Loyalty Programs and Customer Behavior

This assignment delves into the impact of loyalty programs on customer behavior. Students are tasked with critically evaluating the effectiveness of these programs across diverse industries, particularly emphasizing the influence of program design on customer engagement and retention. The analysis should draw upon relevant literature and research findings to provide a comprehensive understanding of the factors contributing to successful loyalty program implementation.

An analysis on the impact of
introducing loyalty card system on
customer purchase behaviour - A Case
study of Tesco stores, London, UK
1

Table of Contents
Background of study........................................................................................................................3
Research problem.............................................................................................................................3
Research purpose.............................................................................................................................4
Aims and objectives.........................................................................................................................4
Literature review..............................................................................................................................4
Propose Research methodology.......................................................................................................6
Significance of the research.............................................................................................................7
Research limitation..........................................................................................................................8
Project schedule...............................................................................................................................8
Chapter outline.................................................................................................................................9
Reference.......................................................................................................................................11
2

Background of study
In 21st century there are many factors of loyalty card program that can impact customer
loyalty such as discounts, preferential treatment, special offer etc. At the customer loyalty is
highly depended on the buying behaviour of an individual and there are many factors that have
greater influence on the customer’s base. In accordance with the negative impact, the rate of
adopting rate is very low.
A loyalty program is everywhere in business as it plays a significant role in order to change
customer purchase behaviour. Customers interact with them multiple times every day for the
different purpose whether they want to buy grocery item, ticket book, paying cell phone bill etc.
However, it can be stated that firm becomes convinced that it is possible to buy customer loyalty.
Customer loyalty program is become proven method for growth and sustain market share. It is
gaining popularity in the retail industry as because of its ability to provide to its customer
incentives and different types of benefits such as discount or redeemable prize (Berezan, Raab,
Tanford and Kim, 2015). It assists in retaining customers for a long time and to do business with
existing customers lead to reduce the market cost. If the customer is loyal to the firm then it does
not switch to other brand and make more purchase than faithful ones. A well-designed program
served as the competitive advantage for a firm which supports company in increasing sales.
Instead of this company can easily build long-term relationship which forms the basis of loyalty
program.
The present research is based on analysis the impact of introducing loyalty card system
on customer purchase behaviour of Tesco, UK. Customer loyalty system benefits both
companies as well as customers. Customers are provided different types of reward or discount
which encourage them for repeat purchase and it benefits the firm (Steinhoff and Palmatier,
2016). In this research the way customer behavior gets impacted through introducing a loyalty
program by the company will understand. Different types of loyalty program that benefits the
organisation and customers will be identified.
Research problem
There is the rapid increase in the competition in the retail market and there are many retail
companies who offer various types of loyalty program for its regular customers in order to
increase sales and profit. Therefore, it becomes important for Tesco retail store of UK to focus
on introducing loyalty program in order to survive in the competitive market. Loyalty program
3

encourages customers to change their single purchasing decision into a multiple purchasing
(Baloglu, Zhong and Tanford, 2017.). The present research is the attempt to investigate the
impact of introducing loyalty card system on customer purchase behaviour of Tesco. For this
purpose, different types of loyalty program which can be introduced by the firm will be analysed
and its impact on customer purchasing behavior. This research provide assistance to the Tesco
company to get understand different types of loyalty program and introduced them in an
effective manner.
Research purpose
The main purpose of this study is to obtain a deep understanding of the impact of
introducing loyalty card system on customer purchase behavior of Tesco. This research will help
in gathering information related to the different types of loyalty program that can be used by the
retail company for influence customer purchasing behavior. Customer purchasing behavior
changes and there are different factors that lead to change purchasing behaviour. The present
research will help in gaining depth information related to the factors that can impact customer
behaviour.
Aims and objectives
Aim: An analysis on the impact of introducing loyalty card system on customer purchase
behaviour - A Case study of Tesco stores, London, UK
Objectives
 To understand the benefits of loyalty card system for customers.
 To analyse the impact of loyalty cards system on customer purchase behaviour of Tesco
 To determine the relationship between loyalty card and customer loyalty.
 To recommend strategies for introducing loyalty card successfully by Tesco company
Research questions
 What are the benefits of loyalty card system for customers.
 What are the predicted key competencies for 21st century loyalty card scheme
 How are these similar or different from other companies loyalty card
Literature review
According to the view of Bowen and Chen McCain, (2015) a loyalty program is the
structured marketing strategy which is designed by the firm to motivate the consumer to make
4

