Accounting's Role in Building Effective Customer Loyalty Programs

This research proposal explores the effectiveness of accounting in designing customer loyalty programs, focusing on customer retention and profitability. The study uses both primary and secondary data, applying qualitative and quantitative analysis to assess the relationship between accounting practices and loyalty program success. The research problem addresses how accounting departments can design programs that benefit both customers and the organization, increasing customer base and long-term profit. Research questions explore effective loyalty program elements, financial improvements, and accounting's role in customer retention. The hypothesis examines accounting's impact on Coles' loyalty program. Limitations include time and budget constraints, focusing on a single case study. Ethical considerations such as originality, informed consent, data confidentiality, and voluntary participation are addressed. The literature review discusses the impact of loyalty programs on customer behavior and the importance of efficient program design and rewards. The study aims to contribute academically and provide insights for managers and accountants in designing effective loyalty programs.

Running head: RESEARCH PROPOSAL
Research proposal on ‘Effectiveness of Accounting in Building Customer Loyalty Programs’
Name of the Student:
Name of the University:
Author note:

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Abstract
Customer loyalty programs are treated as significant marketing tool for the firms. It
measures the repeat purchase behavior of the customers and hence, the firms put much effort in
designing an efficient loyalty programs not only to retain the existing members but also to
increase the memberships for profitability in the future. This research proposal is aimed at
exploring the role and effectiveness of accounting in designing efficient customer loyalty
programs as these programs are considered as liability in the balance sheets of the firms. The
researcher will collect both primary and secondary data and apply both qualitative and
quantitative methods of analysis on the information to get an in-depth overview of the research
issue and evaluate the relationship between the research variable.
Research problem
Customer loyalty programs are an extremely useful way to retain the customers. Almost
every organization works towards designing an effective loyalty program which gives some extra
benefits for the loyal members to retain the existing customer base. Various extra benefits are
given in these programs to make these attractive and value for money for the customers in
comparison to the rivals in the market. Hence, a cost factor is in operation for the organizations
while designing the loyalty programs. Thus, the finance and accounts department of any
organization has a very crucial responsibility in designing the loyalty programs in a manner such
that, the profits of the organization does not get hampered, rather in the long term, it improves
and the size of the customer base increases. Although, there are many other factors that influence
the customer retention for an organization, some internal and some external, and loyalty
programs are one of those factors. It not only involves accounting but also involves strategic
marketing to attract the customers. At the same time, the accounting department plays a major

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role in handling the business and financial operations of an organization. Other than the overall
financial and accounting operations for handling the finance of the company, the finance
department also supervises and controls the marketing cost and other price related benefits given
by the company. Thus, the problem for this research study is to explore the effectiveness of the
accounting department in designing an effective loyalty programs for the organization which not
only will benefit the loyal customers financially but also will benefit the organization to retain its
customers and increase its customer base, which will increase profit in the long term.
Research questions and hypothesis
The research questions are:
1) What are the effective elements of customer loyalty programs that help in customer
retention?
2) How the accounting department or operations can improve the financial aspects of loyalty
programs?
3) In what ways the accounting can help in designing the loyalty programs for an
organization that would help in retaining the customers?
The research hypothesis is:
H0 (null hypothesis): Accounting does not have any significant impact on designing effective
customer loyalty program for Coles, Australia
H1 (Alternate hypothesis): Accounting has significant impact on designing effective customer
loyalty program for Coles, Australia

