3.1. Research philosophy 14. 3.1.1. Approach 3.2. Research strategy 15. 3.3. Research design 17. 3.4. Research ethics 18. 3.6. Data collection and analysis 18. 3.7. Validity and reliability 18. 3.8. Limitations of the research 19. 3.9. Conclusion 20. 4. KPMG 21. 4.1. KPMG and omnichannel 21. 4.1.1. Mobile platforms 4.1.2. Train staff to create loyal customers 4.1.3. Data collection 4.1.4. Pricing 4.1.5. Trust
  5. 5. vii 4.2. Customer reviews 25. 4.3. Brands in the online market 26. 4.4. Delivery and satisfaction 26. 5. PwC 27. 5.1. PwC and Total Retail 27. 5.1.1. Branding 5.1.2. Social media 5.1.3. Loyalty programs 5.1.4. Shifting to mobile 5.1.5. Wi-Fi 5.1.6. Security issue 5.2. New marketing strategy 32. 6. Discussion 33. 6.1. Recommendations 35. 7. List of references 36. 8. Appendix 39. 9. Supervisor contact log 41.
  6. 6. 1 1. Introduction The retail sector is transforming like never before and the major retailers are struggling. According to Morgan Stanley, e-Commerce sales could exceed $1 trillion by 2016 (Boesler, 2013). As the online sales maintain steady growth in the long term, offline sales have been steadily decreasing for the past couple of years (Business Insider, 2014). The ever increase use of digital devices and changes in consumer behaviour are changing companies operating models and the markets themselves all over the globe (KPGM, 2013). The two main factors of e-commerce revolution are the changes in consumers’ buying habit and increase in competition in the retail sector. Nowadays customers tend to be more individual and aware of versatile selection of goods (and services). The new players in the market (especially in the online) have given even better opportunities for customers to choose where they want to shop (KPGM, 2013). The e-commerce revolution has increased the competition enormously in the last few years. Because an online shop is fairly easy to develop and you do not have the same costs as physical stores do, it is also much cheaper to run (Boesler, 2013, KPGM, 2013). Also the current economic situation, which is causing a lot of uncertainty among consumers, has led the customers to look for bargains. Customers tend not to be as loyal as they used to be (Clark, 2014). Amazon, the world’s largest e-retailer, now accounts approximately 10% market share of the North American e-Commerce (Smith, 2013). Amazon has been growing much faster than the rest of the retail industry as a whole.
  7. 7. 2 Figure 1. Growth per retail sector in 2013-2014. (Internet retailer, 2014) In his book Start With Why: How great leaders inspire everyone to take action (2011, p. 16) Simon Sinek claims that there are only two ways to influence human behaviour: you can manipulate it or you can inspire it. Typical manipulations include: dropping the price; running promotions; aspirational messages; and promising innovation to influence behaviour. Manipulations are a norm in modern society, but do they actually work? Do they offer long-term satisfaction to both the company and its customer or are they just a short-term solution to a larger problem? Loyalty is underrated nowadays, especially in the retail sector, where everything seems to be circling around massive sales, promotions, and finding the lowest price possible. This research aims to investigate customer loyalty in the retail sector and more specifically in the e-commerce by analysing KPMG and PwC views on customer loyalty. The research’s main objective is to understand what is customer loyalty built on, and how it can be developed in the changing retail environment. The questions this research aims to answer are: 1. What strategies do KPMG and PwC suggest to retailers to increase their customer loyalty? 2. How much they value the importance of e-commerce in creating customer loyalty? 3. How can well-known retailers better succeed online, as they should?
  8. 8. 3 2. Literature Review This part of the research is investigating the existing literature related to customer loyalty and retention. The first part explains the importance of implementing a strategy and especially CRM strategy that is built around creating customer loyalty. Second section will explore the importance of loyal customers to a company, why should a company focus more on customer retention rather than acquiring new customers and also how customers can be segmented according to their loyalty. In third part the researcher investigated the literature to explain the relationship between satisfied customers and loyal customers. Fourth part is very much in relation with the third but it looks more in depth to three factors that affect customer loyalty according to Pitta et al. (2006): value, trust and emotional attachment. Fourth part also includes the description and analysis of Srinivasan et al. (2002) 8C’s of customer loyalty. Fifth section will explain the Zhang et al. (2011) views on creating customer loyalty and what affects the customer’s perception in e-commerce. After that is analysis about loyalty programs, do they actually work and should they be added to retailers’ pricing strategy. Finally is the conclusion with questions. 2.1. Strategy and CRM Retail strategy (Levy & Weitz 2009, p.134) is “a statement identifying the retailer’s target market, the format the retailer plans to use to satisfy the target market’s needs, and the bases upon which the retailer plans to build a sustainable competitive advantage.” Levy & Weitz divide the development of competitive advantage into seven opportunities: (1) customer loyalty, (2) location, (3) human resource management, (4) distribution and information systems, (5) unique merchandise, (6) vendor relations, and (7) customer service. In a modern world having just a corporate strategy is not enough, companies need to implement an e-business strategy as well. E-business strategy is the applications of internal and external electronic communications that support and influence corporate strategy. E-business strategy should be in connection with Customer Relationship Management strategy, Supply Chain Management strategy and Information Systems strategy (Chaffey, 2011, p.241). Ngai (2005, cited in Jih & Lee, 2010) explain that multiple definitions of CRM exists, but no universally accepted has been agreed upon. Payne &
  9. 9. 4 Frow (2013, p.207) describe CRM as a strategic approach to managing customer relationships in order to create shareholder value, but as Levy & Weitz (2009, p. 306) point out, the objective of CRM is to create customer loyalty, then CRM is much more than just creating shareholder value. According to Levy & Weitz CRM is a combination of strategies, programs and systems that focuses on identifying and building loyalty with a retailer’s most valued customers. They claim that the goal of CRM is to develop a base of loyal customers who patronize the retailer frequently. Plumpton (1999) says that CRM is about capturing and analysing consumer behaviour to create target groups of customers, market to them as individuals through the right channels and track the result. Plumpton also addresses the importance of CRM in creating long-term customer relationships. In Payne & Frow (2013, 210) CRM is divided into five processes, the second one being the value creation process where companies need to ask themselves how should they offer value to their customers, and how should they maximise the lifetime value of the customers they want? Jelassi & Enders (2005, p. 104) introduces the Customer life cycle that divides CRM into four elements. These elements are (1) Customer selection, (2) Customer acquisition, (3) Customer retention, and (4) Customer extension. Customer retention has mainly two goals. One, turning one-time customers into repeat-purchase customers and two, keeping customers for as long as possible in the online channel. Customer retention is achieved primarily through two features: personalization and communities (Jelassi & Enders, 2005, p.105). Customer extension focuses on maximizing the lifetime value of a customer. The most common way to achieve this is expanding the scope of an existing customer relationship through cross-selling1 . As the value of web to companies is increasing, it is important to also explain the e-CRM point of view. Implementing e- to the CRM is crucial part of the corporate strategies. Jelassi & Enders (2005, p. 104) identified four aims for e-CRM: Creating long-term relationships with customers to offset acquisition costs, reducing the rate of customer defections, increasing the profitability of low-profit customers, and focusing on high-value customers. Jih & Lee (2010) explain how implementing e-CRM offers such benefits as reduction of the cost of communicating with customers, reduction of administrative and operational costs, streamlining workflows, improving sales through better segmentation, and improving overall customer interactions. 1 Selling additional products which may be closely related to the orginal purchase.