the frequent purchase from their shop. These loyalty programs track customer purchase behavior
and reward them for their loyalty for choosing their particular brand. In simple term the most you
spend on purchase then more you received in return.
Loyalty program plays significant role in order to retain the customer for the longer time.
Along with this, it provides many benefits to the customers such as they get discount and
rewards due their repeat purchase which make satisfied with their purchase. In the retail industry,
customer loyalty program is becoming popular and essential for its success (Meyer-Waarden,
2015). Author state that there are more than 60% of customers who are more likely to choose
retailers which offer such type of program, further at the time when membership rates increase
then the number of active users has been failed. There are many retail organizations who are
using loyalty program for grabbing the attention of new customers but it is one of the effective
tools for retaining the customers. It is so because it motivates existing customers to keep
purchase from a particular firm. There are various types of customer loyalty program but there
are many retailers who use only one model and some combine two or more (Vesel and Zabkar,
2009). One of the effective loyalty schemes is points which are frequently used at the grocery
store. In this customer get points on the basis of their purchase which can be redeemed by them
after earning fixed points. Further company can provide free shipping facility to its customers
and discounts on purchase more than two products which influence their purchasing behavior.
According to the view of Kandampully, Zhang and Bilgihan, (2015) customer purchase
behavior are essential to all marketing activities which is carried out while making a decision of
buying products and services. There are different factors due to which customer is influenced
such as reference group, social classes, friends, and family etc. For understanding the purchasing
behaviour of customers it is important that firm study the trends of their customers with customer
portfolio analysis for designing right customer loyalty program. As stated by Meyer-Waarden,
and Benavent, (2009) that a loyalty program which is designed on the basis of point cumulative
are clearly attempted for encouraging repeated purchase. Hence it encourages customer for
repeat and frequent purchase in large number. However, it can be stated that loyalty program
characteristic can be changed as per the decision of buying products and services. A loyalty
program can motivate the customer to make a purchase as for accomplishing the long-term
reward which is noticed from behavioural assumption. Berezan, Raab, and Kim, (2015) revealed
that most of the factors which are considered while evaluating a program are related to the value
5

of rewards and chances of accomplishing the reward. This makes aware of a firm that loyalty
program is suitable for customers or not. If loyalty program is well designed then it leads to
reflect the changes in the repeat purchase and retain customers. There is great influence of
loyalty program on customer behaviour such as if customer get discount offer on their second
purchase then it motivates them to make purchase frequently. Purchasing behaviour of an
individual get changed at the time when if company kept some offer in front of them. If
customers provide discount on buy one get one free then it encourages them to make purchase
for getting something in free. As it ensures them that their money is spend on right products and
services. Similar to this there are different types of offer which is provided by company to its
customers so that they become loyalty for their firm and recommend other to make purchase
from their firm.
Critical Issues with Reference to Loyalty Card
There are more than half of customers whose loyalty cards are inactive. Further, most of
the loyalty cards are focused on rewarding customers spending certain amount at the store and
there are issues related when appropriate information is not gathered by the employees (Lerman,
2016). Further, most of the customers are not aware of the benefits that they get from loyalty
cards and this way firm are not able to get benefited. When services users get to know able it,
then they develop negative impact as they were not informed. There together exists some cost
related and maintenance related concerns while opting for the proposed loyalty card that together
makes a negative impact on its users. Also, people tends to avoid such offers given by the
organisations by making it difficult for the companies to attract them. Apart from this, in 21st
century lack of effective loyalty card schemes can also impact sales of the firm. There are
various companies who are providing effective loyalty card scheme to customers due to which
their sales and profit are increasing. Furthermore, customers are more careful while making
purchase it is important to keep clear communication with this which can help in making strong
relationship between customers and companies. Hence, improper communication with customers
can affect the relationship and they may not prefer their loyalty card scheme also.
Critical issues in business of 2017
Uncertainty about the future: it is easy to predict customers trends, market trends etc
which is important for the changing economy. Leaders play significance role in respect to
accomplish the vision and mission of the company. In 2017 centuries there are many companies
6

