The Bond Beyond Business: Understanding Customer Loyalty

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Loyal customers generate more repeated business, develop a tolerance for increases in price, and are more profitable to trade. The line of thought to be the conventional thinking but it is not so in all instances. A loyal customer, for example, may consume an inordinate amount of a company’s resource by demanding discounts and services. However, marketers strive to locate and entice new profitable customers at the same time coming up with ways of getting rid of the unprofitable customers (Kumar and Reinartz 2012, p. 184).

The value of customers is determined economically based on the relationship they have with businesses and, it is expressed as a net profit or a contribution margin. The value of customers is an essential tool in decision making to a firm as it can be used to measure and optimises an organisations marketing efforts (Kumar and Reinartz 2012, p. 184).

A customer’s loyalty can be included via marketing and loyalty programs despite the fact that it can be manifested repeated purchases due to the preference and satisfaction of the chosen products features and benefits.  The longevity of a customer relationship with a firm does not also usually translate to profitability. Therefore, the various loyalty programs for customers work to identify, reward, and retain the profitability of the customers (Kumar and Reinartz 2012, p. 184).

There are two types of customer loyalty concepts, and one is the behavioural loyalty comprising of observed actions that have been demonstrated towards a particular service or product. The second type is the attitudinal loyalty, which is a customer’s perception and attitude towards a product or service. Whether a loyalty program is motivated or contractual, its success is dependent on the consumer (Kumar and Reinartz 2012, p. 184).

Loyalty programs are perceived to make consumers feel that they are getting better prices on a product, can track an individual’s history enabling organisations to offer customised coupons. The schemes allow retailers to collects data and the factor that influence loyalty (Rai 2014, p.196). Offers such as customised coupons make customers feel appreciated and that their needs and presence are essential to the company. The current trend in the loyalty programs is the digitalisation from analogue. The migration provides many customers with access to make orders and wait for deliveries at designated places.

1.0 Literature Review

2.1 Consumer Loyally

2.1.1 What Is Consumer Loyalty

Loyalty is the willingness of an individual and in this context a customer to make a personal sacrifice or an investment to strengthen a relationship. To a customer, the sacrifice entails sticking to a particular supplier who treats him well and gives him good value in the long-term. Therefore, customer loyalty is much more than repeated purchases. True devotion affects profitability driving top-line growth (Harvard business review 2011, p. 43). The presence of consumer loyalty requires consumers have trust and confidence in the brand that they are willing to invest. The company must reciprocate such faith and trust.

A consumer can express his degree of loyalty by displaying a positive attitude or making evaluations that are conscious and finding a particular service or product to stick with for regular use. Behaviour loyalty is witnessed in the repurchase intentions and low levels of inclinations towards switching. Cognitive loyalty outcomes are expressed by consideration for a service provider above others in the same category drawn from his evaluations of the benefits associated with re-patronage (Rai 2014, Pp. 143-144).

Consumer loyalty and its outcomes are important to marketers who plan to design fruitful loyalty programmes. Therefore an understanding of the various sets of results of consumer loyalty is vital since the marketers can segment their customers efficiently based on the type of allegiance exhibited (Rai 2014, p. 144).

2.1.2 How to Earn It

The intricacies of earning a customer’s loyalty are on-going processes that cannot be learnt overnight. Repetition, replication, recurrence, and reiteration are what creates customer loyalty. Reminding customers that they are valuable and repeating the message as often as possible reinforces the message. Telling the consumers of how much company appreciates the can never get old instead, it strengthens their trust and confidence. Loyalty is reciprocal, and organisations must first demonstrate its dedication to its customers before it is reciprocated by giving theirs in return. The loyalty must be proved through each part of a company that there is sincerity about earning the customers trust (Brooks 2010, Pp. 4-5). Consistency is providing services or products that are popular with consumers are away that a business can prove to its customers that it pays attention to their needs.

Customer loyalty does not come cheap, as investments are required booth in cash and kind. The cash investments include putting aside money for annual loyalty programmes like cash discounts and rewards. Massive investments are also needed in time, information technology, resources, and talent. Investment in people is also crucial more so the staff of a company who are essential in serving the customers. Loyalty marketing is another way of earning customer loyalty and, it is done well it drastically changes the company encouraging customers to contact the organisation as an implicit clause to the loyalty contract that is created (Humby, Hunt and Phillips 2008, Pp. 20-22).

2.1.3 How to Maintain the Loyalty

The maintenance of a consumer’s loyalty requires a plan like a cycle for which a company can monitors changes in consumer consumption behaviours. First, an organisation must identify its customers by initiating a loyalty programme identifier, for example, a loyalty card. Secondly, tracking of spending will be easy once an identifier program is in place. Sophisticated customers watch their spending, and their patterns can be tracked easily through reliable and stable tracking software (Brooks 2010, p. 9)

Identifying and monitoring customers spending provides a platform for motivating their behaviour. A minimum of two or three month’s data is useful in analysing the data, marketing directly to the loyal customers, and aim to change their purchasing behaviour. Rewarding performance is crucial as people like to be rewarded. If there is a perceived high value of a reward, it will enable customers to take action and increase either their purchases or their loyalty (Brooks 2010, p. 9).

