1.0 Introduction
Programmatic efforts to build customer loyalty whether conceptualized as retention or attraction, attitudinal attachment to the company reflects deliberate managerial efforts, and at least provides a partial understanding of the long term relationship between customer and the company (Bacon and Blyton, 2006). When the efforts are consistent with the company’s strategy, customer attraction and retention shoot. However, regardless of the anecdotal evidence and intuitive appeal of the notions, there continues to be empirical for or against the customer loyalty programmes (Askenazy, 2007). Askenazy 2007 argues that strategically initiatives should be adopted when they contribute to, or create new competitive advantages for the company at a cost exceeded by the benefit and this forms the basis of competitive advantage.
Customer attraction and retention and the overall performance of the organizations are based customer satisfaction. Various scholars have discussed how marketing and loyalty programmes boost the performance of an organization (Valle and Witt, 2005). However, very little has been done on the influences of Customer Loyalty programme on the company’s competitive advantage. The effectiveness of customer loyalty programmes on the performance of Tesco has been given very little attention as a result (Letts et al., 2009). Information on actual customer behaviour, especially repeat purchase, has grown in importance due to accumulation of customers’ data. Although Tesco is not the UK’s number one retailer but it is among the world’s most successful supermarkets and Europe’s fastest growing financial service provider (Jennings, 2002). This research therefore seeks to determine the extent to which Customer Loyalty programme provides a Competitive Advantage to Tesco.
1.1 Company Background
Tesco was founded in 1919 and initiated its first store in Edgware in 1929. The store has expanded to be the market leader in UK food retail sector. Tesco is relies on high technology to make the purchase of products more convenient for its customers thus attracting more customers (Valle and Witt, 2005). The Tesco’s online purchase is easy to use; the site downloads very fast, its relevant and hence has encouraged customers to purchase online. Its system involves making orders by phone, a factor that results in saving time and transportation cost (Letts et al., 2009). Continually, Tesco has been making more products purchase possible online to meet the customers’ needs. For example, Tesco recently started offering music downloads. The product range use by Tesco has been aimed at creating a strong customer experience as majority of the good can be purchased at once (Jennings, 2002). Customers do not need to visit various vendors to make a purchase. The time taken for an online shopper has also been reduced (one hour to 35 minutes) to enhance efficiency. In 2009, Tesco had £54 billion revenue and employed 470,000 people. They have expanded and operate in nearly 4, 351 stores and 14 countries across the globe.
1.2 Rationale of the research
There are various advantages that the result findings will help Tesco and other Companies.
Through the research, the extent to which Customer Loyalty programme provides a Competitive Advantage to Tesco will be determined. This will be useful to Tesco and other business to design loyalty programmes (Crichton, 2005).
The research will also examine if customer loyalty has an impact on the overall success of Tesco. The information will also be useful to other organization in designing marketing strategy methods and defining target group (Crichton, 2005).
1.3 Research Question Aims and objectives
Research Question
To what extent does Customer Loyalty programme provides a Competitive Advantage to the Organisation.
Research Aims
To investigate how Competitive Advantage can be derived from Customer Loyalty programme at Tesco.
To examine if customer loyalty has an impact on the overall success of Tesco.
Research Objectives
Critically analyse the literature on competitive advantage and customer loyalty.
Identify the sources of competitive advantage.
Identify various aspects of customer loyalty and competitive advantage through a survey of 60 customers at Tesco.
Investigate the relationship between brand and customer loyalty.
Evaluate different strategies of competitive advantage.
Analyse to what extent Competitive advantage has an impact on the overall growth of the organisation?
Discuss the role of marketing tools to give competitive advantage to Tesco.
Recommend findings from the survey on loyalty programme to achieve competitive advantage.
Literature Review-
2.0 Introduction
Even though most customer loyalty programmes offer primary financial benefits, customer loyalty is about making customers love the company and its products or services. In essence, the loyalty programmes are meant to provide cost discounts. Consumers who purchase products or services do so due to low prices in a given shop and they tend to change if they find a cheaper product. The one and only way to create a long lasting relationship with the client is to establish a true friendship with them which is not only based on financial incentives, but on emotion, trust and partnership. Customer satisfaction is more about the customers’ assessments of what the business or organization provides. It’s about whether a business feels they get what they want from the client. According to Truss 2000, customer loyalty tends to be more profitable to the company as it costs less to service an existing customer than to win a new customer and hence its importance.
2. 1Types of customer loyalty
Monopoly loyalty
This is where clients have little or no choice and hence they become loyal to a given business. According to Thomson 2000, customers that have fewer options tend to be dissatisfied.
