1. Retail: Issues and Applications Customer Relations Management 2 The loyalty card

2. The diamond of loyalty Few High LOYALS True Loyalty Commitment to stores Number of stores used REPERTOIRE Latent Loyalty HABITUALS Spurious Loyalty Low Many SWITCHER No Loyalty (Adapted from Denison & Knox 1983) 2

3. Behavioural loyalty of UK grocery shoppers Source: Mintel 1999 cited in McGoldrick 3

4. Loyalty Schemes/Programmes An initiative where a specific mechanism is used to incentivise the customer to give a higher share of his/her grocery spend to the retailer-over and above that warranted by the attractiveness of the retailer’s core offering of location, product, service, price, etc. (Coca-cola research group cited in McGoldrick 2002) 4

5. Loyalty Schemes/Programmes But is that all? How do you explain the growth of loyalty schemes? What of the other objectives of the retailer? This definition: emphasises the promotional aspect ignores the information value in providing detailed knowledge of customers’ purchase patterns 5

6. Loyalty Schemes - history Mid 1800’s Co-operative dividends 1960’sGreen Shield Stamps / Co-op trading stamps (CWS) Mid 1990’s introduced and grew 1994/5 Tesco Loyalty card (Dunhemby) 1996 Sainsbury’s Reward card – replaced by 2002 Nectar card 1997 Boots Advantage card Despite withdrawals (Safeway ABC) Co-op Dividend card, now Co-op Membership card Other retailers have launched cards, and M&S and John Lewis offer vouchers in return for spending on their credit card Best buy - My Best Buy,a tiered, digital loyalty and customer engagement program 6

7. Levels at which loyalty programmes operate(Baxter, 1998) Profit uplift from increased sales Targeted promotion tool Startegic decision support from better understanding of customer behaviour The basis of customer relationships, competitive strategy, store format/location decisions and company culture 7

8. Benefits of loyalty schemesThe retailer’s perspective (a)(MCGoldrick, 2002 p.120) Reinforces loyalty / heavy spending Achieves competitive advantage or parity Service lapses more likely to be forgiven Suppliers finance some of the offers Perhaps less markdowns May save on media advertising Your company name is on a card in the customer’s wallet 8

9. Benefits of loyalty schemesThe retailer’s perspective (b)(MCGoldrick, 2002 p.120) More precise segmentation and targeting Opportunities for mail-outs and reationship building Facilitates cross selling Detailed knowledge of purchase patterns More extensive knowledge of customer’s personal details 9

10. Benefits of loyalty schemesThe customer’s perspective(MCGoldrick, 2002 p.120) Extra discounts ‘something for nothing’ Personalised offers Other services, invitations to events etc. Membership of a club Choice of redemtion points Satisfaction of saving points 10

11. Drawbacks of loyalty schemesThe retailer’s perspective (a)(MCGoldrick, 2002 p.120) Cost of financial or other incentive Cost of IT systems and cards Launch costs: media, staff training etc. Cost of administration and enquiry handling Cost of mail-outs and coupons Most schemes are easy to copy Many customers also join competitor’s schemes 11

12. Drawbacks of loyalty schemesThe retailer’s perspective (b)(MCGoldrick, 2002 p.120) Withdrawal of a scheme may lose goodwill Most discounts for all customers not just loyalty card holders May convey an association with higher prices Rivals without schemes will exploit this Not a key patronage determinant for most shoppers May distract from more crucial aspects of strategy 12

13. Drawbacks of loyalty schemesThe customer’s perspective(MCGoldrick, 2002 p.120) Discounts usually small Points take a long time to accumulate Too much plastic to carry Inconvenient redemption systems Hassle of filling out the form More junk mail received Invasion of privacy 13

14. Seminar 1 Having researched retailers who have loyalty schemes but also offer discounts separately from these schemes (last week) and read this week's material ('Loyalty to the last’; 'Deriving and exploring behavior segments within a retail loyalty card program’). If you were the CEO of a large UK based retailer without a loyalty scheme: What would be your main concerns about introducing a loyalty scheme to your company. What would be the main benefits of introducing a loyalty scheme to your company. Try to comment on and discuss other student's views (in a constructive way). 14

15. Seminar 2 Deriving and exploring behavior segments within a retail loyalty card program Arthur W. Allaway, Richard M. Gooner, David Berkowitz, Lenita Davis European Journal of Marketing Vol.40 No 11/12 Group 1: Identify the key points in the paper – what is said about behavioural and attitudinal loyalty, about drivers of loyalty? What are the main findings of the research (the loyalty clusters)? Group 2: Food: Compare and contrast the Tesco and Sainsbury loyalty card strategy Group 3: Fashion: Critically examine Topshop’s approach to developing customer loyalty Group 4: Contrast the above with a food discounter such as Aldi or Asda or a fashion retailer such as Primark. Suggest possible reasons for the differences in strategy 15