  10. 10. 5 This report is focusing on the second process of CRM described by Payne & Frow, focusing on loyalty, and on the third and fourth elements of customer life cycle by Jelassi & Enders. These are, as proven in the following chapter, more profitable than acquiring new customers, and can create more value to the company and to the customers. 2.2. Importance of loyal customers In his book Who Stole My Customer, Harvey Thompson (2004, p.24) showcases that customer loyalty and retention was the number one management issue CEO’s faced. O’Connor & Galvin (2001, p. 98) quote research by Reichheld & Sasser to demonstrate that 5 per cent increase in customer retention can increase the profits by 35-38 per cent but, Payne & Frow (2013, p.268) claim that although many CEO’s understand the importance of customer retention, they might not be fully aware of the economics behind it. The importance of loyal customers to the retailer is addressed in Levy & Weitz (2009, p. 306) where they claim that all customers are not equally profitable and less profitable customers need to be treated differently. This argument is also shown in Retail Info System News (RIS) interview with the CEO of Advanced Pricing Logic Inc. Dave Leonard who divided customers into three groups: true loyalists, promotion/discount loyalists and ‘fire sale’ customers (RIS, 2014). Figure 2. Customer Dispersion. According to Leonard, the ‘fire sale’ customers do not generate profit, as they are not loyal. They are only after the major sales. Leonard also claims that these types of customers also return most products out of the three groups. He suggests that a company Customer dispersion True loyalist 50% Promotion loyalist 25% Fire sale customers 25%
  11. 11. 6 should focus their promotions and discounts to their most loyal customers, as they are the largest group anyways. These customers also appreciate these gestures and will continue shopping at the store in the future. As was pointed out by Levy & Weitz (2009, p.314), CRM can be used to identify these most profitable customers and together with their customer database retailers can indicate how valuable these customers are to them. This will then help the firms to target the most profitable customers more effectively. It may be assumed that the amount of true loyalist can be shrinking due to the rise of competition online as customers have greater options to choose from, but as Pitta et al. (2006) describes having a strong brand online might actually increase loyalty. They argue that if a firm fails to focus on customers who will increase their profit and reduce costs, they run the risk of working hard with little to show for their effort. One of the most commonly used measures to indicate the value of customers is Lifetime Customer Value (LCV). It is the expected contribution from the customer to the retailer’s profits over her entire relationship with the firm (Levy & Weitz, 2009, p. 314). 2.3. Satisfied and loyal customers According to Levy & Weitz (2009, p. 306) customer loyalty is much more than just repeating visits to the store and being satisfied with the experience, but according to Pitta et al. (2006) this is the case in many companies, which measure loyalty purely on repeat purchases. Dick & Basu (1994, cited in Jih & Lee, 2010) also claim that customer loyalty and repeat purchase do not equal. This view suggests that when examining the impact of customer loyalty on the company’s marketing performance, a distinction ought to be made between behavioural and attitudinal aspects of the concept (Jih & Lee, 2010). Oliver (1999, cited in Flint et al., 2011) describes customer loyalty as a buyer’s commitment to stick with a product, service, brand, or organisation consistently in the future, despite new situations or competitive offers to induce switching. Heskett et al. (1997, cited in Flint, 2011) claims that loyal customers are usually satisfied customers, but satisfied customers are not always loyal customers. Levy & Weitz (2009, p. 306) describe how loyal customers have developed an emotional bond with the retailer that is almost like a friendship. Oliver (1997, cited in Flint, 2011) describes how this can occur in phases, where loyalty builds over time from initial satisfaction to fully bonded commitment. According to Reichheld & Sasser (1990, cited in
  12. 12. 7 Srinivasan et al., 2002) loyal customers are willing to pay higher prices to continue their relationship with the supplier rather than searching for an alternative option (=lower price elasticity compared to nonloyal customers). Payne & Frow (2013, p.270) describe how loyal and satisfied customers are also more likely to refer to others, which promote profit generation, as the cost of acquisition of these new customers is dramatically reduced. These facts emphasises the importance of developing and maintaining relationships with loyal customers. Flint et al. (2011) found in their studies that “customer value anticipation does positively affect both customer satisfaction and customer loyalty, and also has a strong effect on customer loyalty by operating through customer satisfaction”. Anderson et al. (1994, cited in Flint, 2011) describes that customer satisfaction and loyalty are positively related to marketer profitability and market share. In the end it can be derived that customer loyalty and retention are important factors to the company, as loyal customers will ultimately impact the profitability of a company (which then leads to the increase in shareholder value, discussed by Payne & Frow). This research is based on this conclusion that more loyal customers = profitable company. Also the researcher wants to express the importance of increasing knowledge of customer loyalty due to the changing retail environment, which is the main reason behind this study. 2.4. Value, Trust and Emotional attachment in relation to loyalty According to Pitta et al. (2006) customer loyalty is built on three factors: trust, value and emotional attachment. Strong brand can create an emotional tie with customers that build their trust and loyalty. Positioning involves the design and implementation of retail mix to create an image of the retailer in the customer’s mind relative to its competitors. The image in the customer’s mind is critical and should not be underestimated 2.4.1. Value According to Slater et al (2000, cited in Flint et al., 2011) marketing managers must understand what their customers’ value in order to survive and grow in competitive markets. This is the second process of CRM described by Payne & Frow in the first chapter. Perceived value is described by Pitta et al. (2006) as customer’s overall evaluation of the benefits versus the costs involved in a marketing context. Value is the
  13. 13. 8 price, costs incurred, and benefits delivered by a marketer versus competitors. Pitta et al. (2006) notes that different customers view value in different ways. Flint et al. (2002, cited in Flint et al., 2011) describes the importance to acknowledge that it is not enough to understand what customers’ currently value as these values might change. It is just as important to be able to anticipate what customers will value. Some customers might even come to suppliers expecting them to anticipate their needs and desires, even if they themselves cannot (Flint et al., 2011). Flint et al. (2011) also points out that company to achieve unique advantages it is important for it to be able to anticipate changes in customers’ desired value. In those markets where what customers’ value changes rapidly, it may actually be necessity. According to Pitta et al. (2006) some customers might recognize the value in the convenience of their transactions, and for some the time is a critical element. Value costs are things such as the amount of time, effort, and uncertainty that are involved with a transaction. These elements might refer to usability of the website, how convenient is the payment process, what the delivery options are and how long the delivery might take. Although Flint et al. (2011) findings help to understand the importance of customer value anticipation in relation to satisfaction and loyalty, they do not, as they point out themselves, tell how a company can anticipate what their customers will value. They do suggest two capabilities to help with this. One is to create deep collaborative relationships with customers and two, data collection and analysis techniques that focus on changes by customers over time. This research is aiming to understand how to create those deeper relationships with customers, by investigating KPMG’s and PwC’s approaches to developing customer loyalty 2.4.2. Trust Trust helps reduce perceived risk by lessening the likelihood that a customer will suffer a loss. “Trust bolsters the customer’s belief in the likelihood of a positive outcome” (Pitta et al., 2006). Trust is a key predictor for customer retention due to its crucial ability to promote risk-taking behaviour in the case of uncertainty, interdependence, and fear of opportunism (Fang et al., 2014). Pitta et al. (2006) emphasizes the importance of trust in the online world as it still a major concern among online customers. They highlight the fact
