There has been a revolution during the last three decades in the Retail Industry, especially in India. Customer Relationship programs have been taken as the strategy to attract customer for repeat purchase as well to up-sell and cross-sell to the existing customers at lower cost than attracting the new ones. Working with customer care the company hopes to create satisfied and loyal customers. Under the loyalty program companies are offering different kind of benefits to the customer. Gift cards, frequent purchase program, point program, rewards, offers, Schemes, value added services etc are lucrative content of loyalty programs.
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Impact of loyalty programs in retailing business in India for creating long term relationships
1. 2013-14
Symbiosis Institute of Business Management, Pune
Lovekshitij Suryavanshi
Bharat Manuja
Lalit Sharma
PGDMM
Customer Relationship Management
Impact of loyalty programs in
retailing business in India for
creating long term relationships
2. 2
SYMBIOSIS INSTITUTE OF BUSINESS MANAGEMENT
Pune 412115 (M.S.)
CERTIFICATE
This is to certify that project entitled
“Impact of loyalty programs in retailing business in India for
creating long term relationships”
SUBMITTED BY
Mr. LOVEKSHITIJ C. SURYAVANSHI
Mr. LALIT SHARMA
Mr. BHARAT MANUJA
PGDMM PROGRAM 2013-2014
In partial fulfillment of the conditions for the award of
POST GRADUATE DIPLOMA IN MARKETING MANAGEMENT from
“SYMBIOSIS INTERNATIONAL UNIVERSITY”
Has been prepared under my supervision and guidance it is also certified that:-
1) The candidate has satisfactorily conducted this research for not less than one
academic semester.
2) The project is of satisfactorily high standard to warrant its presentation for
examination
Guide Director
Dr. Mallika Srivastava SIBM, Pune
SIBM, Pune
3. 3
“Impact of loyalty programs in retailing business in India for
creating long term relationships”
A Project Submitted By
LOVEKSHITIJ C. SURYAVANSHI
LALIT SHARMA
BHARAT MANUJA
PGDMM PROGRAM 2013-2014
Under The Guidance Of
Dr. MALLIKA SRIVASTAVA
TO
“SYMBIOSIS INTERNATIONAL UNIVERSITY”
In Partial Fulfillment of the Requirements
For the Award
POST GRADUATE DIPLOMA IN MARKETING MANAGEMENT
SYMBIOSIS INSTITUTE OF BUSINESS MANAGEMENT
2013-2014
4. 4
DECLARATION
I Lovekshitij C. Suryavanshi, Lalit Sharma, Bharat Manuja
hereby declare that the project entitled,
“Impact of loyalty programs in retailing business in India for
creating long term relationships”
Is the result of our own research work and that the same has not
been previous submitted to any examination.
Date : 5th
April 2014
Place: Pune LALIT SHARMA
BHARAT MANUJA
LOVEKSHITIJ C. SURYAVANSHI
PGDMM. 2013-2014
SIBM, PUNE
5. 5
ACKNOWLEDGEMENT
It is our sincere, humble and deepest sense of gratitude towards our guide
Dr. Mallika Srivastava whose valuable encouragement and practicable
suggestions it was his direction and encouragement at every moment and step
that motivated me to steer the research work confidential and successfully.
Her encouragement has been a source of inspiration to us; it is great pleasure
that she spent her precious time providing continuous ideas and expert guidance
throughout the course of this research
We are also thankful to all the faculty members for valuable suggestion
which help us a lot.
We are also thankful to our parents and all our friends who helped us a lot
during the project work.