Financial constraints
In majority of the cases, the cost difficulty or hassle in changing from one product or service to the other become so great that clients only do it as a last option. As well, research indicates that customers tend to live on low satisfaction or on cheaper good (Thomson, 2000).
Incentivized loyalty
This has been the most over hyped marketing policy in the past years. The type of loyalty has effects on customers who are not using their own money.
Habitual loyalty
This might be the most rampant form of repeat business. Sometimes, when the prices of goods are increased, customers tend to change to other cheaper products or go without a particular good or service.
Committed loyalty
Just from its dictionary definition, it is where customers are committed to a given company. Committed customers play a big role as they are highly committed to the organization or company, not only in terms of purchase but they are also satisfied. The customer tends to make all the purchases from the given business.
2.2Factors affecting Customer Loyalty
There are a number of factors that the businesses must put into consideration in its endeavours to offer customer service. Various factors in turn affect the customer loyalty to a given business. First, customers tend to choose cheaper programmes. Offering a range of programmes to choose from is very important since every customer has his own needs and wishes that are to be met by the organization (Stewart, 2006). Customers also look for good services. The link between good customer service and value addition to the organization has been underscored by attempting to delineate the value brought to the organization by proper communications strategy that is intermarried with relevant marketing skills to offer the desired services. The impact of the customer service on the company delivery is another factor that must be put into consideration (Orlando & Johnson, 2001)
Quality in loyalty programmes is an imperative aspect in the development of teams meant to conduct business organization’s activities (Rahim & Minors, 2003). Quality is another factor affecting customer loyalty. Quality is usually aimed at eliminating the main causes of the problems, through continuous process improvement programs and therefore reduces the variations from the target to the aimed objectives in the firm (Graetz, 2002). It is aimed at improving the customer satisfaction through provision of better services and also removes the activities that have no value to the organization and customers. They also remove services that add no value to the clients.
2.3Conditions of loyalty
Conditions of loyalty vary from one organization or business to the other and also depend on the type of customer loyalty programme being undertaken. According Kleiner 2006, one of the conditions is membership. All participants have to first become members of the loyalty programme before participating in any loyalty programme. Points are associated with given prices and goods or services (Robinson & Kleiner, 2006). To get the points, customers and expected to make purchases from the store. The prices are to remain constant for all members. The more the participation the greater the earnings are also applicable to all customers. Tesco will increase in its earnings suppose many customers make more purchases to earn more point. The company and the customer hence remain interrelated. Form the store, customers will demand high quality goods and good services to remain loyal.
2.4Measuring loyalty
Customer loyalty is measured based on the customer increased or decreased purchase of goods or services. It can also be measured form the reaction of customers towards a given good or services after the introduction of the loyalty programme (Langley, 2000). It can also be measured form the increased profits acquired after the introduction of the loyalty programme. However, the increased sales or profits cannot be a trusted measure since increased purchase can be contributed by various factors (Rumelt, 2004).
Customer loyalty, measured by the help of surveys is assessed through the use of questions and items, reflecting the aim of the loyalty. For every good or services, clients are asked to rate their level of satisfaction. According to Rumelt 2004, the commonly used measure include
Customer satisfaction
Chances of choosing again the same product or service
Chances of recommending
Chances to continue buying similar product
Chances of buying different product
Chances of increased buying of the same product or services
Chances or likelihood of changing to another services provider
The measure of customer loyalty depends on the type of loyalty and its aims. One method of measuring customer loyalty can be applicable in one case but not the other and vice versa. Therefore, the repeat customer method can be the best measure of loyalty.
2.5Managing loyalty
Managing the loyalty schemes depend on the type of customer and the company. It requires a thorough understanding of the customers and their requirements. Tesco has a role to keep their eye on the loyalty scheme without which the schemes might turn ineffective. After some time, it is expected that customer tastes and preferences change and so should the scheme.
Since the programmes vary from one business or company to the other depending on the aim of the programmes among other factors, it is imperative to find a suitable programme for a given group and close monitor thereafter. In cases where the customer incomes and expectations vary by margins, two or more loyalty programmes can be designed (Sutton, 2005). This will give easy time in designing and their managements.
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2.6Elements of a loyalty strategy
There are various elements of loyalty strategy. Though the elements depend on many factors the most common elements, referring to Tesco are four.
Customers segregation. All businesses are not similar or operate in same environments and so the differences in clients. All clients are unique and have varied tastes and preferences on each and every good and service. The aim when segregating customers is to recognize a potential client forms the existing ones. The managers tend to look for the key indicators for example, where the client comes from, the income of the customer, taste and preferences, customer potentiality among other factors (Hubert, 2000).