  14. 14. 9 that trust must be established early and nurtured throughout the lifetime of the customer relationship. 2.4.3. Emotional attachment According to Pitta et al. (2006) brand loyalty is more than a set of repetitive discrete transactions between consumer and brand. It is a set of motives that underlie the repeat purchase behaviour. Gallup organisation (cited in Pitta et al. 2006) developed a set of rating scales that measure four critically important emotional states. Those are: confidence, integrity, pride, and passion. These states represent the strength of the emotional connection existing between a customer and brand or a retailer. Confidence is confidence in the retailer’s promise to benefits. Retailer needs to support it claims about benefits it offers or new product innovation to gain customer confidence. Integrity means that a retailer needs to stand behind its products or services to customers to believe in the retailer’s integrity. When consumers feel appreciated by a retailer and are proud of their personal association with them, then consumers feel pride in being customers of a certain brand or retailer. Passion reflects the belief that the brand is essentially irreplaceable and represents a seemingly perfect fit with the customer’s personal needs (Pitta et al., 2006). 2.4.4. Factors of loyalty Srinivasan et al. (2002) define e-loyalty as a customer’s favourable attitude toward the e- retailer that results in repeat buying behaviour. The 8Cs of e-loyalty are, according to Srinivasan et al. (2002) customization, contact interactivity, cultivation, care, community, choice, convenience, character. Jih & Lee (2010) also added security and market response to define the value of e-CRM from the customer’s perspective. The in depth explanation of the 8C’s can be found in the appendix. The research conducted by Srinivasan et al. (2002) found that all the characters of 8Cs but convenience were found to have a significant impact on e-loyalty. Their research does not take into account the individual-level variables that also may have an impact (Srinivasan et al., 2002). According to Srinivasan et al. (2002) interactivity increases the amount of information presentable to a customer. As an example of this information Srinivasan et al. uses
  15. 15. 10 customers’ feedback they can leave to websites about certain products or services. It is important to notify that this kind of information requires active customers that are actually willing to leave feedback. This may not always be the case. Customer care is important factor on creating e-loyalty but Srinivasan et al. (2002) do not however present any specific ways a company can “take care” of their customers. Virtual communities are important to retailers these days but as pointed out with the interactivity factor, Srinivasan et al. (2002) assumes that customers would automatically share their opinions to these communities. Also the reliability of the opinions and information must be addressed. Is it from a trustworthy customer, or someone whom is paid to leave feedback or giving negative feedback only because he or she does not like the company? According to Cameron (1999, cited in Srinivasan et al., 2002) lack of convenience may cause customers not to return to the website. The researcher wants to point out that would it be possible that customers are willing to shop on not so well planned site just because the prices are much cheaper there? Srinivasan et al. (2002) expresses the importance of collecting customer data to provide relevant information and incentives in order to extend the breadth and depth of their purchases over time. Collecting data to improve customer service is important and crucial of course, but how much is too much? Not everyone is willing to provide every bit of his or her personal information to a retailer just to get “better service”.
  16. 16. 11 2.5. How to create loyal customers? What characteristics of the e-retailer affect customers’ perception? Zhang et al, (2011) identified three vendor characteristics that have an effect on the Online Relationship Quality, which then will affect the Online Repurchase Intention. Figure 3. Characteristics affecting customers’ perception Their data showed that perceived vendor expertise in order fulfilment had a greater impact on online relationship quality than perceived website usability. This shows the importance of post-purchase stage of order fulfilment and that post-purchase behaviour is more important for online relationship quality than expertise in online activities. Perceived reputation is also important factor on online relationship quality as it can positively influence customers. Perceived website usability was shown to have a positive influence on both relationship quality and repurchase intention (Zhang et al, 2011). As Pitta et al. (2006) demonstrated having a positive brand image is benefit when operating in e-commerce and that brick-and-mortar stores can have an advantage over pure Internet retailers. They claim that trust is easier to generate for an existing store brand name, but the researcher does not believe that customers would automatically shop on a well-known retailer’s online store. Many well-known retailers have faced a lot of difficulties when entering the online market.
  17. 17. 12 2.6. Loyalty programs, do they work? According Newman & Cullen (2002, p. 481) the basic benefits of loyalty programs are the ability to tie customers into long-standing relationships with the company and its loyalty cards. Loyalty programs develop customer data that can help the company to understand customer habits, patterns of consumption and customer requirements. Levy & Weitz (2009, p. 138) understands the importance of loyalty programs as a part of creating customer loyalty and they claim that to create customer loyalty a company needs to develop a strong brand image, have clear and precise positioning strategy and create attachments with customers through loyalty programs. Loyalty programs are part of overall CRM program and as mentioned earlier customer loyalty works hand-in-hand with CRM (Levy & Weitz, 2009, p.138). To contradict, O’Connor & Galvin (2001, p.101) identify that true customer loyalty is much more than just loyalty cards or sales promotions. They describe how the customer should be at the heart of the organisation, where processes are designed around pleasing and delighting the customer. According Anttila & Iltanen (2007, p.120) one of the key elements to develop customer loyalty is the communication with customer even when the customer is not about purchase anything. According to Anderson & Srinivasan (2003, cited in Jih & Lee, 2010) better personalization generally leads to better customer satisfaction, which may in turn result in better customer loyalty. O’Connor & Galvin (2001, p.101) cite Miller (1998) who suggest that actually loyalty schemes are designed to make it hard for customers to leave rather than trying to make them advocate for a particular company or brand. Hart (1999, cited in O’Connor & Galvin, 2001, p.100) finds little evidence to support loyalty schemes and describes them as defensive measures in a competitive market. Levy & Weitz (2009, p.306) also identify that discount programs can be easily copied by competition. They also claim that price promotion programs encourage customers to look for the best deal rather than develop a relationship with one retailer. Anttila & Iltanen (2007, p.121) describe how customers also need information and extra service to be satisfied. When there is an emotional connection with a customer it is difficult for a competitor to attract that customer (Levy & Weitz, 2009, p.306)
  18. 18. 13 2.7. Conclusion The importance of loyal customers is very well known in the academic world as the literature review showcases. To achieve loyal customers’ retailers need to be able to satisfy their needs and understand what customers’ value. Loyal customers are crucial to any firms’ success, as they tend to bring most value to the firm. Also customer retention is proved to be more profitable than and not as costly as acquiring new customer. Value, trust and emotional attachment are the key elements of creating loyal customers and the importance of them should not be doubt. The literature explains different ways to better understand what customers’ value; such methods might include data collection – connecting the customer to the retailer through loyalty programs for example. This is where the researcher believes exists a gap in the literature. Loyalty programs are mostly just ways of manipulation. They do not tend to create long-term value to both the retailer and the customer. One of the interesting arguments that the researcher found was that being successful in the e-commerce market should be easier for well-known brands, but this is not the case in many times. This research is investigating two of one of the largest consulting firms in the world PwC and KPMG and what are their views on customer loyalty. Reason to investigate these firms is to find actual evidence of how to develop customer loyalty. Much of the literature investigated expressed the importance of customer loyalty but failed to provide any actual methods to increase it. Analysing PwC and KPMG can provide new views to the already existing academic literature. The researcher aims to answer the following questions: 4. What strategies do KPMG and PwC suggest to retailers to increase their customer loyalty? 5. How much they value the importance of e-commerce in creating customer loyalty? 6. How can well-known retailers better succeed online, as they should?
