chap 123 main

7/31/2019 Chap 123 Main

1/44

1

INTRODUCTION

Consumers are nowadays likely to be confronted with loyalty programs. Many retail

companies offer loyalty cards to their customers. Customers can use these loyalty cards to

obtain discounts, to save for rewards, to participate in lotteries, etc. It has been noted that

companies can increase their profits by almost 100 per cent by increasing their customer

retention rate by just 5 per cent (Reichheld and Sasser, 2007). A second frequently cited

reason for their development is the opportunity they provide for understanding more about

consumers' behaviour at an individual rather than an aggregate level.

Loyalty programs have appeared in India since its inception by Shoppers stop. They have

proved very successful here, because of a strong need for recognition characterizing the

Indian population. Outside retailing, loyalty programs have appeared among airlines

(frequent flyer programs), for financial products, car rentals, online stores etc.

However, questions have been raised about the effectiveness of such programmes for

creating a sustainable competitive advantage. Experts argue that the most effective method of

building market share is through increasing penetration, and that loyalty is a by-product of

having a large market share. Mere repetitious purchase behaviour does not necessarily imply

any underlying and stable loyalty to a brand. Although, loyalty cards have infiltrated

customers wallet, it is not evident whether loyalty program memberships actually affect

purchase behavior.

Loyalty programs are everywhere in business. Customers interact with them multiple times

almost every day whether shopping at a grocery store, buying a cup of coffee, flying on an

airline, staying at a hotel, or paying a cell phone bill. In other words, companies have become

convin ced that it is possible to buy customers loyalty.

Academically, it is relevant to investigate how loyalty programs relate to strategy of customer

relationship management, and what they add to existing marketing mix instruments. Several

research questions can be raised in this respect- Do loyalty programs really work, or are these

companies just wasting their money? Are loyalty programs effective in making customers

loyal? Can a loyalty program change how people behave and get them to spend more money

7/31/2019 Chap 123 Main

2/44

2

with that company? Can loyalty programs reduce the likelihood that customers will move

their business to a competitor?

This report attempts to answer these questions and takes a detailed look at the current

environment for loyalty programs and the strategies businesses are using in implementing

these programs. In addition, the paper presents an insight about how a loyalty card

membership affects the buying behavior of customers.

Before examining how loyalty programs work, it is important to define and understand a few

important terminologies in the context of business development and retention.

Customer Relationship Management

Customer relationship management (CRM) is the strategy that aims to achieve a continuing

dialogue with customers, across all their contact and access points, with personalized

treatment of the most valuable customers, to increase customer retention and the

effectiveness of marketing initiatives. The base for CRM lies in the insight that the long-term

value of a company is determined by the value of its customer relationships.

It has initiated a shift from a transaction- oriented towards a relationship-oriented marketing

approach. Relationship marketing contains establishing, developing, and maintaining

successful relational exchanges. The move in strategic focus from transactions to

relationships implies that the central focus is not on products or brands, but on customers.

Loyalty

Creating loyalty is at the heart of customer relationship management, based on the notion

that it is less expensive to retain customers than to acquire new ones. Loyalty can be defined

as a deeply held commitment to re-patronize consistently in the future, causing repetitive

purchase behavior despite possible situational influences and marketing efforts having the

potential to cause switching behavior (Oliver 1999).

Thus, Loyalty gives something of a guarantee of future earnings. Behaviorally, loyalty is

characterized by high retention rates and cross-buying in several categories. Behavioral

loyalty is the driver of customer profits, but customers are said to be only truly loyal if they

are also attitudinal loyal. Attitudinal loyalty can be defined as a strong relative attitude

7/31/2019 Chap 123 Main

3/44

3

towards the brand, which can be created through satisfaction, trust, perceived relationship

quality, and commitment. Typically, loyal customers are willing to pay higher prices, are less

expensive to serve, and they spread positive word-of- mouth (Reichheld 1996).

Relational Marketing Instruments

Relational marketing instruments are structured marketing efforts that specifically support

customer relationships. Rather than directly stimulating sales, they focus on the maintenance

and development of customers. Key to these instruments is that they are targeted towards

existing customers or even only towards specific customer groups for which a company

perceives relational investments fruitful.

The core goal of relational marketing instruments is to increase future earnings by

stimulating customers' perceived future value of the company's offerings. This could be done

either by giving explicit economic loyalty incentives or by enhancing commitment, trust or

perceived relationship quality.

Categorization

In order to categorize relational marketing instruments, existing research has considered the

degree of relational value the instrument can offer. Berry (1995) distinguishes between three

levels of relationship marketing: price incentives, social aspects and solutions to customer

problems. For mass markets, only price and social incentives are relevant, and as such a

distinction can be made between economic (or price) and social instruments.

In this dissertation, we will focus on the specific relational marketing instrument of our

interest: Loyalty programs .

A loyalty program is a very generic relational instrument, under which several marketing

actions can be done. In fact, other relational instruments such a preferential treatment, direct

mails, or targeted promotions often function as components of a loyalty program. Loyalty

programs specifically aim to enhance customer loyalty, which we identified as a central

driver of competitive advantage for customer-oriented organizations. Loyalty programs in its

current form are relatively new, but have become widespread in many consumer markets

during the past decades.