who are operating their business in market which make difficult for Tesco company to survive in
market. It leads to make tough for company to retain customer for longer period of time. This
can be considered as critical issue for company (Wright, Wahoush and Jack, 2016.). It is
important for company to operate business to introduce new strategies such as loyalty card
system that can help to survive in retaining customers. Along with this many new technologies
are introduced in the market that can help in carrying making innovative products and services
for customers. If, Tesco company do not adopt such technologies that it can become issue for
them to survive in market. Due to lack of online presence company can also face issues at the
time of carrying out business activities. Hence these are the few issues which are faced by
company at present in 21st century.
In present time in 21st century different companies use various types of loyalty card. Such
as Morrison companies lead to offers the loyalty scheme which is free to sign up. Further, with
the help of card customer cane easily earn five points for spending £1. On the other side, Marks
and Spencer lead to offer loyalty scheme which is called SPARKS and it is also free to join.
Sainsbury is known as the part of the massive Nectar card loyalty scheme. Along with this,
customers can easily pick up points with Sainsbury bank products. Tesco company has provided
Clubcard scheme for their customers in order to earn loyalty points. Scheme of Tesco is better
because there are various opportunities to pick up point and boost their values for spending them.
Bailly and Comino, (2017) argued that Asda company do not offer any type of loyalty card
schemes for their customers.
Company Loyalty card
Marks and Spencer
Sainsbury
Tesco
Iceland
SPARKS
Nectar
Clubcard
Bonus Card
7

On the basis of above diagram where different sector of participation of customers are
given. On the basis of this participation grocery stores are in leading and long lasting
performance in order to meet the needs of the better task oriented performance. Along with that,
64% customers who participated in loyalty programmes. Apart from that, it makes more compete
ting and challenging for other businesses such as coffee shop, C-store/gas station, drug store etc.
in spite of that, 33% loyalty participation was in coffee shop. Overall, this shows the interest of
customers in comparison with others. This makes company more worthwhile and profitable. This
also makes the proper implementation process.
8
Illustration 1: Grocery Leads in participation
Source: Loyalty Programs, 2014

This is the another loyalty cards that helps customers attract towards the services. It also
helps to take the better affective growth and challenging matter fact. It also helps to take the
motivational performance level. Overall, it brings new customers and sales towards the new
customer idea. This is card on which customer also gets different existing prices and also reflects
the better changes and online process of making task effective process. This helps Tesco to
promote sales and brands of the organisation. Moreover, it brings innovative changes in the
organisation goals.
9
Illustration 2: First Citizen card Source
Source : Club card, 2014

Benefits of using Tesco club card and nectar card
Customers can earn points from the purchasing and add in their club and nectar card. It
can be used by them for day out, restaurant and holiday by going to the club card website.
Places where it can be used retails, in-store and online stores. They both provide lots of benefits
to customers and company as well as.
Significance of the research
The present research is based on analysis on the impact of introducing loyalty card
system on customer purchase behaviour. This investigation will help gaining depth knowledge
related to loyalty scheme and its impact on consumer behaviour. Along with this it shows the
way customers get attracted toward the particular company products and services. Apart from
this, this research provides information to Tesco company regarding the ways it can make
improvement in loyalty program so that sales can be increased and profit can be earned.
Research limitation
There are some limitations are faced in investigator while carrying out the research. While
carrying out the present research investigator has face certain limitation due to time and money.
Therefore, it is important to overcome the time limitation research has selected sample size
which is neither too low or high which help in reduce the time wastage. Along with this research
was unable to conduct depth analysis due to limitation of time (Wright, Wahoush and Jack,
2016.). Apart from this due to lack of monetary resources researcher has not used highly
advanced tools and techniques for carrying out the research, Researcher also ensure that
respondents do not face any type of trouble and they are not forced for taking participant into a
research.
10