  19. 19. 14 3. Methodology In this part the researcher will explain the research philosophy and approach used to complete the research. The philosophical approach used in the research is pragmatism approach as it allows a wider perspective on the possible issues. The approach used in the research is inductive; the researcher aims to make observations and create a solution or a theory from those observations. Also he will explain what kind of research strategy was used in the research and how the research is designed. Qualitative strategy is used in the research mainly because much of the analysis is based on companies’ reports and not so much on numerical data. The design of the research is based on the case study design, which is based on investigating a contemporary phenomenon. Case study design is used when the researcher wants to understand a specific issue within one or multiple organisations, which is the case in this research. There are short paragraphs about research ethics and how the data is being collected and analysed. The research’s validity and reliability are discussed in chapter 3.7. and possible limitations of the research are acknowledged in chapter 3.8. Final paragraph is the conclusion. 3.1. Research Philosophy Research philosophy is linked to the researcher’s views on the development of knowledge. Understanding of research philosophy is important because it is fundamental on how to approach the research (Wilson, 2014, p. 8). Wilson (2014, p.8) cites Easterby-Smith et al. (2002) to explain the three main reasons behind understanding of philosophical issues. First it can help to clarify research designs: What kind of data/evidence should be collected and how it should be collected and interpreted. Second, knowledge of philosophy can help the researcher to recognize which designs works best. Third it can help researcher to identify and adapt research designs according to the constraints of different subjects or knowledge structures. There are many different research philosophies developed over the years. This research is conducted using pragmatist approach. Easterby-Smith et al. (2012, p.32) describes pragmatism as “compromise position between internal realism and relativism: it does not accept that there are pre-determined theories or frameworks that shape knowledge and truth; nor can people construct their own truths out of nothing. Any
  20. 20. 15 meaning structures must come from the lived experience of individuals”. According to Cameron & Price (2009, p. 74) the output of pragmatic approach “might be greater awareness of the concepts of being used to perceive and make sense of a situation, new concepts to enhance perception and interpretation, and importantly, action to change the situation”. Pragmatists place the research problem and research questions at the centre of the research and use methods they consider to be most appropriate in generating the most significant insights into their research (Wilson, 2014, p.11). To conduct this research appropriately pragmatism was found to be most suitable due to its versatile approach. The approach does not align itself with any one philosophical stance and recognises the importance of both the physical and social world (Wilson, 2014, p. 10). Pragmatism allows the researcher to analyse the two companies’ views on customer loyalty in the most effective and unbiased way. 3.1.1. Approach Research approaches can be divided into two main categories: inductive and deductive. In short inductive approach means the researcher is seeking to make observations about the research, and then perhaps contribute to a new theory. Deductive approach, on the other hand, “begins with and applies a well-known theory” (Wilson, 2014, p.12). This research is using the inductive approach, because much of the research is based on collecting data (qualitative) from the two companies KPMG and PwC and then aiming to create the solution from there and trying to answer a question such as what strategies do KPMG and PwC suggest to retailers to increase their customer loyalty and how do these strategies differ from each other. 3.2. Research Strategy The main research strategies are usually divided between qualitative and quantitative. Wilson (2014, p. 14) cites Denzin and Lincoln (2008) to describe how these strategies differ from each other: “qualitative implies an emphasis on the qualities of entities on processes and meanings that are not experimentally examined or measured in terms of quantity, amount, intensity or frequency. It stresses the intimate relationship between the research and what is studied. According Koskinen et al. (2005, p. 16) the main purpose of
  21. 21. 16 qualitative research is to increase the understanding of how companies work by using qualitative data, not so much to explain or control the companies actions. They also claim that qualitative research offers a new kind of perspective to the mainstream world of theoretical and conceptual views. It allows the use of practical concepts that are already common in the company analysis. Koskinen et al. (2005, p. 31) states that the qualitative research usually progresses inductively. When the researcher sharpens the research questions he does not conduct hypotheses beforehand from a theory and whether or not the theory fits to the searched scenario. Qualitative research is basically about testing the hypotheses but these hypotheses are generated as the research process develops, and the material is being collected and analysed. Bryman & Bell (2007, p. 402) highlights three features of qualitative research:  An inductive view of the relationship between theory and research, whereby the former is generated out of the latter.  An epistemological position described as interpretivist, meaning that, in contrast to the adoption of a natural scientific model in quantitative research, the stress is on the understanding of the social world through an examination of the interpretation of that world by its participants.  An ontological position described as constructionist, which implies that social properties are outcomes of the interactions between individuals, rather than phenomena ‘out there’ and separate from those involved in its construction. The main research methods associated with qualitative research are Ethnography/participant observation, Qualitative interviewing, Focus groups, Language- based approaches, the collection and qualitative analysis of texts and documents (Bryman & Bell, 2007, p. 404). Bryman & Bell (2007, p. 405) divide the qualitative research into six steps: 1. General research questions 2. Selecting relevant site(s) and subjects 3. Collection of relevant data 4. Interpretation of data 5. Conceptual and theoretical work 6. Writing up findings/conclusions
  22. 22. 17 Typical sequence of steps in qualitative research entails the generation of theories rather than testing of the theories that are specified at the outset (Bryman & Bell, 2007, p. 408). Qualitative data used in this research consists multiple reports and surveys conducted by KPMG and PwC. The main reports from KPMG are the 2014 Retail Industry Outlook survey, and Omnichannel retail: Consumer Experience, 2015. The main PwC reports are Total Retail 2015: Retailers and the Digital Age of Distribution and Achieving Total Retail: Consumer expectations driving the next business model, 2014. All of the reports used in this research are not older than from 2013. Practicality reasons the PwC reports will be cited as Total Retail survey, 2015 and 2014. 3.3. Research Design “Research designs are detailed plans to focus and guide the research process. They can be formalized as research proposals and are influenced by both technical and contextual considerations” (Wilson, 2014, p. 116). Research design is a framework or plan for the collection and analysis of data whereas research method is the technique used for collecting data (Wilson, 2014, p.118). Selltiz et al. (1981, cited in Jankowicz, 2000, p. 190) defines design as the deliberately planned arrangement of conditions for analysis and collection of data in manner that aims to combine relevance to the research purpose with economy of procedure. This research is designed according to the case study approach. A case study is an empirical inquiry that investigates a contemporary phenomenon within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident (Cameron & Price, 2009, p. 302). According to Cameron & Price (2009, p. 302) the approach is directed towards understanding a specific issue. This may mean looking at an issue within a single organisation, or specific issue across number of organisations. Koskinen et al. (2005, p. 154) states that case study approach is one of the most common qualitative methods in the business economics research. The core of case study approach is to collect cases and analyse them. The amount of investigated cases is rather small, usually just a single case but sometimes multiple cases can be investigated. This research is analysing the reports of KPMG and PwC related to customer loyalty. Yin (2003, cited in Koskinen et al. 2005, p. 154) defines six sources of material that can be used in the case study approach: documents, archival records, interviews, direct observation, participant observation, and physical artefacts. The main aspect of case study