7/31/2019 Chap 123 Main

4/44

4

Loyalty Programs

A loyalty program is an integrated system of marketing actions that aims to make member

customers more profitable by enhancing their loyalty.

A loyalty program contains the following critical elements:

Customers must become members of the loyalty program in order to make use of the

marketing actions offered through it.

A loyalty program has an infinite or at least long-term duration.

A loyalty program rewards program members for certain behavior in a structural way

and gives incentives to customers to show this behavior.

A loyalty program is an entity under which several marketing actions can be pursued

(e.g. targeted discounts, special shopping days for members, mailings, saving

programs etc.).

Nowadays, most loyalty programs register customers that have subscribed as loyalty

program members, and ask for identification at transactions e.g. with loyalty cards. This

enables the company to track their members' purchase behavior, to differentiate between

member and non-members, and to provide individual member customers with special

treatment.

Current Loyalty program Trends

The first mileage-based loyalty program was launched by American Airlines more than 23

years ago (May 1981). Today, loyalty programs are ubiquitous. There are more than one

billion people worldwide enrolled in loyalty programs, and in some industries such as airlines

and hotels, loyalty programs have become one of the most critical means by which

companies manage their customer relationships.

More than 125 million people worldwide are enrolled in airline loyalty programs.

About 76 percent of all U.S. grocery retailers with 50 or more stores have a loyalty

program.

7/31/2019 Chap 123 Main

5/44

5

In the United States, almost 80% of all households have at least one supermarket

loyalty card, and in Canada this is even 90% (ACNielsen, Consumer Insight, 2010).

In United Kingdom, 96% of their population is currently a member of a reward

scheme and 64% belong to three or more loyalty schemes. (The Wise Marketer,2011)

Shoppers Stops First Citizen Club has reached a headcount of 644,500 and still has a

strong hold over its loyal shoppers. It has given 80 per cent boost to their sales.

Pantaloons Green Card program accounts for 55 per cent sales, the Future Group

expects their loyalty program to generate around 70 per cent sales from their lifestyle

formats.

Loyalty programs are considered to be one of the most effective relationship marketing tool

across the industry. Loyalty programs are offered not only by the MBOs but it is also offered

by saloons, casinos, hypermarkets etc. MBOs (multi brand outlets) like Shoppers stop,

Lifestyle, Pantaloons, Vishal Megamart, Reliance Trends, Fashion Bazar, Globus, Ritu

Wears, Westside, India Bulls Mega Store (Pyramids) in India have active loyalty programs

in our research category (apparel industry). Let us look at the benefits given by current

loyalty programs:

7/31/2019 Chap 123 Main

6/44

6

Source: www.shoppersstop.com/archives

The main benefits that retailers are focusing today are discounts on the basis of accumulated

points, the points are offered on the basis of the net shopping credited in their card at the end

of a pre decided period. The discounts are not offered directly except for few occasions. This

implies that they are offering deferred benefits.

7/31/2019 Chap 123 Main

7/44

7

REVIEW OF LITERATURE

Sinha, Piyush K. and Vyas, Preeta H. (2008) explain how the marketers need to design the

loyalty program structure .In order to study practices of loyalty card programs 7 retailers namely

were studied by contacting the store managers in Ahmedabad market. The findings of the study

was as follows-

In order to make loyalty programmes effective, managers need to design rewards in such a way

that it provides emotionally engaging experience during redemption process. The success of a

loyalty programme will depend on improving the perceived value of the rewards offered.

Possibility of obtaining a reward should not be so remote that a consumer loses interest in the

programme. Perceptions of reasonableness and fairness should prevail.

Card holders indicated that they were buying 25-50% of their apparels from their chosen stores

which exhibit good scope for the outlets to encourage them to spend more. Further they put forth

the factors which influence/shape loyalty are: satisfaction emanating from prior purchase

experience with a retail outlet motivating a consumer to come to the store again; switching

barriers , once a consumer signs a loyalty program, if he leaves it, he loses the point

accumulated on previous purchases made. Thus once a consumer becomes a member of any

loyalty program, switching barriers get created; interpersonal relationships , particularly in thecontext of a retail store, floor persons, billing persons in charge and customers interact. If a

customer frequently visits the store, interpersonal relationships develop as shopping of groceries

requires frequent visits to the store. This also helps in strengthening loyalty & creating a

switching barrier; attractiveness of alternatives , in the context of retail store if there is any new

outlet which is closer than the current store; proximity enhances the attractiveness of it & may

create a barrier to loyalty. If a retail store comes out with a very special promotion then also

temporarily it may become very attractive to a potential customer & hence may trigger a drift on

that purchase occasion. If the customer has signed in a particular loyalty programme then he

would weigh alternatives & accordingly decide to stay loyal or drift.

7/31/2019 Chap 123 Main

8/44

8

Dr. Vyas, Preeta H and Sahoo, Debajani (2007) stated that the company has to give the

customer a reason for him to believe that their firm deserves his loyalty. There is need to monitor

customers behavior. Each rupee appropriately invested in nurturing customer loyalty will pay

substantial rewards in the future, but managers require that this view be proven with factual

results.