2.2. Consumer Loyalty Programmes

Loyalty programmes have been a right way of ensuring that consumers keep returning to the business premises and utilising their services and products. Bargain Booze utilises membership earning loyalty points to its customers. The points respond to the reward that consumers are entitled to and can range from offers of exclusive benefits such as priority-based service and free parking space to gifts and exclusive discounts. Such practices are aimed at encouraging more shoppers to choose product and services adorned with loyalty programmes (Rai 2014, p. 143).

In reality, the number of people who chose to enrol in the loyalty programmes is low and even more disappointing is the low numbers of those actively involved in the application. The results are attributed to the use of analogue technologies that collect data rather than paying attention to customer convenience. However, the plans are not useless altogether since a programme that is strategically and carefully designed can help in building customer loyalty, therefore, increasing profitability (Rai 2014, p. 143).

The senior vice president of Loyalty One Caroline Papadatos opined that loyalty programmes are useful devices for identifying the best consumers and move them through the stages of consumer engagement through rewards, relevant communication, and recognition. Transparency, simplicity, and relevance should guide the basis of any loyalty programme since consumers need to be placed at the centre of everything that aims to sustain their patronage (Rai 2014, p. 143).

Loyalty managers in consumer loyalty programmes can use three possible strategies. The first is growing the brand size by making it acceptable to a broad range of potential customers. The approach is realised through adverts and offering rates that are attractive. The second is creating a niche brand by keeping the number of customers relatively low but the same time trying to increase their spending. The third option is for a big brand to become a super loyalty brand where there is room for customers to demonstrate their strong commitment (Marketing Financial Services 2017, p. 151).

Bargain Booze UK

Bargain Booze is a conviviality discount wine and spirits store with more than 600 outlets.  The enterprise was established in 1981 and has since grown significantly across Europe continent. The company believes in personalised print media and produces several promotions for them per year. The company’s most revered customer is the JD Wetherspoon pub chain, and it supplies wine and spirits to all the 900 chains of the pub in a contract worth tens of million pounds annually. The company also provides their products to many other companies (Morris 2018).

In March 2018, the company had trouble, and it announced that it would fall into administration after a tax bill of 30 million pounds. The company had internally tried to raise 125 million pounds from shareholders, but the objective was not realised. The company was recently looking for a suitor to buy the chains after the discovery of unexpected tax bill of 30 million pounds and a failed attempt at raising 125 million pounds from shareholders. It found a buyer in the owner of mangers cider who bought the wholesale division of conviviality. The sale aimed to save the two thousand jobs that were at stake (BBC News 2018).

2.3 Effects Of Consumer Loyalty Programmes On The Profitability Of Convenient Stores: A Case Of Bargain Booze UK

The company runs a mobile loyalty scheme for centralised customer engagement. Loyalty schemes are increasingly migrating to digital platforms for various reasons. The scheme shoppers are identified to the point of sale to enable them to secure redeeming offers and register for competition entries. The platform reduces check out times as opposed to manual voucher code entries. The company’s loyalty promo engines validate all proposals against the purchase basket in real time removing the risk of mis and mal redemption and at the same time capturing customer insights (Bargain Booze).

The company also has another programme known as the click-and-collect service that allows consumers to make orders online and pick their purchased goods within three hours at selected stores. Another loyalty program for customers is the constant low prices, which has a stroke a chord with consumers. The effectiveness of the programs is evident during the recession when the company stayed afloat financially while others were stricken (Hunter and Armstrong 2017).

A recent study into convenient stores and their consumer loyalty programs draws the difference between the heavy, moderate, and light users of the stores. It was found that heavy users claimed their rewards but did not increase their spending or loyalty. However, there was a definite effect on moderate and light buyers who became more loyal and increased their purchases (Marketing Financial Services 2017, P. 150). The response indicates that consumer loyalty is varied among consumers and this reinforces the notion that a company’s relationship is with individual customers. Therefore, the personal the relationship between a business and a consumer the more profitable will a loyalty program be beneficial to the company.

The key to retaining customers is their satisfaction, and a company can keep the most valuable customers by providing an excellent consumer experience through the loyalty program. Retention is beneficial because the cost of acquiring new customers is higher than maintaining the relationship they have with the current ones. Having the same customers increases their level of purchase, as they will tend to buy more than one product and recommend the business to family and friends (Magatef and Tomaleih 2015, p. 79). Since Bargain Booze is a company that provides drinks for entertainment and leisure rather than necessity, customer retention is very crucial to the sale, profit, and success of the business. Excellent and customers retention capability earns a good business reputation in the competitive market.