Place: - Pune
Date: - 5th
April 2014 LALIT SHARMA
BHARAT MANUJA
LOVEKSHITIJ C. SURYAVANSHI
PGDMM 2013-2014
6. 6
INDEX
1. Abstract……………………………………………………………7
2. Introduction………………...……………………………………...8
3. Loyalty in Retail Industry……...………………………………...10
4. Objective……………………………………………………...….11
5. Need of Study……………………………………………………12
6. Review of Literature…………………………………………….14
7. Types of Loyalty …………………………………………….…..15
8. Types of Loyalty Program….……………………………………17
9. Benefits of Loyalty Program…………………......................……19
10.Impact of Loyalty Program…………………………...…………23
11.Factors which influence loyalty………………..................……..28
12. Conclusion……………………………………….……………..29
13. Bibliography……………………………………………………...…………………..30
7. 7
ABSTRACT
There has been a revolution during the last three decades in the Retail
Industry, especially in India. The retail market has changed from a product-
oriented industry to a more market-oriented to the service and experience
oriented, with the customer as the core of their operations. This customer
centricity has been the outcome of the hyper competition in the retail markets,
and every retailer is doing their best to woo the customers from other retailers.
This phenomenon has resulted in the maximization of the customer focus and the
path towards bringing in the customer delight, just not the satisfaction. Customer
Relationship programs have been taken as the strategy to attract customer for
repeat purchase as well to up-sell and cross-sell to the existing customers at lower
cost than attracting the new ones. Hence companies started to work its customer
loyalty programs to keep customers for long time while making profit through
them. Working with customer care the company hopes to create satisfied and
loyal customers. One of the most popular ways of working with customer care in
the retail business is customer loyalty program. The popularity of this is based on
the beliefs that loyal customers are lucrative and these programs would bond
customers to the company. Under the loyalty program companies are offering
different kind of benefits to the customer. Gift cards, frequent purchase program,
point program, rewards, offers, Schemes, value added services etc are lucrative
content of loyalty programs. The study is intended to examine how four well
established companies in the retail business in India do business with a customer
loyalty program concentrating on long-term relationship and improvement in
sales. A customer survey has been conducted to analyze customer loyalty
programs.
8. 8
INTRODUCTION:
Loyalty programs are widely used in building relationships with
customers. The dynamic competition in business today has provoked
the companies to implement the loyalty programs with the only
intention of building long term relations with the customers. Good
relationship with the customers is extremely important for an
organization in sustaining and winning in the market. Loyalty programs
are implemented in every industry like banking, retailing, travel,
services etc. and are recognized with an accumulation scheme to
receive an incentive over a long period. The relationship with the brand
and the customer grows and develops with the loyalty programs.
Factors Influencing Loyalty in Retail Industry:
a. Satisfaction which originates from a previous purchase experience
with a retail outlet works as a motivating factor for the customer to
visit the store again resulting in repeat purchase and cross selling
b. When a customer becomes a part of any loyalty program, switching
barriers are formed, such that if he leaves, he has to lose on any
accumulated points on the prior purchases made by him. This stops the
customer from switching over.
c. Interpersonal relationships are developed when the customer visits
the store frequently for shopping of groceries. These frequent visits
help to strengthen loyalty and helps in increasing the switching barrier.
d. If the customer has alternatives in context to the location of the
store, the customer tends to get attracted to the store which is closer
and convenient, which may be a barrier to loyalty.
9. 9
Customer Loyalty
Customer loyalty is recognized as a means to profitability and
long-term sustainability. According to Reichheld & Schefter, even if it is
important for a business enterprise to attract a large customer base,
that customer base does not assure long term profitability till the
business enterprise earns loyalty. While agreeing to this viewpoint
Kandampully argued that the capability of an organization to create,
maintain and increase a large and loyal customer base is important to
attain and sustain a winning place in the marketplace. This is an
indication that the loyalty of customers gives an advantage over the
competitors in any business sector. However Shanker views loyalty
purely as an attitude, whereas Hofmeyr & Rice considers loyalty to be
“the behavioral propensity to buy a brand repeatedly”.