The reward offered has different purposes in different programmes; it could be aimed at

customer acquisition, at customer retention, at shaping the profile of the customer base to buy

information from customers in order to build a marketing database. The actual rewards used vary

widely, from different ways of giving discounts, through gifts and prizes to exceptional levels of

service. And, of course, rewards can be redeemed either in-house or elsewhere. Both methods

have their pros and cons. But whatever the reward, it must be something which the customerfeels is worth collecting for. If customers are not happy with the way in which a company is

treating them, no level of reward will make them stay.

This study reinforces the need for a dynamic perspective. As the customers experience with a

particular offering grows over time, attitudes toward brands and relationships become stronger,

more top of mind or accessible, persis tent, resistant to change, and likely to guide intentions

and subsequent behavior.

Jorna, Leenheer, Heerde, Harald J. van, Tammo, H.A. Bijmolt and Smidts, Ale (2009)

studied whether loyalty program members become more loyal due to their memberships.

Customers do not become loyalty program members randomly. Rather, a customer becomes a

member of the loyalty program if the expected benefits are higher than the expected costs, a

choice that is partly driven by the attraction of the store itself. This research measures the impact

of loyalty programs on customer loyalty and applies the authors model to data from a

representative sample of 1909 households who report their loyalty program memberships in

Dutch grocery retailing as well as their expenditures at each of the 20 major supermarket chains.

The findings suggest that the design elements of the program do affect the decision to enroll in a

program, but they do not impact the effectiveness of loyalty programs once consumers are

enrolled.

7/31/2019 Chap 123 Main

9/44

9

Customers do not become loyalty program members randomly. Rather, a customer becomes a

member of the loyalty program if the expected benefits are higher than the expected costs, a

choice that is partly driven by the attraction of the store itself. Because loyal customers derive

the highest benefits from a loyalty program, those customers who are already loyal are most

likely to participate.

The central driver in this study is loyalty program membership. Loyalty programs enhance

customer loyalty through several economic, psychological and sociological mechanisms. From

an economic perspective, loyalty programs provide members with value in the form of rewards .

A second economic driver consists of switching costs , because loyalty program members lose

value if they stop purchasing from the company. The value lost consists of saving points or a

purchasing track record that ensures privileges. Because of switching costs, a loyalty programcreates a certain degree of calculative commitment or stickiness in customers relation with the

company. The customers aim to maximize discounts and saving points, whereas it would be

rational to assess the utility of the final products and rewards minus the disutility of their costs.

Loyalty programs can also have sociological effects. The need to belong to groups is a

fundamental human motivation, and identification with commercial organizations is intensifying

due to the growing centrality of consumption and materialistic desires in society. Customers who

become embers of the loyalty program are likely to identify more strongly with the company,because the membership relates them to a group of privileged customers. Hence, loyalty

programs can create affective commitment, a generalized sense of positive regard for, and

attachment to, the organization. In this way, loyalty programs not only buy, but also earn,

customer loyalty.

Melnyk, Valentina (2005) suggested, based on a sample of 5341 consumers and their responses

to 22 loyalty programs that, loyalty programs can enhance customer retention. Some part of this

increase in customer loyalty would sustain even if a loyalty program stops. However, contrary to

common marketing practice, it was found that utilitarian elements of loyalty program designs fail

to stimulate customer loyalty. In particular, discounts have marginally significant negative

effects on customer retention, while the effect of saving points is insignificant. In contrast to

7/31/2019 Chap 123 Main

10/44

10

utilitarian elements of loyalty program design, non-utilitarian design elements are more effective

in creating customer loyalty. Interestingly, it was observed that personalization is not a necessary

element of loyalty program design. Instead, just a simple non-utilitarian diversification between

members and non-members is a powerful tool in creating sustainable customer loyalty that

would last even if loyalty program stops.

The author suggests loyalty implies commitment to a specific option despite any situational

circumstances. And thus, if another company lowers its price, loyal customers still do not switch

there. In fact, it was observed in the study that price is almost irrelevant for loyal customers and

they are actually willing to pay higher price for the same product. Thus, the invulnerability of a

consumer to a potentially better competitive offer is the key difference between loyalty and

habitual buying, also known as inertia . From an economic point of view customer loyalty isirrational, because it implies that people stick to a status quo option despite having an

opportunity to switch to a better one; even when the price difference covers the switching costs.

Such "irrational" loyal behavior may include, for example, increase in the expenditures, knowing

that it would not be rewarded or voluntarily choosing to paying a higher price for the same

product. Therefore, primarily its viewed that customer loyalty as the extent to which customers

go beyond economic rationale in their devotion to a specific firm, e.g., are invulnerable to an at

least as good or even better competitive offer once they have an opportunity to choose.

De Wulf, Kristof, Odekerken-Schrder, Gaby, Hlne de Cannire, Marie and van Oppen,

Claudia (2002) found out the first implication resulting from their study is that consumers

apparently behave rather opportunistically and self-interested when deciding to participate in a

customer loyalty program. Program designers should be well aware of this result, as in order to

maintain a constant utility level, an increased level of outcomes should compensate increased

inputs on behalf of consumers participating in a program.

A second important observation is that consumers do not want to pay in order to be able to

participate in the loyalty program. An underlying reason might be that consumers consider the

loyalty program as a token of appreciation for their patronage to the provider and, as a result, not

something they should pay for.