  23. 23. 18 approach is not about collecting data and material but to the way conclusion is build and analysed. 3.4. Research Ethics Due to the fact that this research is conducted only by using secondary data there is no reason to acknowledge any participants as there are no one else but the researcher himself contributing to the research. But it is important to clarify that the research is done in an honest, professional and transparent way. Absolutely no plagiarism of any kind is acceptable and all work from other sources is to be acknowledged and referenced in an appropriate way. All data used is from the companies, KPMG and PwC, themselves. Both companies examined in this research should be treated fairly and with respect. This research applies all of the ethical codes of the Chartered Institute of Marketing (CIM) (Wilson, 2014, p.105). 3.5. Data Collection and Analysis Due to Anglia Ruskin University’s assessment regulations this research is done entirely by using secondary data. Even without the regulations the research would have relied mostly on secondary data as much of the needed information already exists and can be accessed easily. The secondary data used in the literature review is mostly accessible through Anglia Ruskin’s library’s website. The case studies, or reports to be more specific, are accessible through the KPMG’s and PwC’s websites and are referenced properly. 3.6. Validity and Reliability According Mason (1996, p. 21, cited in Bryman & Bell, 2007, p. 410) “reliability, validity, and generalizability are different kinds of measures of the quality, rigour and wider potential of research, which are achieved according to certain methodological and disciplinary conventions and principles”. Validity refers to whether you are observing, identifying, or measuring what you say you are. Reliability, according to Carmines & Zeller (1979, cited in Wilson, 2014, p. 129) concerns the extent to which a measurement of a phenomenon provides stable and consistent results. LeCompte & Goetz (1982, cited in Bryman & Bell, 2007, p. 410) relate the validity and reliability to qualitative research in four
  24. 24. 19 ways: External reliability, Internal reliability, Internal validity, and External validity. According to them, external validity represents a problem for qualitative researchers because of their tendency to employ case studies and small samples. Internal validity means that whether or not there is a good match between researchers’ observations and the theoretical ideas they develop. Internal reliability should be considered if there is more than one observer, members of the research team agree about what they see and hear. This is not an issue in this research as it is conducted only by the researcher himself. External reliability is the degree to which a study can be replicated. This is difficult criterion to meet in qualitative research since it is impossible to ‘freeze’ a social setting and the circumstances of an initial study to make it replicable in the sense in which term is usually employed. Researcher wants to acknowledge that errors related to time and subject are highly unlikely in this research as those issues usually arise when there are participants taking part of the research which is not the case in this study. Both KPMG & PwC are analysed and examined in the most unbiased way possible. The researcher does not have any personal or professional relationships to either of the companies, which would have an effect on the research. As the research is conducted using secondary sources, validity and reliability of the research should not be negatively affected. 3.7. Limitations of the Research The concept of customer loyalty in this research has been discussed from a very broad point of view and no distinctions between cultures are made. The researcher acknowledges that people in different cultures value different things and might perceive loyalty differently but the researcher believes that in the end everyone, no matter what is their background, want their needs to be satisfied and appreciate the sense of being acknowledged.
  25. 25. 20 3.8. Conclusions Using qualitative strategy to conduct this research, the researcher found pragmatism philosophical approach the most suitable, as it does not narrow the research into some specific path that should be followed. It does not accept that there are pre-determined theories or frameworks that shape knowledge and truth; nor can people construct their own truths out of nothing (Easterby-Smith et al. 2012, p.32). This researched is approached from inductive point of view, meaning that the researcher does not aim to analyse any specific theory to create an observations, but rather analyse cases provided by KPMG and PwC and to create observations and solutions from there. The researcher does not accept any form of plagiarism and all of the sources used in this research are cited and referenced correctly. Both companies and their views are analysed unbiased but recommendations will be made from those findings which the research believes would answer the questions accordingly. The literature review is used as a support in the research.
  26. 26. 21 4. KPMG KPMG acknowledges the importance of understanding what customers want and how they want it. The experience in the online market is more important than ever. “In the online world consumer experience is as important as the product and price. You can have great products and discounted pricing, but if they can’t find what they are looking for quickly or they do not get personalized shopping experience, they are likely to switch over to your competing brand immediately” (Omnichannel Retail, 2015). According to KPMG’s Retail industry Outlook survey (2014) 52% of the participants said customer retention is the biggest revenue driver in retail in the next one to three years. This supports the views on literature review that customer retention is one of the main issues CEO’s face and 5% increase in customer retention can increase profits by 35-38% (Thompson, 2004, p. 24, O’Connor & Galvin, 2001, p. 98). On the contradict, Top of Mind survey (2014) revealed that many retailers are focusing on short-term growth strategies such as promotions and pricing. This supports the proposition by Payne & Frow (2013, p.268) that although CEO’s understand the importance of retention, they might not understand how to improve it. The case might also be that there can be some pressure on CEO’s from shareholders/board of directors to receive quick results, that they are afraid to make changes that can prove valuable in the long-term. According to KPMG, long-term strategies include: innovation, customer service and multi-channel effectiveness. Studies sponsored by KPMG, conducted by Georgetown Institute for Consumer Research will be cited as GICR in this research. 4.1. KPMG and omnichannel KPMG defines omnichannel retailing as the focus on creating a seamless consumer experience through any and all shopping channels: mobile, tablet, computers, brick-and- mortar stores, television, radio, direct mail and catalogue (Retail Insight, 2013). Engaging with consumers online helps retailers to tailor their product offerings, and also tailor product development and sales projections. Engagement can be achieved, for example, through utilizing vast amounts of consumer data into meaningful information that can help retailers to differentiate the services they provide to their customers (Omnichannel Retail, 2015).
  27. 27. 22 KPMG suggests five areas that retailers should focus on: 1. Integrating customer-facing platforms. a. Mobile-enabled stores. 2. Winning with talent: Customer-focused, data-driven, and digitally savvy talent and leadership. a. Helps remove friction and inconvenience from the customer experience and drive sales and loyalty. 3. Gaining customer insights: Using data to understand what customers want, when, and for what purpose. 4. Unifying pricing: Base pricing consistency and channel-specific promotions. 5. Managing cyber risks: Creating confidence and preserving trust. 4.1.1. Mobile platforms KPMG acknowledges that integrating mobile (online) with brick-and-mortar stores is an important element of a retailer’s omnichannel strategy. This integration includes especially the in-store Wi-Fi that can track customers’ movement and apps that consumer can download. With Wi-Fi tracking retailers would be able to send targeted messages to customers based on their location and profile (Top of Mind survey, 2014). The researcher as well as KPMG wants to point out that with Wi-Fi tracking retailers need to be very cautious with it. How much is too much? Where does the line go between tracking and stalking? With apps KPMG believes they can make consumers more productive and more connected. Shop apps can sort through product wish lists and construct the quickest route round a store. Giving deeper discounts to customers loyal enough to download a store can make these apps even more attractive (Consumer Currents, 2014). KPMG suggest that with modern day mobile phones/tablets retailers can introduce mobile point-of-sales, where employees can check out customers anywhere in the store (Top of Mind survey, 2014). 4.1.2. Train staff to create loyal customers Brands should embrace Customer Relationship Management (CRM) early on, taking the time to understand their customer, articulate the value proposition, and distribute the information to the workforce that is delivering the experience (Retail Industry Outlook