10. 10
LOYALTY IN RETAIL INDUSTRY
The organized retail in India is booming since 1991 with national
and international players. The Head of Future Group Mr. Kishore Biyani
states that to retain customers in retail the quality of services is the
only key. The amount spent by a repeat customer is much more than
the first time customers. Therefore these repeat customers must be
encouraged to come back. Getting the customers back is the only
purpose of the loyalty card programs. The loyalty programs offered by
different retailers to pursue the customers are:
a. Lifestyle offers ‘The Inner Circle’
b. Pantaloons offers ‘Green Card Reward program’
c. Westside offers ‘Club West’
d. Shoppers’ Stop offers ‘First Citizen’
According to the FMI study US food retailers attribute 10 to 20
percent increase in sales to the loyalty programs. Tesco, the largest
super market chain in UK attributes one third of its 6 percent volume
increase in sales over six months to its newly launched Club Card.
11. 11
OBJECTIVE
To study Impact of loyalty programs in retailing business in India for
creating long term relationships.
To check the significant relationship between the loyalty card
programs and its benefits and long term relationship of the customer
with the organization.
12. 12
Need for the study
Customer loyalty programs have been in active existence since
1980s. However, not many attempts were made in the past to
objectively measure benefits from such programs with respect to the
loyalty program members. Mimouni- Chaabane and Volle attempted to
address this void by developing an instrument that measures perceived
benefits from customer loyalty programs. The researchers explain the
scale to measure perceived benefits from customer loyalty programs as
“a scale that measures the main benefits customers perceive when they
participate in loyalty programs” (Mimouni-Chaabane and Volle). The
instrument is a sixteen item scale that measures five types of perceived
benefits namely, monetary savings, exploration, entertainment,
recognition and social benefits from customer loyalty programs.
In India too, loyalty programs are gaining popularity and
marketers are giving them the importance they deserve. The Indian
loyalty market is presently valued at around Rs 5000 crores (US$ 1.1
billion) (Nair, 2009) and is set to grow even further. Though there is
availability of voluminous literature on customer loyalty, studies that
focus on customer loyalty programs in the Indian context have been
limited. Rao and Jain (2009) had studied loyalty programs of retail
chains in Delhi to find the level of satisfaction of loyalty card holders
where they concluded that customers at present are moderately
satisfied with the cards and the privileges.
Given this context, it is imperative that in India the efficiency and
impact of customer loyalty programs need to be investigated. India is
culturally and economically different from the US and the developed
western European countries. It is most likely that something like loyalty
program membership would be considered luxury in the Indian context.
Therefore, intuitively the perceived benefits derived by Indians from a
loyalty program might not be exactly the same for that of the French
13. 13
members. Therefore, the researchers thought that it would be a worthy
attempt to assess how Indian customers perceive the benefits of these
programs. This will immensely contribute to the extant body of
knowledge in this emerging field and will help the loyalty business as a
whole by better understanding the market.
14. 14
REVIEW OF LITERATURE
To improve profitability, customer Loyalty can be gained by
putting in efforts to build a long-term relationship between the supplier
and individual customer. To attain customer loyalty the supplier must
understand the customers’ needs, spending habits, what does the
customer buy or does not buy, so as to have meaningful
communication with the customers. According to Czepiel’s customer
loyalty “is a notion to describe the end result of a relationship between
the organization and the customer”. In order to gain loyalty, the
organization can provide incentives that will increase the value for the
customers and in that manner create buying fidelity among them.
Butscher states that some clubs are assigned to establish
emotional relationships, while others, build long and profitable
relationships without dimensional requirements. Dickand Basu,
provided a notable insight into loyalty by citing loyalty as “the strength
between relative attitude and repeat patronage”. Scholars propose
loyalty as an emotional concept, Jenkinson refuses defining loyalty in
behavioral terms and explains loyalty as “the reflection of a customer’s
subconscious emotional and psychological need to find a constant
source of value, satisfaction and identity”. This supports loyalty as an
emotional concept created by trust. Humby and Hunt also remark that
“loyalty is an emotional response based on empathy”.