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Delimitations and limitations
Delimitations are those that are set by the researchers to create boundaries and conduct
the study effectively, while limitations are those factors that cannot be set or controlled by the
researchers but these affect the efficiency of the study. The delimitations of the study are that the
researcher will choose a case study organization to address the research questions in an in-depth
manner. Case study helps in addressing the research problem in a real-world scenario and that is
beneficial to have feasible practical solutions or recommendations for the research problem
(Ross, 2017). Coles will be chosen as the case study organization. On the other hand, limitations
of the study are time and budget, for which the researcher will be able to study only one case
study organization, that is, Coles and the sample size will also be taken smaller due to these
limitations of time and budget.
Background
Significance of the research
Loyalty programs refers to the marketing tool that is used by almost all types of
organizations in different industries for motivating the repeat customers by offering them some
type of rewards generating from the purchase of products or services from the particular
organizations (Söderlund and Colliander, 2015). The system of loyalty programs were dominant
in the US retail and restaurant chains and the now the practice has been adopted by majority of
the organizations in different countries. Due to the prevalence of the customer loyalty programs,
majorly the customers expect some kind of bribed loyalty offer. As stated by McCall and
McMahon (2016), the customer loyalty program represents a structured and long term
promotional effort that provides incentives to the repeat consumers demonstrating loyal behavior

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towards the brand or organization. The main purpose of the loyalty programs is to motivate the
customers in a way so that they shun the competitors and return to the brand or organization and
in retail or food businesses, the rewards mostly consists of monetary and non-monetary benefits,
such as, discounts, special offers, freebies, redeemable points, etc. (Steinhoff and Palmatier,
2016). Thus, it can be said that, over the years, to execute this marketing technique successfully,
the organizations has involved the financial and accounting departments for efficiently designing
the loyalty programs as it involves a substantial amount of funding for implementing the
marketing tool and hence, the financial resources must be used efficiently and return on
investment is necessary for generating profit in the long term. Thus, it can be said that
accounting activities or the departments play a significant role in resource allocation for the
various marketing activities, such as, loyalty programs and many others (Schaltegger and Burritt,
2017).
Thus, the significance of the study lies in two aspects. Firstly, the study will make
important contribution in the academic world through research on the effectiveness of the
accounting operations, especially in the context of loyalty programs, which is one type of
marketing technique of any organization. The study will highlight the impact of the accounting
operations on the marketing technique, such as, loyalty programs, which aims to provide various
extra monetary and non-monetary benefits to the customers. Secondly, the study will provide
important insight to the managers and accountants of a business which will benefit while
designing the loyalty programs appropriately for the business.

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Ethical considerations
Similar to any other research studies, this research study will also have some ethical
considerations. Firstly, the originality of the paper will be strictly maintained, as plagiarism is a
serious offence in the academic world, hence, all the information should be correctly cited.
Secondly, informed consent must be taken from the organization and the participants who would
take part in the primary data collection process. The purpose and objective of the study should be
clearly conveyed to the organization and it should also be mentioned that the data will be used
only for educational purpose. Thirdly, data confidentiality and anonymity will be maintained, the
information will be stored in the university database, and no personal information will be
collected from the participants. Fourthly, the participants will have voluntary participation
choice, that is, no one will be forced or bribed to participate in the data collection process, and
they can withdraw at any point of time. Thus, the above ethical considerations will be addressed
by the researcher while conducting the study.
Literature review
Loyalty programs and their impact
Loyalty program is one of the major marketing tools of the companies. It is meant to
enhance the loyalty behavior of the customers. By loyalty behavior, the repeat purchasing
behavior of the customers is referred to. In other words, when a customer comes back to a
particular store or brand for purchasing goods and services, it is termed as loyalty of the
customers. It is a matter of concern for the companies that whether the loyalty programs are
effective in enhancing the loyalty of the consumers towards the products or services of that
particular organization. These programs are designed to influence the existing customers and