  28. 28. 23 survey, 2014). CRM has an important role when creating long-term customer relationships and customer loyalty, as was pointed out by Plumpton (1999). Investing in the sales force is critical in the long-term omnichannel strategy. This might mean that a retailer needs to hire more experienced and passionate sales people or providing more training on solving customer-related problems or using technology effectively. Digitally savvy and well-trained staff can help remove friction and inconvenience from the customer experience and drive sales loyalty (Retail Industry Outlook survey, 2014). 4.1.3. Data collection Collecting and disseminating data is important factor to better understand customers, and retailers should be able to identify the right data to collect. According to KPMG (Advisory Institute, 2014) data can be divided into two sections: Structured data, such as transaction records, and unstructured data, such as online comments, brand sentiments, and social media likes and dislikes. With collecting data it comes down to learning who your customers are, how to serve them, and how to keep them. When the retailer has collected the right data and analysed it properly, it can create customer profiles, segment its customers, and develop right marketing strategies (Advisory Institute, 2014). GICR divides customers into only two categories: frequent buyers and fiercely loyal buyers. In the literature review there was also discussed a third category of ‘fire sale’ customers (RIS, 2014). The researcher wants to highlight that segmenting customers into three categories might be more logical as it can help a retailer to identify potential loyal customers more easily. 4.1.4 Pricing According to KPMG competitive prices and promotions are the most important influencers of in-store purchase decisions. They suggest channel-specific promotions, which reward customer loyalty (Retail Industry Outlook survey, 2014). This view on pricing is very much the opposite of the views of O’Connor & Galvin (2001, p. 101) presented in the literature review. They believed that competing purely on prices and promotions are just ways to tie customers to the retailer and make leaving difficult for them, not to create actual customer loyalty. This view has not gone completely unnoticed in KPMG. They suggest that for some retailers it might be better to avoid large sales and focus on providing competitive
  29. 29. 24 prices in the long-term. According to Robert Browne, Partner at Strategy Group, KPMG UK, the high-low model of pricing – marking products up, only to discount them later – not only lowers margins, but damages and devalues brands over time. Constant discounting might essentially tell to customers that products are not worth the regular price. Sometimes the promotion of a branded product actually cannibalizes the retailers’ private- label sales rather than creating a halo effect on other products (Customer Currents, 2014). Figure 4. KPMG omnichannel pricing model (Omnichannel Retail, 2015) KPMG do understand that knowing what consumers’ value is just as important: service, shipping, and support – and the ways these might affect pricing strategies (Omnichannel Retail, 2015). In their Consumer Currents (2014) publication, KPMG told about a new company that has taken their loyalty program to a new level. Birchbox offers five samples of beauty products delivered to customer’s home for just $10 per month ($20 for men’s boxes). If a customer likes the content he or she can order the full-sized version from their online store. This is a great example of a promotion/loyalty program that has been taken to the 21st century. 4.1.5. Trust Earning consumer trust is an important way for brands to ensure they do not compete purely on price but what if customer does not trust the retailer, why should they then care about retailer’s assortment or prices. “Trust allows you to charge more for services2 , for example the shipping fees can be higher than the average if people trust you and enjoy the quality of the service, but in the end to be successful in online it comes down to having 2This was pointed out in the literature review by Reicheld & Sasser (1990, cited in Srinivasan et al., 2002) that loyal customers are willing to pay higher prices to continue their relationship with the supplier rather than look for an alternative.
  30. 30. 25 the right product, at the right price, delivered conveniently” (Nicholas Martin, CEO of Jumia interviewed in Consumer Currents, 2014). KPMG suggests that companies should put a lot of focus on their Corporate Social Responsibility (CSR) practices, as these are something that especially younger customers are sensitive about and they place a lot of value on environmental sustainability and other forms of CSR. In study of 10,000 participants, 85% told that they consider CSR when deciding where to shop, what to buy, and should they recommend the products or services to others (Advisory Institute, 2014). Being able to securely handle the customer data, such as credit card information comes crucial in these days. Retailers should put a lot of time and effort when building secure platforms for all of their data, this can have a major impact on consumer trust, one way or the other (Focus 2014). 4.2. Customer reviews In online product information is key to buying decision. Retailer has to have quality photographs of products and preferably videos as well. Customer review section is also very important as was pointed out too by Srinivasan et al. (2002). Consumers consider user reviews – through social media, online forums, comparison Web sites, and other Internet research – as a part of their decision. KPMG claims that nowadays consumers tend to trust more on the opinions of other consumers – the content that they can find on their own – rather than messages pushed out to them by large companies and organisations (Advisory Institute, 2014, Omnichannel retail, 2015). The same discovery was made by Payne & Frow (2013, p. 270); loyal and satisfied customers are more likely to refer to others. The researcher, as did in the literature review, wants to point out that consumer reviews require active consumers that are willing to give feedback about products or services to different platforms. Also the reliability of the feedback should be questioned and treated with criticism if it seems that the sole purpose of the feedback was to give negative or positive reviews.
  31. 31. 26 4.3. Brands in the online market KPMG cites GICR to claim that consumers tend to have a fairly strong preference for underdog brands and when large brands are perceived as competing with small brands consumers tend to favour the small brands (Advisory Institute, 2014). This might explain why some retailers might not succeed in e-commerce but as Pitta et al. (2006) explained strong brand should almost automatically succeed in the online market. 4.4. Delivery and satisfaction KPMG has investigated the delivery options provided by retailers very closely and their findings show that delivery plays a significant role in customer satisfaction. One of the most popular delivery ways is the click-and-collect; it can provide a stress free and effective way to the customers to receive their products. They found that same day delivery was only used by 15% of the retailers in their survey, next day delivery was found much more popular. According to KPMG, same day delivery is dependent on three factors: Accurate stock information, stock close to customer, and agile 3rd party couriers or transport solutions. Workable same day delivery does not come cheap and also many retailers do not want to make promises they may not be able to keep at busy times (Omnichannel Retail, 2015). KPMG discovered that improvements could be made when it comes to offering delivery slots. Majority of options offered were full day delivery slots, which is obviously rather inconvenient to the customer. Less than 9% of retailers even bothered to confirm the delivery slot and 43% did not even provide estimated delivery date (Omnichannel Retail, 2015). John Lewis provides next day delivery, which has been a significant investment but has proven to be a competitive advantage for them. They also offer click-and-collect service through their 325 Waitrose stores. Also many stores offer in- store returns to increase consumer options and store footfall (Consumer Currents, 2014).