Conclusion
From the above research it is concluded that their loyalty program has significant impact
on customer purchase behaviour. Further it can be stated that for understanding the purchasing
behaviour of customers it is important that firm study the trends of their customers with customer
portfolio analysis for designing right customer loyalty program. There are different factors such s
reward provides to customer on their regular purchase directly influence them. Purchasing
behaviour of an individual get changed at the time when if company kept some offer in front of
them
11

Reference
Books and Journals
Bailly, A. and Comino, L., 2017. Using Pragmatist Philosophy in Consumer Research:
Influences and Prospects. In Marketing at the Confluence between Entertainment and
Analytics (pp. 729-734). Springer, Cham.
Baloglu, S., Zhong, Y.Y. and Tanford, S., 2017. Casino loyalty: The influence of loyalty
program, switching costs, and trust. Journal of Hospitality & Tourism Research, 41(7),
pp.846-868.
Berezan, O., Raab, C., Tanford, S. and Kim, Y.S., 2015. Evaluating loyalty constructs among
hotel reward program members using eWOM. Journal of Hospitality & Tourism Research,
39(2), pp.198-224.
Bowen, J.T. and Chen McCain, S.L., 2015. Transitioning loyalty programs: A commentary on
“the relationship between customer loyalty and customer satisfaction”. International
Journal of Contemporary Hospitality Management, 27(3), pp.415-430.
Creswell, J. W. and Poth, C. N., 2017. Qualitative inquiry and research design: Choosing among
five approaches. Sage publications.
Edson, M. C., Henning, P. B. and Sankaran, S. eds., 2016. A guide to systems research:
Philosophy, processes and practice (Vol. 10). Springer.
Kandampully, J., Zhang, T. and Bilgihan, A., 2015. Customer loyalty: a review and future
directions with a special focus on the hospitality industry. International Journal of
Contemporary Hospitality Management, 27(3), pp.379-414.
Mebius, A., Kennedy, A. G. and Howick, J., 2016. Research gaps in the philosophy of evidence‐
based medicine. Philosophy Compass.11(11). pp.757-771.
Meyer-Waarden, L. and Benavent, C., 2009. Grocery retail loyalty program effects: self-
selection or purchase behavior change?. Journal of the Academy of Marketing Science,
37(3), pp.345-358.
Meyer-Waarden, L., 2015. Effects of loyalty program rewards on store loyalty. Journal of
Retailing and Consumer Services, 24, pp.22-32.
Steinhoff, L. and Palmatier, R.W., 2016. Understanding loyalty program effectiveness: managing
target and bystander effects. Journal of the Academy of Marketing Science, 44(1), pp.88-
107.
12

Tight, M., 2016. Phenomenography: The development and application of an innovative research
design in higher education research. International Journal of Social Research
Methodology.19(3). pp.319-338.
Vesel, P. and Zabkar, V., 2009. Managing customer loyalty through the mediating role of
satisfaction in the DIY retail loyalty program. Journal of Retailing and consumer Services,
16(5), pp.396-406.
Winit‐Watjana, W., 2016. Research philosophy in pharmacy practice: necessity and relevance.
International Journal of Pharmacy Practice.24(6). pp.428-436.
Wright, A. L., Wahoush, O., Ballantyne, M., Gabel, C. and Jack, S. M., 2016. Qualitative Health
Research Involving Indigenous Peoples: Culturally Appropriate Data Collection Methods.
The Qualitative Report.21(12). p.2230.
Online
Lerman, K., 2016. The problem with loyalty programs. [Online]. Available through:
<http://adage.com/article/agency-viewpoint/problem-loyalty-programs/306502/>.
Loyalty Programs, 2014. Where Do C-stores rate on Loyalty Programs. [Online]. Available
through: <https://www.cspdailynews.com/category-news/services/articles/where-do-c-
stores-rate-loyalty-programs-infographic>.
13