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attract the new or potential customers through various monetary and non-monetary benefits.
Loyalty programs are considered as marketing tool as it is one of the activities that help the
companies to sustain as well as increase its market share by promoting various benefits given for
the loyal customers (Pandit and Vilches-Montero, 2016). However, there are arguments on the
effectiveness of the loyalty programs of the companies. As stated by Watson et al. (2015), the
members with loyalty programs of a company may have a much higher monetary benefit than
the non-members, but that does not imply that the programs are actually effective. Many
customers choose to take the loyalty program membership voluntarily. The authors found from
the examination of panel data of some Dutch households having membership for all 7 loyalty
programs in the grocery retailing and their expenditure at each 20 supermarket chains that, the
loyalty programs have small but significant positive impact on the share-of-wallet of the
members. Thus, it can be inferred from the study that the effectiveness of the loyalty programs
depend crucially on the share-of-wallet aspect of those programs, which is a major job
responsibility of the marketing as well as the accounting department to design the monetary
benefit of the customers.
Kumar and Reinartz (2018) highlighted that loyalty programs are considered as
extremely critical CRM tools for identifying, rewarding and successfully retaining the profitable
customers. Thus, it has a strategic importance for the companies. The authors mentioned that the
key dimensions of the loyalty programs are rewards and sponsorships and the performance of the
programs varies in different industries. As loyalty programs can help in creating competitive
advantages for the firms, it can also lead to failures of the programs and thereby losses of the
firms if it is not managed efficiently. The authors also described that the effectiveness of the
loyalty programs depend on the reward delivery, that is, reward exclusivity, rule clarity and

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reward visibility. The goal attainment positively affects the post-promotion purchases by the
consumers in which failure of the goal attainment results in reduction in the number of
consumers. Along with that, the convenience of redemption of the loyalty points also affects the
pre and post purchase behavior of the consumers, which has a long term impact on the customer
base of the firm. It has also been found that the firms with larger market share gain more from
the loyalty program than the firms with smaller market share due to the reason that the
complementary products and consumer resources are higher for the larger firms.
Peker, Kocyigit and Eren (2017) stated that in the grocery industry, a particular trend has
been found, that is, when the customers are satisfied with the rewards of the loyalty programs,
they become more loyal to the store and eventually allocate a higher budget and increase the
frequency of visit to those stores to gain more benefits from the loyalty programs than the
unsatisfied customers. The trend is similar for retail industry and for the restaurant industry,
these points or programs help in decreasing customer retention. Thus, it can be clearly found that
the impact of the loyalty programs have different impact on the loyalty of the customers in
different industries, however, the common factor is that these programs are meant to retain the
existing consumers by offering various benefits for the members. On the other hand, efficient
designing of the programs and type of rewards are very crucial for gaining success of the
programs.
Another study by Steinhoff and Palmatier (2016) showed that loyalty programs have
significant impact on the existing or target and bystander customers. The authors found that the
loyalty programs have opposite impact on the loyalty of the target and bystander customers and
actual sales. The rule clarity of program delivery suppresses both the positive target effects and
negative bystander effects, while the visibility of the rewards increases both types of impacts.

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Exclusiveness of rewards is also a crucial factor for the success of these programs as it alleviates
the negative bystander effects while not affecting the targets. Hence, it can be inferred that while
designing the loyalty programs the managers and accountants of a firm should not only consider
the target customers, but should also consider the bystander consumers and along with that,
different income on these groups should also be considered for efficient designing of the loyalty
programs to gain the maximum benefits for the firm.
McCall and McMahon (2016) stated that in the hospitality industry, the impact of loyalty
programs are found to be not much of significance in the context of creating attitudinal loyalty to
the company offering the program. It is extremely crucial for the managers in the hospitality
industry to design the loyalty programs in a manner that would keep them competitive in the
market and at the same time remain profitable and in this process, it is very important to
understand the customers’ expectation regarding the rewards of the loyalty programs. The
authors also mentioned that generally the customers get used to specific type of rewards and if
there is any change in the reward structure, the customers might react negatively and their style
of patronage will change. The study conducted through a survey showed that whenever there is a
change in the reward structure or types of rewards, there is a significant change in the consumer
behavior in terms of loyalty towards the firm and many leave the membership. Hence, it can be
said that the managers of the firms must have the understanding of the customers’ expectation
before restructuring the structure and rewards of the loyalty programs and in this process, the
finance and accounts department play a significant role as these rewards must be allotted as per
the resources of the firms.