7/31/2019 Chap 123 Main

11/44

11

In this literature the authors distinguishes between three levels of relationship marketing. A first

level relies on pricing incentives to secure customer loyalty and is often referred to as level one

relationship marketing. A second level of relationship marketing focuses at the social aspects of

a relationship exemplified by regularly communicating with consumers or referring to their name

during an encounter. Thes e socially inspired tactics are usually bundled into what is called level

two relationship marketing. Level three relationship marketing pertains to offering structural

solutions to customer problems. At level three, the solution to the customers prob lem is

designed into the service-delivery system rather than depending upon the relationship-building

skills. Level three relationship marketing goes beyond what is commonly described as a loyalty

program. Loyalty programs are usually based upon level one and/or level two relationship

marketing.

Carpenter, Jason M., Fairhurst, Ann, (2005) examines the effect of utilitarian and hedonic

shopping benefits on customer satisfaction, loyalty, and word of mouth communication in a retail

branded context. A sample of 276 young adult consumers was surveyed using a self-

administered questionnaire. Statistical techniques (confirmatory factor analysis, structural

equation modeling) were used to evaluate the data.

Statistical models indicated support for significant, positive relationships between utilitarian and

hedonic shopping benefits, customer satisfaction, customer loyalty, and word of mouthcommunication. In the increasingly competitive environment faced by today's retailers, the

pursuit of customer loyalty is paramount. In order to be competitive, retailers must identify the

key antecedents to customer loyalty and the relationships between the benefits delivered to the

consumer and important outcomes (e.g. satisfaction, word of mouth communication). The

findings of this study contribute to the development of an organizing framework for such

relationships, which is exceptionally important for retailers.

In the increasingly competitive environment faced by today's retailers, the pursuit of customer

loyalty is paramount. In order to be competitive, retailers must identify the key antecedents to

customer loyalty and the relationships between the benefits delivered to the consumer and

important outcomes (e.g. satisfaction, word of mouth communication). The findings of this study

7/31/2019 Chap 123 Main

12/44

12

contribute to the development of an organizing framework for such relationships, which is

exceptionally important for retailers.

Limitations of this study include the use of a college student sample and confinement to the

specialty apparel retail branded purchasing context. The findings are useful because links

between the delivery of shopping benefits (e.g. hedonic and utilitarian) and important outcome

variables (e.g. customer satisfaction, loyalty, and word of mouth communication) are

demonstrated.

Meyer-Waarden, Lars (2009) considered a two-way relationship. First, such programs may be

attractive only for particular segments of buyers or for all consumers and thus may be adopted

less or more quickly. By identifying those consumers who are attracted first, we can determine if

loyalty schemes attract the heaviest and most loyal customers anyway, which is a general target

of CRM. Second, after purchasers enroll, we recognize that loyalty programs may either change

or not change their behaviors and thereby create loyalty or not.

In contrast, retailing programs employ single-tier, linear devices that treat all shoppers equally

and reward them in proportion to their total expenses, with few other services. The only

difference between retailers offers is the value of the points consumers can earn. Therefore, it

was studied whether such programs actually reward loyalty to the program (program loyalty)rather than loyalty to the store (store loyalty).

The three popular conceptualizations of loyalty have unique implications for loyalty program

effectiveness measures: an attitudinal one, a behavioral conceptualization, and a contingency

approach. He considered mainly the behavioral and contingency approaches (e.g., situation,

promotions, loyalty programs), because most store loyalty schemes reward repeat purchase

behavior, not attitudes.

Loyalty scheme enrollment may be analyzed as the adoption of an innovation, such that the

speed of adoption relates to expected benefits and the level of investment. Early adopters

therefore may distinguish themselves from those who subscribe to the program later in the

diffusion process. In turn, an essential question regarding expected gains and costs arises,

7/31/2019 Chap 123 Main

13/44

13

because buyers who experience different motivations likely do not devote equal efforts to obtain

the rewards. Purchasers weight the value they expect to receive from a program against their

associated expenses and adopt a loyalty program only if they judge the perceived utilities

(e.g., financial advantages, privileges, points, relationship) as more valuable than the associated

costs (e.g., joining expenses, risk of providing personal data to the firm, effort required to collect

points, switching costs). From this perspective, a loyalty scheme, with its long-term, cumulative

rewards, should attract heavy store purchasers first, because they buy enough to expect

immediate and substantial benefits (compared with costs). Resistant consumers who adopt the

card later should display lower levels of purchase, because their expected program utilities are

probably smaller and the associated costs higher. This argument supposes that consumers value

the absolute gain more than the relative one.

Nunes and Drze (2006) suggest that loyalty programs can serve different goals, such as

retaining customers, increasing spending, and gaining customer insights. Therefore, each

program should have its own unique set of success measures depending on its intended goals.

For cross-comparison purposes, however, it is also useful to examine some standard measures.

Prior research has used consumer level outcomes, such as purchase frequency, transaction size,

and share of wallet, as well as firm-level factors, such as store sales and traffic.

Program-related factors include both program design and management. From the design

perspective, a loyalty program needs three key specifications: (1) participation requirements, (2)

point structure, and (3) rewards. Programs also differ in terms of how convenient it is for

consumers to participate. For example, some programs automatically accumulate points, whereas

others require more effort from consumers, such as manual code entry required by My Coke

Rewards.