  32. 32. 27 5. PwC PwC had very similar findings to KPMG and Payne & Frow (2013, p.268) about the importance of customer retention. 56% of retail CEO’s surveyed told that they are planning to change their business model towards more customer focused organisation and 53% said that they have change programs underway towards more customer focused organisation (Total Retail survey, 2014). 5.1. PwC and Total Retail PwC claim that the costs and complexities of managing on multichannel basis are too great and offer too few rewards for the customer experience. In a multichannel organisation trade promotions are inconsistent among channels, products are unavailable in-store because units already were sent from distribution centers to fulfill web orders and customer loyalty information is haphazardly applied across channels (Total Retail survey, 2014). Loyalty in e-commerce requires a working brick-and-mortar unit, in other words the omnichannel model, but PwC has taken the integration of channels one-step further from omnichannel retailing by introducing Total Retail: Unified brand story across all channels that promises consistently superior customer experience and integrated back-office operating model with agile and innovative technology. Retailers do not need a digital strategy anymore; they need a business strategy for a digital age and according to PwC Total Retail aims to do this by incorporating supply chain, marketing and sales, and finance (Total Retail survey, 2015, Total Retail survey, 2014). PwC highlights the importance of integrating CRM across all online and offline parts of retailer’s business. PwC says that the organisation should be customer focused, not channel focused organisation. Online shopper will expect that product promotions, offers, and other communications will be available in the store and also work on every kind of mobile device. This view differs a bit from the KPMG’s where they suggest more channel specific promotions. Figure 5. The changing business model for retail (PwC, 2015)
  33. 33. 28 Figure 6. Evolution of retail (Total Retail survey, 2014) 5.1.1. Branding According to PwC a retailer can have harder time to gain customer loyalty compared to individual brands. This is because a retailer does not have its own brand, so it is hard for consumers to really feel attached to the retailer. Customer might ask why I should spend money with you. PwC claims that when it comes to actually making a purchase, consumers make few distinctions between manufacturers and retailers (Total Retail survey, 2014). Could it be possible that consumers want to buy directly from brands not from the retailer? This situation is very similar to the buying from the ‘underdog’ explained by KPMG. To achieve a strong brand presence, retailers must develop a very clear proposition and a brand that means something to the consumer. To build a brand that consumers can relate to it is important to make sure that employees understand what the brand represents. This can be achieved through training. Retailers should put a lot of
  34. 34. 29 emphasis on staff training and development as when they have clearer vision of what they are doing and why there are doing it, then they are able to serve customer better and efficiently. Then customers can feel more satisfied and eventually this will result in higher customer loyalty (Total Retail survey, 2014). 5.1.2. Social Media According to PwC’s survey a compelling brand itself can exert a strong pull on consumers. The number one reason to shop at a certain brand was “I trust the brand” and customers were also attracted to brands that tell a story in an engaging manner. This supports the view by Pitta et al. (2006) about emotional attachment. To engage with customers, a retailer should apply the opportunities provided by social media. With the help of social media, a retailer is not only able to build brand power, but to manage risks as well. PwC found that those who use social media to interact with their favourite brand led them to like the brand even more than before interaction (Total Retail survey, 2015). Social media enables companies to build meaningful, connected experiences for both long-time and possible future customers. Enthusiasm for social media is driving customers to engage, comment and even effect change at the retailers and brands. Companies must think about their investments in social media as a journey toward increasing internal capability and true consumer engagement. Retailer that really wants to improve its viability as an online purchase destination should invest in search engine optimization. Retailer could also increase ‘direct traffic’ in which consumers go straight to a retailer’s online assets instead of searching for generic products via a search engine (Total Retail survey, 2015, Total Retail survey, 2014). 5.1.3. Loyalty Programs PwC does not want to underestimate the importance of loyalty programs. 71% of their survey respondents told that loyalty programs play an important role in their decision to shop at a specific retailer. Online shoppers like to be known and recognised at their favourite retailers. They want personalisation based on their past purchases. PwC found that there was increase in visits to brands social media sites from customers who received personalised promotions via email or text messages. Retailers could offer coupons that are sent to customer’s smartphones and those can be used in-store, home or in transit. All
  35. 35. 30 of this customisation and personalisation can be used to drive traffic toward online purchases (Total Retail survey, 2014). To make the shopping experience better in-store, shoppers valued the ability to check other store or online stock quickly, but PwC notes the risk here. What if a long-time customer checks a store kiosk for an out-of-stock item and sees it in another store 12 miles away, journeys to pick it up, and then finds that someone else has just bought the last one? (Total Retail survey, 2014). 5.1.4. Moving to mobile PwC say that Total Retail to work the retailer needs to embed digital marketing materials with the appropriate formatting necessary to be readable on every digital device. This especially important on mobile devices as 40% of PwC’s survey respondents told that the mobile screen is too small. Designing an app would be the solution to this, but PwC found that actually mobile browsers were 20% more popular than apps (Total Retail survey, 2014). Apps are not as popular mostly because customers are not eager to download multiple apps from different retailers. Researcher’s solution would be an app where a consumer can find 5-10 retailers own apps that the consumer has chosen – kind of like an app within an app. This would include offering benefits to all of the stores in the app. PwC suggests that when retailer’s mobile apps provide a more customized, intuitive and immediate experience that their equivalent browser, more people will start moving towards using apps. The researcher thinks that the strength of apps is that they can work offline. Customer would be able to browse without any connection, for example in an airplane or train ride where connections are usually poor. Browsers require a data or Wi-Fi connection to work. PwC believes that brand loyalist deem it worthwhile to download a retailer’s app because they are particularly eager for that retailer’s content, personalized promotions, speed, and loyalty reward points. Casual shopper, on the other hand, are unlikely to make effort to download an app and will shop online with that store only if the store website is optimized for their devices (Total Retail survey, 2015). To conclude PwC’s findings mobile sites are more about acquiring new and casual customers, whereas the apps are more about appealing to loyal online customers. Smartphones can also just be instruments for getting to the point of buying a product, rather than a tool for the actual purchase.
  36. 36. 31 5.1.5. Wi-Fi PwC acknowledges the importance of offering Wi-Fi in-store and understands its capabilities (Total Retail survey, 2014), as does KPMG. In-store Wi-Fi should have fast, simple login process, but the researcher believes that consumers to actually start using the Wi-Fi, it should be free and possibly no login at all. Registering to use the Wi-Fi might feel frustrating and time consuming to some consumers. Also the researcher wants to point out that is Wi-Fi connection essential in the future as data technology develops and becomes cheaper, so that people do not need Wi-Fi anymore? 5.1.6. Security issue Loyal customers require a unified customer experience: Consistent promotions across channels, loyalty programs recognised in-store and online, price consistency, and stored personal credit card and other ID information to speed transactions (Total Retail survey, 2014). Storing personal credit card and other personal information requires investments into retailer’s information security. 43% of respondents in PwC’s survey told that they were worried about the security of their personal data. The number is noticeable low. Although investing in security is crucial, it is something that the researcher believes should not be advertised too much, as it could attract hackers. PwC believes that the one truly difficult long-term obstacle to major growth in mobile shopping may be the security issue (Total Retail survey, 2014).
  37. 37. 32 5.2. New marketing strategy PwC explains their idea how social media can be useful when launching a new product. In the traditional social media marketing strategy, the product is launched in social media, then customers have changes to gain promotions/coupons and finally the company receives feedback (comments/complaints) about the product. PwC turned this method other way around, where first the company listens to its customers in social media to gain new product ideas, and then they see how customers might feel about them and finally product is launched (Total Retail survey, 2014). Figure 7. The traditional model of marketing Figure 8. PwC’s new model of marketing
  38. 38. 33 6. Discussion Retailers should not underestimate the importance of well-trained and technologically skilful employees in relation to customer satisfaction and loyalty, but these employees are mostly useful in brick-and-mortar stores. The challenge with e-commerce is the lack of personal contact with the customers compared to an in-store experience. Customer will not receive the same level of service in online as in in-store environment. That is why a retailer should provide a seamless online shopping experience that has been made as easy and convenient as possible to the customer. Both KPMG and PwC suggest implementing a customer centric organisation model, where all channels/point-of-sales are connected with each other, but PwC takes this a bit further with their Total Retail model. They both believe that adapting new technologies and collecting data to better serve their customers is going to be crucial for retailers to be successful in the future. The main difference is the promotion programs they recommend. KPMG talked about channel specific promotions, and this remained a bit unclear what they meant by it. PwC suggested identical promotions across all channels, which seemed more logical and easier to apply. Both companies appeared to be in favour of personalised messages to customers, whether those would mean messages through apps, Wi-Fi, email or text messages. Although personalised message can be important factor to create loyal customers, the researcher does not really believe customers would actually want constant messages about promotions, ‘this is something you might like’ –messages, new product launches and so on. The amount of information we receive nowadays is very high anyways, so messages from retailers that encourage us to shop more might just become irritating eventually. That is why social media is becoming more and more important for customers to get information about products or services so they can access that information wherever they want it, whenever they want it. Both companies understood the importance of social media, and the customer review possibility that comes with it, but PwC seemed to better understand the value it provides with their new marketing strategy for social media, where customers are at the centre of innovation and launching of a product. Neither of KPMG or PwC suggested support chat services to help the customers find what they are looking for. That could be one option to get into contact with customers better but
  39. 39. 34 the researcher does not recommend it either. In a case where customer would have to rely on chatting with an employee to find a product, the e-commerce has more or less failed to serve its purpose. KPMG and PwC both understand the importance of e-commerce in the modern retail world and what kind of impact it might have on customer loyalty, but it can derived from their reports that having working, well-established brick-and-mortar store is still important for retailers to be able to be successful. It still remains the only place where customers can have genuine shopping experience and expect to be served personally. The in-store part of the retailer’s business should work in a perfect alignment with the online part and they should fulfil each other through technological innovations such as apps. How can retailer achieve more customer loyalty in e-commerce then? According to Pitta et al. (2006) well-established brand should be able to gain loyal customers fairly easily, but this is not always the case in retail, and one of the reasons might be the ‘underdog’ situation explained by KPMG, where customers tend to shop at a brand that they feel is underdog compared to a larger, more well-known brand. One way where retailer can differ it from smaller, mostly only online-based competition is the delivery service they offer. Delivery has a high impact on satisfaction as was explained by KPMG. Retailers might have wide network of smaller grocery stores, as in the case of John Lewis, or affiliate shops where customers can easily collect the items they have purchased online. Retailer to be able to offer next day or even same day delivery would give it major competitive advantage and increase customer satisfaction. Loyal customers might be willing to pay for this kind of services as was explained by KPMG and Reichheld & Sasser (1990, cited in Srinivasan et al. 2002). This is also supported by findings from Zhang et al. (2011) that website usability and expertise in order fulfilment are important factors in customer relationships. Offering delivery times should be something considered self-evident. Delivery slots should not be more than two hours and if possible allow the customer to decide the best time for them. Offering full-day delivery slot is not good customer service, customers should not wait at their home for retailer to arrive whenever is best for them. Also offering tracking service is something that can increase satisfaction and the feeling of safety as the customer sees where her product is.