15. 15
Types of Customer Loyalty
To make customers permanent customers loyalty programs play
an important role. A huge range of various kinds of loyalty programs
are usually used and these are dependent on the kind of business the
company is in. Loyalty programs are divide into two main categories
most of the times i.e. one is offer increased value and the other is
discounts, rebates, special offers and bonuses. However in either case
the objective of the company is to retain the customer using different
methods.
Customer Satisfaction: According to Bloemer customer satisfaction is be
defined as a result of a subjective valuation whether consumption fulfill
or exceed expectations. It is assumed in this definition that satisfaction
is a condition that happens when expectation is matched to the actual
result. Bloemer & Ramprasad state that customer satisfaction is a key
issue for all organizations in all sectors.
Customer Loyalty: To tackle the increasing competition the retailers
focus on customer loyalty programs. They play a major role to prevent
the customers from switching over to competitors. The drivers of
retention are Relative attitude and behavior relationship. According to
Czepiel’s customer loyalty “is a notion to describe the end result of a
relationship between the organization and the customer”. Therefore
the organization must provide benefits which delight the customer to
gain loyalty of customers.
Customer Retention: While commenting on the complexity of customer
loyalty Gustavfsson pointed out three major drivers of retention
namely overall customer satisfaction, affective commitment, and
calculative commitment. Customer satisfaction is the result of
perception and experience of the customer with the organization.
Affective commitment is the tendency of the customer to stay with the
16. 16
organization based on emotional attachment which develops through
repeated usage of products and services of the organization which in
turn results in trust. Calculative commitment holds a logical outlook
and is based on economic dependence of a product due to lack of
choice or switching cost which creates loyalty.
17. 17
Types of Loyalty Program
1. Rewards: Award points for purchases. Points can be exchanged for
rewards. This type of loyalty program is used when a company wants to
capture new consumers and differentiate the brand from the
competitors.
Examples: Titan as titan users accumulates points of their purchase and
can exchange it for a discount or for a gift like Rs. 25 is equal to the 1
point. American Express card users accumulate points they can then
use for gifts, travel, or transfer to an airline Frequent Flyer program.
2. Rebate: Award a gift coupon redeemable for the next purchase,
whenever the consumer reaches a certain spending or shopping level.
When companies have a wide range of products then this reward
program can be used to motivate new incremental purchases.
3. Appreciation: Offer a rebate, not the cash then the result will be
incremental visits and sales. In this type, consumers are offered with
the appreciation reward of the same company. Airlines, hotels, phone
companies use this to accumulate points for additional services within
their own brand like Seat upgrades, free tickets, hotel stays at different
locations, etc.
4. Partnership: Reward the consumer’s accumulated purchases with a
partner’s products or services.
Example: Tata’s Westside, as they offer a discount if consumers make
payment above Rs. 2500 with ICICI debit card.
18. 18
5. Affinity: An affinity program offers special communications, value
added benefits and bonuses and recognition as a valued consumer. This
is used where rewards are no longer needed to cultivate a long term
relationship, just as a reminder to learn more about companies’ other
products and services.
Examples: Bank’s Debit cards, gold and silver debit cards.
Fig: Stimulus-Response Model of Buyer Behaviour
19. 19
Benefits of Loyalty Program
Retain your existing customers
The effect of the customer retention rate on actual, bottom-
line customer numbers cannot be over-estimated.
Acquire new customers
A loyalty program should attract new customers to the
business; how effectively will depend on how exciting and how
valuable the rewards seem to be to the target audience. Acquiring
customers is essential to any business, but it can be expensive if
compared to nurturing existing good customers.
Move customers up-segment
By grading rewards (for example, offering extra points for
exceeding a specified spend threshold in a time period),
customers can be moved up from one spend level to the next.