The effects of participation requirements have not received much empirical examination. Thesecond aspect of a loyalty program, point structure, involves how reward points are issued, what

the point thresholds are for redeeming rewards, and whether a tiered structure is used. Regarding

the issuing of reward points, the authors find that though point threshold stays the same, the way

points are issued over each purchase (ascending points versus same points per purchase) affects

7/31/2019 Chap 123 Main

14/44

14

consumers choices. This suggests that point issuance is not a nuisance to consumers and should

not be determined arbitrarily. Point threshold is another important aspect of point structure, and it

has been tied in to program relevance. If the point threshold for a free reward is too high, it will

be considered unobtainable for the average consumers and thus will be dismissed as irrelevant.

The final aspect of point structure involves tiered structures (e.g., gold and platinum

memberships based on spending levels). Taking this tiered structure into account, the program

tiers create a point pressure effect on purchases by both price-conscious and service-oriented

consumers, whereas the frequency reward itself creates such an effect only for price-conscious

consumers.

The third design element, choice and availability of rewards, has received the most extensive

attention in the study. This design element includes reward value and cost and actual rewardsoffered. It suggests reward ratio, variety of reward redemption options, and aspirational value of

rewards as important considerations. A luxury reward is preferred when effort requirement is

high, whereas a less aspirational necessity reward is preferred when effort requirement is low.

Kim, Shi, and Srinivasan (2001) used game theory to identify the optimal conditions for

offering cash discounts versus free products as rewards. They find that the former is better if

there are few price sensitive heavy buyers, whereas the latter is more effective when the heavy

buyer group is large or not very price sensitive. In addition to program design factors, researchshows the impact of program management on the success of a loyalty program. For example,

from a survey of 180 retailers, the authors conclude that the success of a loyalty program is

affected by the effort spent on capturing and analyzing consumer intelligence derived from the

program. It may be summarized that the success of a loyalty program also depends on

organizational support of the program and the amount of resources dedicated to program

management, but these organizational factors have not been subject to empirical testing.

Kivetz and Simonson (2003) find that it is not the effort required per se but the perceived effort

advantage a consumer has over other consumer that affects his or her likelihood of joining a

program. This perceived effort advantage again can be driven by consumers usage levels.

7/31/2019 Chap 123 Main

15/44

15

However, note that this effort advantage effect may drive program joining decisions but may not

carry over to what consumers do after they have joined a program.

The study has segmented consumers according to their genetic traits or characteristics, such as

socio-demographics, shopping orientation, future orientation, variety seeking, and price

sensitivity. However, few of these factors have received empirical support. This may be

attributed to the over generalized nature of these variables. So far, two factors, future orientation

and price sensitivity, have received some support. Because loyalty programs reward consumers

current behavior at some point in the future, it is not surprising that such programs are found to

be more appealing to consumers who seek heavily discounted future benefits They also find that

treating consumers as dynamically oriented better explains their purchase decisions in the

presence of a loyalty program. The second factor, price sensitivity, has been found to moderateconsumers react ions to program design elements.

Summary

With limited research on loyalty programs, it is still unclear to what extent loyalty programs are

effective and, more important, what induces the success and failure of different programs.

Although some studies have examined the moderating effects of program and consumer

characteristics, existing research tends to put a loyalty program in a vacuum that is void of the

real impact programs such as these have on the purchase behavior and what significance do the

have in consumers future purchase decisions.

7/31/2019 Chap 123 Main

16/44

16

CHAPTER 3

RESEARCH METHODOLOGIES AND

PROCEDURES

7/31/2019 Chap 123 Main

17/44

17

The goal of this study is to improve our understanding of consumer preference toward loyalty

programs. This project also attempts to provide a conceptual overview of loyalty in organized

retail apparel stores and to assess the influence it has on customers purchase behavior.

RESEARCH DESIGN

The function of a research design is to ensure that the evidence obtained enables us to answer the

initial question as unambiguously as possible. Both exploratory and descriptive research will be

used in this study to identify the key issues that affect customers behavior and loyalty, analyze

those key areas and then estimate the percentage of units in a specified population exhibiting

certain similar behavior towards Retail apparel stores. The best approach, prior to writing a

descriptive research, is to conduct a survey or interviews amongst the target audience.

EXPLORATORY RESEARCH

Here, an intensive research from diverse sources such as personal interviews, journals, articles,

books and internet will be conducted to analyze what are the factors which affect the custo mers

loyalty towards retail apparel stores and also the impact of loyalty programs on their purchase

behaviour. Literature review was done thoroughly to know all the factors and their impact on

customers loyalty and purchase behaviour. All these factors will be taken to next level of

exploratory research which will help in restricting and selecting only the important questions and

issues.

DESCRIPTIVE RESEARCH

After selecting a suitable population and drawing a representative sample from this population, a

survey will be conducted with the help of a structured questionnaire for collection of primary

data to find the answers to the questions formed by exploratory research.

DATA COLLECTION

7/31/2019 Chap 123 Main

18/44

18

In collection of primary data Questionnaire Survey (Sample Size 200) will be conducted. On

the basis of the questionnaire survey, the analysis will be done in order to study the consumer

purchase behavior and his loyalty towards retail apparel stores.

In primary data collection process questionnaire will be provided to the respondents for getting

their views on various questions in the questionnaire

Secondary data will be collected from journals, popular magazines of electronics and gadgets,

books, newspaper and internet. The collection of secondary data will help to gain insights into

the persisting trends and the current scenario of the mobile application industry.