  40. 40. 35 6.1. Recommendations As explained the approaches these companies have towards gaining customer loyalty are very similar with their customer centric organisation models suggested. PwC takes the approach a bit further with their Total Retail model. The researcher would recommend a retailer to try to adapt this model as it focuses on integrating all channels and treating them as one unit whereas KPMG’s omnichannel model still treats channels as separate units to some level. Three most important factors in creating customer loyalty, from the researcher’s perspective are:  Creating meaningful relationships with customers through social media.  Offering benefits that prove valuable to the customer in the long-term, such as better delivery times, personal service in-store and promotions across all channels.  Safe and secure service, that customers can trust the retailer to leave their personal information, such as credit card, to them. Retailer to use promotions or loyalty programs they could consider adapting the model used by Birchbox (Consumer Currents, 2014) where customer would receive a monthly box of small goods, with preferably individually designed content. This could increase the sense of belonging and the emotional attachment to the retailer. Researcher acknowledges that this has been very general study about customer loyalty. When investigating customer loyalty the use of primary sources would be very valuable and actually provide new information about customer loyalty. Due to the university restrictions this was not possible to undertake. Researcher believes that further study is needed as the retail sector keeps evolving and customer behaviours change overtime. Especially the social media aspect should be investigated more thoroughly and what is its impact on customer loyalty? Do the ‘likes’ transfer into profits?
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  44. 44. 39 Wilson, J., 2014. Essentials of Business Research. 2nd Edition. London: SAGE Publications Ltd. Zhang, X., Fang, Y., Wei, K-K., Ramsey, E. and McCole, P., Chen, H., 2011. Repurchase intention in B2C e-commerce—A relationship quality perspective. Information and Management. [e-journal] Vol.48(6), p.192. Available through: Anglia Ruskin University Library website <http://libweb.anglia.ac.uk/> [Accessed 20.02.2015] 8. Appendix Explanation fo Srinivasan et al. (2002) 8C’s of customer loyalty.  Customization The ability of an e-retailer to tailor products, services, and the transactional environment to individual customers (Srinivasan et al., 2002). Customization increases the probability that customers will find something that they wish to buy (Srinivasan et al., 2002). According to Ostrom & Iacabucci (1995; cited in Srinivasan et al., 2002) customization can signal high quality and lead to a better match between customer and product. Easier it is for a customer to find what they are looking for, and not spend time browsing through entire product assortment, the more likely they will visit the site again in the future (Srinivasan et al., 2002).  Contact interactivity The dynamic nature of the engagement that occurs between an e-retailer and its customers through its website (Srinivasan et al., 200). Interactivity plays a significant role in gaining customer loyalty (Srinivasan et al., 2002). Interactivity enables a search process that can quickly locate a desired product or service, thereby replacing dependence on detailed customer memory (Alba et al., 1997, cited in Srinivasan et al., 2002).  Care The attention that an e-retailer pays to all the pre- and post purchase customer interface activities designed to facilitate both short-term transactions and long-term customer relationships. (Srinivasan et al., 2002). Care is especially important in the modern Internet world as Poleretzky (1999, p. 76, cited in Srinivasan et al., 2002)
  45. 45. 40 points out: “In the physical world, if I make a customer unhappy, they will tell five friends, on the Internet they will tell 5,000.”3 Srinivasan et al. (2002) presents that the level of care that a company exercises to minimize disruptions in customer service will lead to higher e-loyalty.  Community A virtual community is an online social entity comprised of existing and potential customers that is organised and maintained by an e-retailer to facilitate the exchange of opinions and information regarding offered products and services (Srinivasan et al., 2002). Nowadays communities are very much tied to sites such as Linkedin, Twitter, Facebook and Instagram. NikePlus an excellent example of company’s own community. Some customers may remain loyal because they value the input of other community members, and others may be loyal because they enjoy the process of providing such input to the community (Srinivasan et al., 2002).  Convenience The extent to which a customer feels that the web site is simple, intuitive, and user friendly (Srinivasan et al., 2002). Quality of the website is crucial for e-retailers. It might be the only interface with the marketplace (Srinivasan et al., 2002). Schaffer (2000, cited in Srinivasan et al., 2000) claims that 30% of the customers who leave website without purchasing anything do so because they are unable to find their way through the site. Difficulties and frustration may cause customers not to return to the website (Cameron, 1999, cited in Srinivasan et al., 2000).  Cultivation The extent to which an e-retailer provides relevant information and incentives to its customers in order to extend the breadth and depth of their purchase over time (Srinivasan et al., 2002). According to Berger (1998, cited in Srinivasan et al., 2002) companies need to use their databases effectively to cultivate customers.  Choice 3 In 2010’s the number is more likely to be closer to tens of thousands or even more.
  46. 46. 41 E-retailer is typically able to provide much wider range of product categories and variety of products compared to a typical retailer (Srinivasan et al., 2002).  Character Creative website design can help an e-retailer build a positive reputation and characterization for itself in the minds of consumers (Srinivasan et al., 2000). 9. Supervisor contact log Student Number: 1208196 Degree Programme: BA (Hons) Business Management Proposed Dissertation Title (as submitted via turnitin): The Evaluation of E-Commerce Revolution on Management of Marks and Spencer and Stockmann Agreed Title (as agreed with supervisor): Achieving Customer Loyalty in e-Commerce: How does KPMG and PwC approach customer loyalty in 21st century business environment? Supervisor’s Signature: Date: Date and time of meeting Notes Supervisor’s initials 15.12.2014 - 14.00 General discussion about the chosen subject 13.03.2015 - 11.00 Going through the first literature review draft. 21.04.2015 - 14.00 Discussing about the literature review and methodologies and possible improvements on them.