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Loyalty Cards & Schemes

• Relationship Marketing   ::   
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Loyalty cards have been one of the marketing tools of the 1990s.

1.0 INTRODUCTION

1.1 BACKGROUND

Despite the fact that Loyalty schemes have been around for some time, questions have been asked about their effectiveness. The withdraw of loyalty cards by some UK retailers such as Asda, Safeway and Somerfield has added more fuel to the debate. Loyalty schemes have been around for some time and are operated by many companies, predominantly retailers.

Most operate on a system of discounts, vouchers or gifts for points accumulated. In the UK, many retailers and other service companies have developed so-called loyalty cards as part of their marketing mix.

According to Mintel report counting only the supermarket loyalty cards, 20 million cards have been issued in the between 1992 and 1994. Today, according to Mintel, about 63% of adults participate in a loyalty scheme run by one of the leading retailers. However, more than 40% have more than one card in two different competitive retailers.

According to Burnham loyalty schemes do very little for the consumer and merely serve to prop up the organisation: “At the end of the day, are customers being bought cheaply, and unknowingly digging deeper into their own pockets to increase retailers’ profits?” However other markets disagree with Burnham.

They point out that Consumers relationship marketing (CRM) as the process of creating, and maintaining strong, relationship with customers and loyalty schemes are the cornerstone to this process. They point out that increasing, marketing is moving away from the focus on individual transaction towards a focus on building a relationship with consumers and loyalty schemes is one of the ways in which this is done. Advocate of these schemes point loyalty card helps a great deal in collecting valuable market data on customer purchases and preferences.

1.2 MARKETING AND LOYALTY CARDS

Marketing management rest upon how consumers behave in reaction to product, price, promotional and distribution strategies (Festinger and Bramel 1962 ). In competitive economies, successful marketing depends on matching the marketing mix by integration strategies to consumer willingness to buy effectively from you than the rivals (Kotler, 1997 ). The consumer- oriented marketing, which result from such matching, is in response to the enormous discretion exercised by purchases in the economies (Baker, 1997 ).

Moreover, the choice made by consumers has consequences not only merely for competing companies within a given industry, because companies are increasingly forced to compete across the conventional boundaries of markets and industries but also on the long term survival of the brand (Baker, 2000).

Companies do not compete merely with known rivals in the same trade, but with each other, whose disparate business involves entirely separate responses to the creation and fulfilment of demand. The nature of consumer’s choice nowadays is such that the survival and growth of firms depends upon managers having an accurate understanding of consumer’s buying pattern (Siomkos, 1994 ).

By understanding consumers, a company is better suited to build a product and brand, which the consumers desire (Blackston, 1992). Therefore collecting information from consumers using loyalty card ensure that the retailer is best suited to produce and deliver what consumer need.

1.3 AREA OF STUDY

The research focused solely on the UK retail supermarket scheme, in particular Tesco’s club card. The research sought to find out the advantages in introducing loyalty cards against the costs? What are the disadvantages? Would customers come into the stores anyway, or are they enticed by the loyalty schemes. The research survey was carried out outside Tesco. Tesco supermarket retail store was the location of the survey. This is due to the fact that, supermarket retail has a loyalty card scheme.

1.4 PROBLEM DEFINITION

The problem definition was to find the effectiveness of the Tesco loyalty scheme. The research will also seek to assess whether, the scheme are still effective form to meeting consumer need, or whether there are other ways of meeting these need.

1.5 THE RESEARCH PROCESS

The research process followed the one recommended by Sekaran (1992) as shown in the figure below. The broad area of research has been identified as the retailer supper market.

1.6 RESEARCH OBJECTIVE

The aim the research was to ascertain answers to questions whether loyalty schemes are effective. Furthermore the research sought to find out how consumer’s perception on Tesco loyalty scheme and if they find them useful. Therefore the objectives of this research were:

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The research also sought to satisfy the differing level of experience readers from differing backgrounds such as marketers, employers, academics etc, who could be interested in the results of the research.

1.7 USEFULNESS OF RESEARCH

The research also explored some aspect of consumer attitudes and perception towards loyalty schemes. The findings could be useful in understanding loyalty schemes.

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