The primary and secondary data that is collected will be used for the preparation of report.

INSTRUMENTS USED FOR RESEARCH

Questionnaire will be used as an instrument in gathering and collecting the primary data. The

questionnaire that will be prepared will contain structured questions which will be close ended

and they would appropriately help us obtain the objectives of this study.

CLEAR STATEMENT OF RESEARCH QUESTIONS

Q1. Was store purchase frequency higher for loyalty program members than for non

members? (Effectiveness of loyalty program)

To find out answer to this, store purchase frequency could be studied by taking in to

consideration the frequency of their visit to the shop and the amount of money they spent when

they visit such shops. Then depending upon whether or not he is a loyalty program member we

can conclude if loyalty program members are frequent shoppers at the store or not and also if

they spend more when compared with non members.

7/31/2019 Chap 123 Main

19/44

19

Q2. Is a customers loyalty more towards the store or towards a Loyalty card? (Future

buying intention)

This question would help to dig deeper in knowing the reasons that- what is more important for a

consumer - the loyalty for a store or loyalty card of a store. If a consumer is loyal towards a

particular store but if he is offered a loyalty card of a different store, will he change his shopping

preference or continue being loyal to the same store.

Questions such as - Will you shop in your favorite store even if you dont have loyalty card of

the same and Do you tend to increase your purchase from a particular store even if you dont

have a loyalty card of the same could be asked and responses to the same could be studied so as

to find any significant relationship between the two variables.

Q3. What is the most significant feature for a customer to adopt a loyalty program?

One of the major aims of our study was to find out the most important feature that influences a

customer to become loyalty card program member. Customers response towards f eatures like

discounts, special offers, preferential treatment etc., should be analyzed in order to measure their

relative impact on consumers. We will mainly do this so that we could find out which feature

was most important for the consumers and which feature would appeal to them most while

purchasing a loyalty card.

Q4. What is the impact of loyalty card on consumer purchase behavior? (Impact of loyalty

program)

To find out if loyalty cards have any significant impact on consumer purchase behavior we need

to analyze how a consumer behaves towards various aspects of benefits provided by a loyalty

card such as, whether a consumer buys products if they earn him extra points, or the amount of

money spent is less where he doesnt have a card, If he would change where he shops for the

sake of a loyalty scheme etc.

This would give us a deep insight in to how a customer makes purchases and the things he takes

in to consideration and can alter his purchases decisions.

7/31/2019 Chap 123 Main

20/44

20

RESEARCH HYPOTHESIS

The main objective of this study was to study the impact of loyalty program on the consumer

purchase behavior and thus also to bring out the ways consumers perceive a loyalty program to

be. The study is also conducted to determine the factors which affect consumers purchase

behavior.

The following hypotheses are developed to test the study:

1. H0: Store purchase frequency is not higher for loyalty program members vis-a-vis non

loyalty program members.

H1: Store purchase frequency is not higher for loyalty program members vis-a-vis nonloyalty program members.

2. H0: Loyalty towards the store precedes the loyalty towards loyalty programs.

H1: Loyalty towards the store does not precede the loyalty towards loyalty programs.

3. H0: Discount is the most significant feature consumers look for in a loyalty program.

H1: Discount is not the most significant feature consumers look for in a loyalty program.

4. H0: Loyalty program membership has a significant effect on consumer purchase

behavior.

H1: Loyalty program membership does not have a significant effect on consumer

purchase behavior.

SAMPLE

Sampling frame

A sampling frame is the representation of the elements of the target population. It consists of a

list or set of directions for identifying the target population. The sampling frame for this study

7/31/2019 Chap 123 Main

21/44

21

constitutes owners of loyalty program cards or people who intend to purchase a loyalty

membership and all people who purchase from retail apparel stores. It will also be made sure that

the respondents are well educated.

Sample Size

The sample size of the study will be 200.

CLASSIFICATION OF SURVEY METHODS

Surveys can be divided into two broad categories: the questionnaire and the interview. This study

will be focusing on both the questionnaires as well as personal interviews where each respondent

would be targeted individually at home, in parking lots or in showrooms. Respondents will begiven the choice of putting their viewpoints via mail interview and telephonic interview. These

would be the most important type of methods which would be employed for collecting data from

the target sample.

In this study the use of structured survey through the questionnaire method will take place. The

respondents will be customers of retail apparel stores. These respondents will be made to fill

questionnaires independently with their own perception and choice about their viewpoint of

which factors affect their decisions.

SAMPLING DESIGN

Sampling design for this study will be a mix of simple random sampling, convenience sampling

and Snowball/referral sampling. First a simple random sample will be done and then the referrals

from the respondents will be taken which will help to get qualified respondents and in a lesser

duration of time. Respondents as per convenience will also be taken considering the time factor.

The study will be carried onto a sample of 200 respondents which would be selected by

convenience sampling . The respondents will be selected randomly either in parking lots, malls

or in houses.

7/31/2019 Chap 123 Main

22/44

22

AREAS

The area included for this study is Delhi and NCR.

TIME

This study on impact of loyalty programs on consumer purchase behavior will be completed in

two months.

