Is Your Loyalty Program Really Building Loyalty?

Abstract

Retailers’ today are experiencing increased competition from online retailers, while their loyalty programs only seems to make customers’ loyal to the discounts and not the retailer. Therefore, this thesis aims to examine how retailers operating both online and offline can foster true loyalty toward the modern consumer. It seeks to provide retailers with a strategy for loyalty programs on the basis of theory regarding loyalty and customer relationships as well as studies of both qualitative and quantitative nature. The findings does not seek to create generalizing results, but instead “qualified guesses” as plausible explanation for the phenomenon. First, loyalty is defined as function of satisfaction where consumers’ show both behavioural and attitudinal affection toward a company. This happens as a result of strengthening the relations through customer relationship management (CRM). Second, hypotheses on the basis of the theory are developed. Third, to test these hypotheses, three explorative and qualitative interviews of experts in modern retailing, and a survey targeting the modern consumer are conducted. Lastly, the findings are being used to develop 1) a strategy showing the most important requirements of modern retailing, and 2) a model for retailers to use for a modern loyalty program. Seven elements of retailing towards the modern consumer that allows the retailer to meet the customers’ expectations could be identified. Having these implemented the retailer can begin to systematically collect data on its customers. Moreover, three primary elements of data collection, benefits, and marketing, supported by extra three CRM elements, could be identified as needed in loyalty programs for today’s retailers. The findings relate to speciality retailers primarily as this type of retailers are placed in-between two types of retailers of respectively high-end (i.e. niche) and low-end (i.e. low-cost) retailers. The findings of the empirical study are of limited generalizability because the subjects are primarily consisting of the younger generation. Further work is necessary to allow deeper insights into the relationship between the elements in The Loyalty Engine model. Several recommendations for retailers’ loyalty programs arise from the results of the study. Retailers have to make sure that program support each of elements so negative effects to the customers’ shopping experience is avoided. That calls for offering only those benefits that represent genuine additional value to customers by using customer insights through data collection. Moreover, the program should provide customers with relevant marketing based on the customers’ individual needs. This thesis provides new insights into a new customer-centric era of retailing where the data becomes the key to knowing your customers.