Deselect unprofitable customers
It can be more profitable to lose bad customers than to gain
new ones. Cherry pickers (who buy only your discounted lines and
nothing else) cost you money, as does any low-spending
customer. They cost more money to service than they generate.
Designing a loyalty program that rewards better customers
without rewarding this segment at all gives them less reason to
stay.
20. 20
Recover defected customers
The success rate in approaching “lost” customers can be
three to four times as high as it is when prospecting for new
customers.
Increase Customer Lifetime Value (CLV)
Customer Lifetime Value is increasingly being recognized as
one of the most important measures of the worth of a customer.
It takes into account not only the customer’s value now but the
expected value over their projected lifetime as a customer. It is
arguably the best way a marketer can demonstrate unequivocally
that a programme is working: the CLV of targeted customers will
rise.
Best customer marketing (BCM)
Best customer marketing involves spending more time,
effort, and money on the best customers in order to maximize the
return on investment. The strategy has been honed to a fine art
by marketers such as Brian Woolf and Hawkins Strategic. Not
surprisingly, the principles of best customer marketing are the
driving force behind the leading loyalty program in the world
today.
Build relationships with customers
Building customer relationships is crucially important but
not always as straightforward as it might seem. It has been said
that relationship marketing is powerful in theory but troubled in
21. 21
practice – an unpalatable concept but probably one with which
many marketers could identify.
Create advocates for business
Advocacy is one of the highest forms of loyalty that a
customer can show. Advocates are so satisfied and pleased with
your offering that they tell their friends and associates. And to
most people, a personal recommendation is far more convincing
than any amount of promotional material.
Adjust pricing levels
A loyalty program can help formulate pricing structure. If
enough best customers are happy to buy a product at a particular
price there seems little point in reducing that price simply to
attract cherry-pickers. The effect of changing prices can also be
studied – for example, which customer segments buy significantly
more or less.
Select stock lines effectively
Knowing what your best customers buy frequently helps
choose which lines to stock and which lines to expand on.
Plan merchandising optimally
Basket analysis can identify what lines are bought at the
same time, particularly by best customers, and planograms can be
planned accordingly to encourage cross-purchasing.
22. 22
Reduce promotional and advertising costs
Because advertising can be targeted instead of untargeted,
significant savings can be made. There is no need to send out
thousands of flyers that will be thrown away unread, or take
pages of newspaper space that is irrelevant to many of the
readers. And targeted advertising works measurably.
23. 23
Impact of Loyalty Programmes
1. Shoppers Stop First Citizen Loyalty programme grows to 2.5 million
customers
[It is the biggest and most successful Loyalty programme in this
category]
In 2012 The First Citizen Loyalty Programme of Shoppers Stop has
crossed a milestone of 2.5 million members. With a growing base of
over 2.5 million members contributing over 72% to sales annually,
Shoppers Stop First Citizen loyalty programme is the biggest and most
successful programme in this category.
24. 24
Under this programme, customers who sign up for the First
Citizen membership with Shoppers Stop are treated to various offers
and special privileges such as the exclusive First Citizen lounge at every
store, facility to redeem their reward points directly at the cash
counter, exclusive cash counters for Golden Glow members, exclusive
preview of Sale and other annual offers to name a few.
“The First Citizen Loyalty Programme which has more than 2.5
million members who contribute over 72% to turnover. Clearly, this
denotes a base of thoroughly engaged, loyal and serious shoppers.
Shoppers Stop First Citizen members are entitled to various special
privileges. Shoppers Stop have introduced numerous innovative
benefits exclusively for First Citizens such as Choose Your Sale Date (an
exclusive
one-day sale for the customer). Choose Your Own Gift, etc. Shoppers
Stop have launched a First Citizen mobile app as well.
2. Pantaloons Payback Green card program
Pantaloons Green card program is an exclusive loyalty card of the
department store format of Pantaloon retail India Ltd. It provides
membership plus has a provision of 12-months purchase based
upgrading system. This is a 4-tier loyalty program, where tier 1
customers get 1 star status, tier 2 gets 3 star status, tier 3 gets 5 star
status and the topmost tier members get an exclusive 7 star status.