DATA COLLECTION PROCEDURES

After deciding the sample size and type of sampling to be used, next step will be to decide the

data collection procedures. There are various procedures by which primary data will be

collected. In this study the primary data will be collected by various techniques like interviewing

the respondents and getting the answers to the formulated questions. The questionnaires will be

filled using various methods like purchase intercept, mall intercept, exit polls and interviews in

the parking lots. Telephone interviews and mail interviews will be done to cover the areas which

are distant.

METHODS TO BE USED IN COLLECTING PRIMARY DATA

Keeping in view the attributes of the sample chosen, the data will be collected by structured

questionnaire and interviews. Respondents will be visited personally and will be requested to

provide the required details. We will also fill the questionnaire by getting the required

information if the consumer is not having appropriate time to fill it.

INSTRUMENTATION

Structured Questionnaire comprising of both open as well as close ended questions will be used

as research instrument.

Software used for analysis will be IBM SPSS and MS Excel.

7/31/2019 Chap 123 Main

23/44

23

RELIABILITY AND VALIDITY

Reliability: This test will be done in order to make sure that the data is authentic and the results

are valid. Thus to prevent any mistake in the result a reliability test would be done in SPSS to

make sure the data is authentic, consistent and reliable.

Validity: A validity test will make sure that the selected sample represents the entire population.

Thus a validity test would also be done to know that the sample selected is correct, the data is

valid so that it provides consistent and valid results.

DESCRIPTION OF HOW DATA WILL BE ANALYZED

Data analysis and interpretation tools and techniques are decided keeping in view the nature andtype of data collected. So in this study, following softwares will be used according to the type of

analysis required. Two main softwares which will be used for data analysis are:

IBM SPSS 18.0

Microsoft Excel

IBM SPSS 18.0 will be used for complex testing like checking validity, cross tabs etc. which will

not be possible with other simple software or manually.

MS Excel will be used for simpler analysis part which can be done easily with it.

7/31/2019 Chap 123 Main

24/44

24

FINDINGS, ANALYSIS AND IMPLICATIONS

We test our different hypothesis with three different research designs

H0: Store purchase frequency was higher for loyalty program members than for nonmembers.

H1: Store purchase frequency was not high for loyalty program members than for non

members.

For testing of this hypothesis store purchase frequency was measured by two variables: the

frequency of their visit to the shop and the amount of money they spend on every purchase. All

the respondents whether a loyalty program member or non member were considered for thisstudy. As per the findings of this research we saw that among 214 respondents 200 were valid

data and among these distributions of respondents were as follows:

All the respondents who had a loyalty card were classified as members and the ones who had

zero cards were non members. For the frequency of visit we could observe the following:

All the respondents who shopped for once in a week, once in a month or twice in a month were

classified as high frequency shoppers while the ones who shopped for once every two months oronce every 6 months were classified as low frequent shoppers.

For the amount spent each visit the following data was collected:

The amount of less than 500 and within 500-2000 was classified under low frequency and above

2000 was high frequency. To test the relationship between these variables SPSS was used and

cross tabbing was conducted on the variables. The cross tabbing results were further confirmed

by Chi Square test.

The contingency table which was generated with the help of SPSS showed that the most frequent

visitors were the loyalty program members and there is a significant relationship between these

7/31/2019 Chap 123 Main

25/44

7/31/2019 Chap 123 Main

26/44

26

Accordingly, that feature could be included in our ideal loyalty card program which could be of

use to retailers. For this we asked the consumers a question like You would want a loyalty card

of a particular store because they offer:

1. Discounts

2. Special Offers

3. Updates (New arrivals etc.)

4. Preferential treatment

5. Status Symbol

We asked them to rate the above features on a Likert scale with strongly agree being coded as 5,

agree being coded as 4, neutral being coded as 3, disagree being 2 and strongly disagree being 1.

The results we obtained are shown in the following bar graph.

Using the above codes, we also calculated the means of all the features, which were as follows:

Feature Discounts Special offer Updates Preferential

Treatment

Status Symbol

Mean 4.1100 4,0092 3.4771 3.6422 2.8807

From the above table it is clear that discounts have a highest mean which shows that it is the

most preferred feature moreover that can also be pictorially seen in the bar chart. Thus we

concluded that discounts are the most important features of a loyalty card program.

7/31/2019 Chap 123 Main

27/44

27

H4: Loyalty program membership has a significant effect on consumer purchase behavior.

H1: Loyalty program membership does not have a significant effect on consumer purchase

behavior.

Our last hypothesis was to find out if loyalty cards had any significant impact on consumer

purchase behavior. For this we asked them their opinion on various questions, the responses to

which are shown below:

Questions were as follows:

1. I would shop in any store that suits me regardless of whether they have a loyalty scheme

2. I shop wherever I get better discounts

5. I have saved substantially due to loyalty program

9. I buy products if they earn me extra points

10. I spend less in stores where I dont have a card

11. I wouldnt change where I shop for the sake of a loyalty scheme

12. I buy products due to loyalty cards promotions surrounding them

Consumers were asked to rate the above statements on a Likert scale with strongly agree being

coded as 5, agree being coded as 4, neutral being coded as 3, disagree being 2 and strongly

disagree being 1. The results we obtained are shown in the following bar graph.

From the above the implications drawn were as follows:

Consumers tend to increase their purchase from a particular store just because they have

loyalty card of the same.