It is important to define the customer groups. Each group of customers behave differently and so deserve different treatments. The loyalty programmes should be aimed at addressing the requirements of customer groups. In cases where the taste and preferences are too varied to be bridged, different loyalty programmes are necessary (Gabriel & Griffiths, 2002).
Setting Goals for each segment or customer group is another important aspect. After the loyalty programme has been defined and set for a given customer group, low level strategy should be in place. The goal and targets required for the clients should be something achievable or measurable. This should be average billing, more referrals of clients, and increased number of visits among other factors. The loyalty should be specific to accomplish one or two objects.
2.7Loyalty and loyalty schemes
Customer loyalty is among the most important assets to be possessed by a company. With the increase in the number of competitors, goods and services, many product and services, and the expansion of the internet trading, loyalty is rarely existent in the modern retail environments. A customer loyalty programme is a structured and non-short termed marketing effort which gives incentives to the repeat clients (Dulewicz & Higgs, 2009). The programmes are meant to encourage the clients to make more purchase of some products or services, increase their number of visits and make them refer others to buy the same good or service. The loyalty schemes differs form one company to the other depending on the aim of the loyalty and the expected outcomes (Farmer & Kingsley, 2001).
2.8Reward design
Often, rewards are designed dependent on the number of earned point. The more points a customer has a greater the reward. This is fair method since it depends on the number of purchases one make in Tesco. Customers have positively responded to the programme. In reaction to the programme various Tesco competitors have designed different customer loyalty programmes to retain their present customers. In majority of the cases, they range from silver, diamond and gold depending on the number of purchases one make. The naming however varies from one competitor to the other like starter, middle, and advanced. In reaction to the competitors’ move Tesco has lowered the cost of their reward points. This has assisted it retain majority of its customers.
2.9Competitive advantage and its factors
Tesco has a great advantage as it established its stores in the areas with low competition. Since other businesses have already built a name in other parts, taking advantage of these areas is the only option of Tesco (McNamara, 2007). Since it has already attained its customer trust in these areas, its fame has spread to other areas giving it a competitive advantage. Tesco was keen in choosing its stores locations. They considered store visibility, accessibility, traffic and population’s age and income. This was to ensure that its stores are located in areas convenient for the majority of the target customers. The visibility of the store was also analyzed from a customers’ view point (Johnson, 2001). The more visible it is the less the advertisement needed. Tesco built up large retail stores in areas of high visibility and this helped it draw customers from other shops/stores. The visibility of the retail stores attracts customers as it acts as a means of advertisement (Giannini, 2000). Tesco has also retain its high quality products and this has helped it retain majority of its clients and capture more.
2.10Customer satisfaction and Competitive advantage
There is a great paradigm shift in the contemporary business environment and this intermarried with the day-to-day economic conditions that various businesses are subjected to; it becomes very essential for every business to explore the aspect of customer satisfaction thoroughly as an important aspect and process of business survival and growth (Collins & Porras, 2004). By exploring customer satisfaction, the business organizations not only gain knowledge of the customer satisfaction drivers but also establish strategies to retain them and have a competing edge over the competitors in the market (Combs, & Skill, 2003).
Knowledge of the customer satisfaction factors is a strong backbone upon which an organization can base its customer retention by knowing the satisfaction drivers of the customers it has attracted (LeBlanc, et al, 2000). Furthermore, though there is a great significance of using customer opinions and attitudes in various fields, not many studies have specifically focused on assessing the attitudes of customers with respect to their satisfaction with the products offered especially in developing economic systems (Buren, 1999). This section attempts to give an assessment of the studies that have been undertaken in an attempt to investigate the relationship of the two broad dimensions of customer satisfaction and that of customer retention. These two dimensions are powerfully related when attempts are made to understand or debunk on customer satisfaction (Crutchfiled, 2000). After all, the ideological significance of endeavouring to satisfy the customer is to retain the attracted customer and attract more hence creating a pool of loyal customer in the market. The end result: – strong customer base and hence formidable market dominance.
In definition, customer satisfaction can be understood as an attitudinal concept which reconciles the customer expectation and actual experience. When the difference between the two aspects (for instance expectation and actual experience) is wide, then there is little satisfaction and an organization stands high chances of losing the attracted customers (Chen, 2001). With the changing characteristics of the market platform on which business is conducted, the aspect of customer satisfaction becomes even more relevant. Online businesses that deal with clients in a virtual world would wish to know the satisfaction of their customers.