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Role of accounting in designing loyalty programs
It can be inferred that as the customer loyalty programs are a promotional tools for the
firms, it incurs a cost to the firms. Hence, the funding for this marketing tool must be allocated as
per the financial assets and liabilities of the company. Thus, along with the marketing
department, the finance and accounting department also has a significant role to play in
designing the loyalty programs. It should be done in a manner such that the company does not
lose its profitability while offering the rewards of the loyalty program and at the same time, gains
a loyal customer base, which increases over time. As stated by Chun, Iancu and Trichakis
(2017), the point values of the loyalty programs are considered as liability for a firm on its
balance sheet. Hence, adjustments in the point values have a direct influence on the profitability
and the performance of a firm, and thus, it is a core operating decision for the firm. The authors
found from their study that the optimal policies for adjusting the point values of the loyalty
programs is dependent on a new financial metric, which can be derived by the adding the
realized cash flows and the outstanding deferred revenue, that is, profit potential of the firm. The
authors also mentioned that the customer loyalty programs can be utilized as buffers against
uncertainties, that is, the value points can be increased under strong performance and decreased
during weak performance of the firm, which will help the firm to soar through uncertainties in
business performance and profitability. Thus, the accounting operations can be implemented for
deriving the optimized adjustment system in the loyalty value points and liabilities of the firm.
Bazargan, Karray and Zolfaghari (2017) highlighted that in case of expiry of the reward
expiry of the loyalty programs, the competiveness of the firm is affected by the loyalty programs
offered by the rival firms, especially those provide expiry free rewards. Thus, expiry of the
rewards or reward points of the loyalty programs has a significant impact on the profitability of

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the firm in the long run in terms of customer and membership retention. It also affects the
valuation of rewards by the customers. It has been found that if a firm provides loyalty rewards
that do not expire and a rival firm provides expiry date, short or long, on the rewards, then the
former firm should increase its price for membership as the value addition to the customers is
still greater for the loyalty program. Thus, it can be inferred that the accounting department must
make evaluations for making policies for loyalty programs before implementing options like
expiry dates on the rewards. While some customers will try to utilize the rewards within the
expiry time frame, some customers will lose interest on the membership and can switch to
another rival form with expiry free loyalty rewards or rewards points.
Lastly, it can be said that, loyalty programs are a significant marketing tool that helps to
gain profitability for the firms in short as well as long term. However, the literatures do not have
much evidence on the precise roles of the accounting department in designing the loyalty
programs in the most effective manner. Various ways can be adopted to design and implement an
effective loyalty programs as per the resource capability of the firms, but the earlier studies did
not explore those ways that could be used by the accounting department to design an efficient
loyalty program that not only would retain the existing members but also will increase the
number of members for the firm and increase profitability.
Aims/objectives of the research
The aim of the research study is to explore the effectiveness of the accounting operations
and department in building an efficient and attractive loyalty programs for the customers of
Coles for retaining the customers and bring benefits to the organization, that is, Coles, Australia.
The objectives of the study:

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 To explore the loyalty programs of Coles and its popularity among the customers
 To evaluate the cost implications of the Coles loyalty programs for the company
 To explore the strategies of the accounting department of Coles in designing an efficient
loyalty program that would benefit both the customers and the organization
 To recommend ways to Coles improve the efficiency of the loyalty programs through an
efficient accounting department
Research design (Methodology)
Research methodology refers to the strategies and actions undertaken by the researcher to
address the research questions in the most logical and unambiguous manner (Kumar, 2019). In
other words, research methodology includes the steps and strategies that are taken to identify,
collect and analyze the information required to address the research objectives. It consists of
research paradigm, research purpose, approach, design, data collection and analysis process,
sample and sampling techniques. These are explained below.
Research paradigm
This refers to the set of assumptions or beliefs regarding the data collection and analysis
process based on the nature of the research and sources of the information (Antwi and Hamza,
2015). The most commonly used research paradigms are positivism, realism, interpretivism and
pragmatism. As stated by Hughes and Sharrock (2016), positivism allows the researcher to
collect numerical data and apply quantitative analysis methods and this leads to the most
scientific method study and findings. On the other hand, realism allows the researcher to apply
either qualitative or quantitative method of study to evaluate the perspective realities of the
research topic. Interpretivism allows the researcher to apply the interpretation skills to analyze