Consumers shop in stores which provide better discounts, promotional offers and loyalty

gift vouchers.

7/31/2019 Chap 123 Main

28/44

28

Another important factor that makes customers visit the shops again is the savings that a

loyalty program membership provides them

Consumers spend less in the stores where they do not own a loyalty card membership.

7/31/2019 Chap 123 Main

29/44

29

7/31/2019 Chap 123 Main

30/44

30

SHOPPERS STOP

Figure 1: Frequency of shopping vs loyalty cards (Shoppers Stop)

Chi-Square Tests

Value df Asymp. Sig. (2-sided)

Pearson Chi-Square 155.172 a 4 .000

Likelihood Ratio 180.723 4 .000

Linear-by-Linear Association 116.245 1 .000

N of Valid Cases 200

Table 1: Frequency of shopping vs loyalty cards (Shoppers Stop

7/31/2019 Chap 123 Main

31/44

31

LIFESTYLE

Figure 2: Frequency of shopping vs loyalty cards (Lifestyle)

Chi-Square Tests






Table 2: Frequency of shopping vs loyalty cards (Lifestyle)

7/31/2019 Chap 123 Main

32/44

32

PANTALOONS

Figure 3: Frequency of shopping vs loyalty cards (Pantaloons)

Chi-Square Tests




Linear-by-Linear Association 66.671 1 .000N of Valid Cases 200

Table 3: Frequency of shopping vs loyalty cards (Pantaloons)

7/31/2019 Chap 123 Main

33/44

33

GLOBUS

Figure 4: Frequency of shopping vs loyalty cards (Globus)

Chi-Square Tests

Value Df Asymp. Sig. (2-sided)




Table 4: Frequency of shopping vs loyalty cards (Globus)

7/31/2019 Chap 123 Main

34/44

34

RITU WEARS

Figure 5: Frequency of shopping vs loyalty cards (Ritu Wears)

Chi-Square Tests






Table 5: Frequency of shopping vs loyalty cards (Ritu Wears)

7/31/2019 Chap 123 Main

35/44

35

WESTSIDE

Figure 6: Frequency of shopping vs loyalty cards (Westside)

Chi-Square Tests






Figure 6: Frequency of shopping vs loyalty cards (Westside)

7/31/2019 Chap 123 Main

36/44

36

SHOPPERS STOP

Figure 7: Average amount spent vs loyalty cards (Shoppers Stop)

Chi-Square Tests






Table 7: Average amount spent vs loyalty cards (Shoppers Stop)

7/31/2019 Chap 123 Main

37/44

37

LIFESTYLE

Figure 8: Average amount spent vs loyalty cards (Lifestyle)

Chi-Square Tests






Table 8: Average amount spent vs loyalty cards (Lifestyle)

7/31/2019 Chap 123 Main

38/44

38

PANTALOON

Figure 9: Average amount spent vs loyalty cards (Pantaloon)

Chi-Square Tests






Table 9: Average amount spent vs loyalty cards (Pantaloon)

7/31/2019 Chap 123 Main

39/44

39

GLOBUS

Figure 10: Average amount spent vs loyalty cards (Globus)

Chi-Square Tests






Table 10: Average amount spent vs loyalty cards (Lifestyle)

7/31/2019 Chap 123 Main

40/44

7/31/2019 Chap 123 Main

41/44

41

WESTSIDE

Figure 12: Average amount spent vs loyalty cards (Westside)

Chi-Square Tests





Figure 12: Average amount spent vs loyalty cards (Westside)

7/31/2019 Chap 123 Main

42/44

42

LOYALTY TOWARDS CARD IS MORE THAN LOYALTY TOWARDS A STORE

Figure 13: Loyalty vs Loyalty cards

Chi-Square Tests






Table 13: Loyalty vs Loyalty cards

7/31/2019 Chap 123 Main

43/44

43

Q3. What is the most significant feature for a customer to adopt a loyalty program?

Table 14: Most Significant feature for customer loyalty

Statistics

Rank The

Features

[Special

Offers]

Rank the

features

[Updates]

Rank the

features

[Free

Participati

on in

Events]

Rank the

features

[Preferent

ial

Treatment

]

Rank the

features[St

atus

Symbol]

Rank the

features[

Waiver of

Parking

Fee]

Rank the

features[

Gift

Vouchers]

Rank the

features[

Discount]

Rank the

features[

Special

Sale

Days]

Mean 4.08 3.32 3.22 3.87 4.05 2.37 4.50 4.97 3.75

7/31/2019 Chap 123 Main

44/44

Q4. What is the impact of loyalty card on consumer purchase behavior? (Impact of loyalty

program)

Statistics

I would

shop in any

store that

suits me

regardless

of whether

they have a

loyalty

scheme

I Save a lot

of money by

using my

loyalty

vouchers

I shop

wherever I

get better

discounts

I buy

products if

they earn

me extra

points

I spend less

in stores

where I

dont have a

card

I wouldnt

change

where I

shop for the

sake of a

loyalty

scheme

I have

saved

substantially

due to

loyalty

programme

s

I buy

products

due to

loyalty card

promotions

surrounding

them

Mean 1.35 2.46 1.79 3.08 2.68 1.99 2.34 2.43

Table 15: Impact of loyalty program

chap 123 main

Documents