Getting a green card issued is quite easy but for retaining one star
status, one has to make a purchase of Rs 8,000 within two years of card
issue date. 1 Star status can be upgraded to a 3 star, 5star and 7 star
status by shopping for Rs. 8000, Rs. 20,000 and Rs. 40,000 respectively
immediately preceding 12 months of current shopping date.
25. 25
All are entitled to a range of benefits and privileges depending upon
their member status.
1 star members gets a gift voucher of Rs. 200 on new enrolment, while
3star, 5star, and 7star members get a discount of 5%, 7.5% and 10%
respectively. All members get special privilege of End of season Sale
preview, special billing counter during End of Season sale, special
service desk for handling all queries and providing information, free car
parking (except 1 star members), exclusive shopping offers sent to
members on a regular basis through SMSes, e-mail, telephones and
exchange of products within 60 days of purchase (90 days for seven star
members). 5 star and 7 star members get an exclusive privilege of free
car parking and free home delivery of purchases around the year.
As per Pantaloons Dec 2011 report s Green Card loyalty programme of
Pantaloons accounts for 55% of sales.
26. 26
3. Westside’s ‘Club West’
ClubWest is an exclusive loyalty program of Tata group’s
department store chain. This is a two-tier program - Clubwest Classic
and Clubwest Gold. A purchase of Rs 2000 and Rs 5000 on the same
day entitles a customer to a complimentary membership into
Clubwest Classic and ClubWest Gold respectively. Alternately, one
can enroll into Clubwest Classic by paying a nominal one-time fee of
Rs 150.
Members can earn reward points on every purchase - Classic
members can earn one point for every Rs 100 spent and Gold
members can earn one point for every Rs 80 spent at any of the
stores.
27. 27
Apart from this, all members are entitled to a range of benefits
like dedicated customer help desk for a member's assistance at each
of the stores, Exclusive shopping hours only for members during
sales, Advance intimation of all in-store promotions and special
offers through direct mailers, and a special discount on dining at
select restaurants round the year.
Tata group’s Westside retail chain currently generates over 50%
sales from its over eight lakh members of ClubWest loyalty program.
28. 28
Factors Which Influence Loyalty
Satisfaction that a consumer feels from prior purchase experience
with a retail outlet motivating a consumer to come to the store
again.
Switching barriers gets created when once a consumer becomes a
part of loyalty program and if leaves it then all the accumulated
points get lost.
An interpersonal relationship is developed with the employees
working in the particular store when a consumer visits the retail
store frequently which helps in strengthening loyalty.
Attractiveness of alternatives, it happens when there is opening of
a new outlet closer to the consumer then consumer get attracted
to that store and he will look at the benefits of loyalty programs
of both the alternatives then only he will decide he should stay
loyal or switch.
29. 29
Conclusion
Loyalty programs impact the consumer purchase behavior in
positive manner as it influences the consumers to make repeated
purchases as consumers find the different benefits i.e. direct and
indirect or immediate. Loyalty programs helps in increasing
customer retention which significantly improves a company’s
profitability and thus means the positive impact of loyalty
programs. Consumers show committed behavior towards loyalty
programs due to different types of benefits perceived by them.
Rewards which are economic, psychological and sociological in
nature lead to greater trust, commitment and development of
long term relations.
Loyalty Programs create an emotional bond leading to high
& irreversible switching costs. Loyalty Programs impact customer
loyalty differently in case of high involvement and low
involvement purchases. Different consumer shows different
behavior towards the same loyalty program scheme due their
psychological, demographical and emotional factors. The price
promotion also generated excess loyalty but less than the loyalty
program and the price promotion generated a greater, but
temporary, market share gain.
30. 30
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types.aspx
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