2.11Business Strategy and competitive advantage
Since Tesco is relying on high technology to make the purchase of products more convenient for its customers, it is likely to attract more customers. Its system will involve making orders by phone, a factor that will result in saving time and transportation cost. Despite the fact that other business are on the low prices of their products, it is likely to loss many customers to Tesco. By gaining more customers in the area where other competitors are less known, Tesco can easily build on customer confidence. It will later expand to areas where Tesco is well established basing its support from it excellent customer services in other areas. This will negatively affect Wal-Mart as it will loss customers and Tesco will remain its threat even in the future (Oxman, 2002).
2.12Innovation and competitive advantage
To innovate is to create and commit to a strategic focus for creativity and innovation to succeed. There are generally various types of innovations that companies consider for pursuit. Some of the innovation types are more applicable in given cases as compared to others. This depends on the status and stage of company development and objectives. For a starting company, the type of innovation might differ from the ones employed by the growing company (Bontis, 2006). Product innovation or service innovation which is the most common types of innovation results from improvements that are made to existing products and services. Almost all companies that have been established should focus on service or product innovation or they might not gain market share to a more violent competitor (Chauvin & Hirschey, 2003).
2.13Core competencies and Competitive advantage
Accessibility to Grocery stores
Proximity is another issue that the grocery shoppers will analyze before purchasing any product. A consumer may prefer to purchase other groceries in the nearest stores when Tesco is far away (Knight, 2000). Thus the managers of the Tesco should make the stores available in the small towns that were not served by the competitors as this will allow it to launch itself as the sole retailers in these areas thus the consumers will tend to purchase groceries from the stores more so if they are offering better prices than stores in the city which normally take two to four hours to get to by car (Adler & Kwon, 2002).
Grocery shoppers also want to shop in stores that are not too far away from where they live. Grocery shoppers just like any other shoppers tend to have a favourite store suppose incentives are issued. This is usually based on what the store offers which are mostly, reasonable prices, availability of items as well as good quality of the good and services (Brown et al. 2007).
2.14Marketing tools and competitive advantage
2.15Key Success Factors In Retailing
The programmes should have one main aim. This will help the managers have one major focus other things being secondary. Offers should be provided for the repeat clients. Offers act as incentives. When a customer is rewarded according to Oriento 2002, this increases their company lifetime.
2.16 Summary
Based on the literature review, a number of issues are evident. First, given that customer satisfaction is not a quantitatively measurable variable and it ideally depends on the behaviour of consumers, more investigative efforts should be put in understanding consumer behaviour of consumers in a particular industry, geographic location and across gender (Liana & Buren, 2006). However, it must be taken into account that consumer behaviour is not only a profound process in business interaction with the society but it also has many intervening variables which cannot be assumed. On the same basis, an organization that wants to ensure a satisfied customer without examining the consumer behaviour of customer with respect to changes in quality of services offered and market approach strategies employed may also not be planning to succeed. Customer satisfaction and brand loyalty have a causal link, which means that utmost care must be borne in mind when attempts are made by business organizations to develop satisfaction strategies (Nerdrum & Erikson, 2001). An oversight may easily lead to the plan not working at all. Since the characteristics of the variables a long this causal link may not be similar across the industries and may also vary from business to business, every organization must examine directionality of its customer satisfaction thoroughly (Nahapiet & Ghoshal, 2008).
3.0Research Methodology
The research took a deductive approach that entailed the researcher working from know hypothesis that customer loyalty programme provides a competitive advantage to Tesco. Thus, the study took a top down approach. This is contrary to the inductive approach that takes an up down strategy (Ryan, G. 2009). This is illustrated by the figure below.
362902566675Observation
Observation
184785066675Hypothesis
Hypothesis
13335066675Theory
Theory
3629025149860Confirmation
Confirmation
Quantitative tools of collective and analyzing data like questionnaires and interviews were used in the deductive approach. As argued Creswell 2007, quantitative methods of data collection are preferred to qualitative tools since they enable the researcher to explore the hypothesis (Creswell, 2007). This is unlike qualitative tools that first come up with an abstract idea that is followed by creation of theories and concepts about the idea. Additionally, according to Saunders et al. 2007, data in quantitative research is hard and reliable as compared with qualitative research where data that is just rich and deep (Saunders et al., 2007).
The main reason for choosing quantitative was to have a complete and detailed description of the study phenomenon by applying reasoning. Qualitative approach makes the researcher to better understand the phenomenon under study and be in a position to describe the whole situation. The approach consists of descriptions, quotes, observations, and excerpts from books and other documents (Creswell, 2007, pp. 112).
Hypothesis: Customer Loyalty programme provides a Competitive Advantage to Tesco.