Loyal customers provide a consistent revenue base and reduced expenses. They are not sensitive to price increases, and the company can be able to increase revenue with them. In this way, consumer loyalty programs that evoke the loyalty of consumers are linked to the profitability of a firm (Li et al. 2012, p. 1). A consistent source of revenue provides stability and more time to focus on improving the weaker areas of business. Bargain Booze has consistent discount prices for its beers and customers will more likely stick to the company’s products since they are sure of their prices, which do not have a history of shifting unpredictably.

In the case of Booze, its core customers are working families on low incomes who do not get to go out everything or as frequently as they would want. Consequently, they will stay at home watching television or having family nights in while sipping an affordable bottle of beer (Hunter and Armstrong 2017).

Loyalty programs increase Consumers Lifetime Value (CLV), which is the net profit of the overall relationship of a business with a customer. It is a measure of the current and projected values of consumer interaction with the company in the future (Kumar 2008, p. 59). The Booze Company has an added advantage from their loyal customers through their CLV net profit. Through the value, it can look into their past behaviours, which will aid the firm in projection their future conduct the marketing costs that, will be incurred to maintain them, and use it as a guideline of which customers to target and the methods of approaching them.

The discount prices have given the company near fifty percent increase in half-year profits in 2015. The company enjoyed a 4.4 percent of growth in pre-tax earnings because the sale of wine had tremendously increased. The companies stores thrive best in areas were supermarkets do not have good coverage. The consumer loyalty programmes have enabled the company to broaden its customer base form working class families to restaurants and pubs. Two months after going public the company purchased a rival off license in this case wine rack boosting its presence in the country, 200 million pounds for Mathew Clark and 60 million pounds for Bibendum within the next two years (Hunter and Armstrong 2017).

2.4 Conclusions

Consumer loyalty programmes are trends that are practised all over the business spectrum in a bid to boost sales and profits. The plans are made by different firms in different forms according to products and services delivered by a firm. However, the programmes do not guarantee that sale will increase since there are customers who will not increase their purchase level or loyalty.

Research into the effectiveness of consumer loyalty programs is limited since there is little evidence on the long-term effects. Despite the constant use of the programs, their efficacy is not well understood, and its values have even come into question. Ultimately the profitability of a consumer loyalty programmes depends on the choices made by a consumer concerning a firm of their choice.

Just as a company has to work hard to earn consumers trust, confidence, and loyalty it also has to find ways of keeping them such as tracking and rewarding performance. Different company have different programmes for creating customer loyalties and for the Bargain Booze Company it includes discount practices for beers that even low-income working class families who cannot afford to go out to pubs or restaurants to any other day.

The effects of consumer loyalty on the company under study have enabled it to expand drastically over the last few years at it was able to acquire other companies in the same line of business such as Mathew Clark and Bibendum.

2.5 References

Bargain Booze. n.d Digital Debut - Best of All Worlds for Customers, Brands, And Franchisees. [Online] Available at https://mobilize-systems.com/work/bargainbooze

BBC News. 2018. Chains Bargain Booze, and Wine Rack near sale to Bestway, [Online] Available at http://www.bbc.com/news/business-43671740 (Accessed 4/9/2018).

Brooks, R. 2010. The Power of Loyalty: 10 Essential Steps to Build a Successful Customer Loyalty Strategy. Entrepreneur Press.

Harvard Business Review. 2011. Harvard Business Review on Increasing Customer Loyalty. Cambridge: Harvard Business Press.

Humby, C., Hunt, T and Phillips, T. 2008. Scoring Points: How Tesco Continues to Win Customer Loyalty. Kogan Page Publishers.

Hunter, D, and Armstrong, A. 2017. From Bargain Booze to Conviviality: the transformation under. [Online] Available at: https://www.telegraph.co.uk/business/2017/05/13/bargain-booze-conviviality-transformation-diana-hunter/ (Accessed on 4/9/208)

Kumar, V. 2008. Managing Customers for Profit: Strategies to Increase Profits and Build Loyalty. New Jersey: Pearson Prentice Hall.

Kumar, V. and Reinartz, W. 2012. Customer Relationship Management: Concept, Strategy, and Tools. New York: Springer Science & Business Media.

Li, M., Green, R. D., Farazmand, F. A and Grodzki, E. 2012. Customer Loyalty: Influences on Three Types of Retail Stores’ Shoppers. International Journal of Management and Marketing Research. Volume 5 (1).

Magatef, S. M and Tomalieh, E. F. 2015.  The Impact of Customer Loyalty Programs on Customer Retention. International Journal of Business and Social Science

Vol. 6, No. 8(1), pg. 1-19

Marketing Financial Services, 2017

Morris, B. 2018. Bargain Booze firm Conviviality close to administration, [Online] Available at  BBC News, http://www.bbc.com/news/business-43580679 (Accessed 4/9/2018)

RAI. 2014. Customer Loyalty. New Delhi: McGraw Hill Education (India) Pvt Ltd.

September 18, 2023
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Business Economics

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Customer

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