The research took a positivism kind of philosophy towards the Customer Loyalty programme of Tesco. As Ryan 2009 argues, a positivism approach makes the researcher understand more the topic and in this case, it enabled the research have a deep knowledge of the extent to which customer loyalty programmes have contributed to the competitive advantage of Tesco (Ryan, 2009). The positivism was important in analysing the extent to which Competitive advantage has an impact on the overall growth of Tesco. The researcher no longer argued about the applicability and important of customer loyalty programme of Tesco.
3.1 Research Approach
To fulfil the hypothesis (customer loyalty programme provides a competitive advantage to Tesco), qualitative research approach was employed. Various secondary materials related to the customer satisfaction and retention were reviewed. The qualitative research was targeted at understanding customer behaviours towards a given product or loyalty programme and reasons that govern their characters. It was possible to answer the how and why of decision making (Jennings, 2002). This is unlike quantitative that the larger the data, the more detailed the information (Ryan, 2009). Data was collected through interview and questionnaires. The relationship between brand and customer loyalty as well as the strategies of competitive advantage could thus be determined.
Both questionnaires and interview have their own strengths and weaknesses, and the study made use of both methods to maximize on the collected data. In order to collect quantitative data, primary information was collected through the medium of a questionnaire.
3.2 Research Strategy
The researcher used the purposive random sampling to select the participants for this research study due to its efficiency in getting a representative sample of the population (Creswell, J. 2007). This was meant to identify various aspects of customer loyalty and competitive advantage through a survey of 60 customers at Tesco.
The sample size of the study consisted of 60 customers and 15 members of staff of Tesco who were surveyed. The sample was randomly selected from the customers and staff members. Sex of the participants was also noted. Tesco staff members sampled entailed eight males and seven females. 35 male customers and 25 female customers were surveyed.
3.3 Data Collection Methods
As Jenner et al., 2010 notes, data collection is an integral part of any research and plays a critical role in ensuring that research objectives were accurately fulfilled (Jenner et al., 2010). The approach of data collection ensured information was collected from a variety of sources which is one of the key requirements for better research (Holloway and Wheeler, 2002). Moreover, the appropriateness of the approach to data collection is brought out if it is considered that the research develops findings from wide areas gender bias being as an example. Such diversity required in deductive approaches call for use of multiple sources of data, thus the use of both primary and secondary data collection methods (Munhall, 2007). The research did not only mean to acquire relevant data but also validated the collected data.
This research was carried out by the use of interviews and questionnaires to collects data. The researcher used both use primary and secondary methods to collect data. The primary sources of data will come from the questionnaires and interviews conducted by the researcher. The secondary sources entailed the review of both published and unpublished literature related to loyalty programmes and customer satisfaction. Primary sources included the review of the findings from the interviews and responses from respondents (Jenner et al., 2010).
Primary Data
This research made use of questionnaires and interviews in order to collect primary data. The questionnaires focused on getting socio dynamic information about the customers and staff. This method was selected because of its ease of use and comprehension in terms of results derivation (Ryan, 2009). Primary data was extremely important when it comes to satisfying the various research objectives.
Secondary Date
Secondary data was easier to collect since it was available in a format that is easy to understand and organize. Information was collected based on the credibility of the authors (Saunders et al., 2007). Journals, books, and magazines were used to collect facts and literature to support and analyse the findings of the study.
Data AnalysisThe reason for analysis was to determine the extent to which customer loyalty programme of Tesco contributes to its competitive advantage. Responses from the interviews and questionnaires were analyzed using thematic analysis (Holloway and Wheeler, 2002). This tool is considered to be highly inductive as themes are not imposed on data by the researcher but rather emerge from the data itself. In this method, data from different people is compared and contrasted, similarities and differences identified in a process that continues until the researcher is satisfied that no more new issues or themes are arising (Letts, Ryan, & Grossman, 2009). Thematic analysis was chosen because it allows rich, in-depth, and detailed meaning to be derived from the collected data. It involves coding of data according to the emerging themes. Thematic analysis analyses the descriptions line by line, allowing rich in-depth data to be derived from the responses (Linden, 2002). Line by line analysis allows the researcher to highlight matching patterns in the text from the different responses allowing quantification of data. This tool categorizes the findings and conclusions from various sources according to the emerging themes, making it possible to identify similarities in the meanings and explanations from the various respondents. The researcher is also able to highlight the main issues emerging from the responses (Bacon & Blyton).
3.4 Limitations of the chosen methods
The first limitation was the method used. The qualitative method might prove ineffective in some cases. The data collected hence was limited (Creswell, J. 2007). The purposive sampling might also prove ineffective in some cases and may lead to biasness in the research. In case of data analysis, some results were difficult to interpret especia
