Published researcher and writer with degrees in marketing and computer science; and professional qualification in accountancy and e-commerce. Specialize in the field of marketing, HR, Finance, Business, General Management, Strategy, Project Management and Accountancy. Thesis forms a part of the National University of Wales and articles published in the Oxford University retail management journal.

Loyalty in Retail: A strategic success or a management failure

Introduction
Traditionally, marketing has focused on market share and customer acquisition rather than on retaining existing customers and on building longlasting relationships with them. More recently, however, market share has been gradually losing its revered status and the wisdom of focusing solely on customer acquisition is being seriously questioned and considered as very high risk since ever more players enter an increasingly crowded marketplace. In response to these changes, there has been a new emphasis on defensive marketing, which focuses on holding on to existing customers and getting more custom from them, in contrast to activities that focus on winning new customers. As a consequence, calls for a 'paradigm shift' to the pursuit of loyalty as a strategic business goal have become increasingly popular.

Background
ICustomer loyalty has been a difficult concept to define. It is used interchangeably with other constructs, including customer repeat purchasing behaviour and customer retention. However, the construct of customer loyalty differs from the one of repeat purchasing behaviour in the way that it implies an intentional component, i.e. there is always a reason for the customer's repeat purchase and it does not happen by chance. It also differs from the concept of customer retention in that customer retention has a purely behavioural character, whereas today's interpretations of the loyalty construct usually include both behavioural and attitudinal dimensions; moreover, while the construct of customer retention considers the marketer as the active party, loyalty focuses more on the intrapersonal aspects of customer behaviour.

Loyalty has been largely defined and measured in either behavioural terms (the stochastic approach), or attitudinal terms (the deterministic approach) and although it has been suggested that the concept should be understood in both terms, there is still little agreement when it comes to measuring it (Rundle-Thiele & Bennet, 2001). Defenders of the stochastic approach consider loyalty as behaviour and argue that the customer who buys the same brand consistently is loyal. Loyalty, like love or loathing, is impossible to quantify, but what can be quantified is customer behaviour and where customer loyalty is concerned, the closest factor that can be measured is customer behaviour (Stone, 1997). Loyalty here is defined mainly with reference to the pattern of past purchases with only secondary regard to underlying consumer motivations or commitment to the brand (Ehrenberg 1988). Problem with this approach is that it considers loyalty behaviour as too complex to be understood due to the number of explanatory variables and their frequency of appearance, and therefore makes loyalty a dichotomy – loyalty versus disloyalty, which is short of nuance, and requires apparently arbitrary categorisation of customers into one of the two categories (Odin, 2001). Another shortcoming of the stochastic approach is that it cannot identify whether repeat purchasing has been done out of habit, due to situational reasons, or due to other more complex psychological reasons, and it has been argued that the narrow technical definitions of the stochastic approach do not capture the full richness and depth of the loyalty construct.

The determinist approach considers loyalty more as an attitude and argues that there are a limited number of explanatory factors responsible. It is not based on loyalty/disloyalty opposition, but seeks to measure the degree of intensity of loyalty (Odin, 2001).

Nevertheless, the determinist approach has been criticised for relying on customer declarations without taking into account their observed behaviour and also for using either antecedents, or consequences of loyalty to measure the former and not loyalty in itself. As a result, neither attitudinal nor behavioural measures alone are sufficient to explain or define the complex construct of loyalty. Critics also argue that the loyalty, both attitudinal and behavioural, for most customers is passive and resembles habit rather than serious commitment.

Customer loyalty has become a strategic approach to improving shareholder value through development of appropriate relationships with key customers and customer segments (Christopher, et al., 2002). Proponents tend to focus on the psychological bonding that comes from membership (a customer benefit), and the enhanced customer insights that can be gained from analysing the programme database (a firm benefit) (Brown, 2000; Pearson, 1996). Loyalty programmes can be seen as vehicles to increase single-brand loyalty, decrease price sensitivity, induce greater consumer resistance to counter offers or counter arguments (from advertising or sales-people), dampen the desire to consider alternative brands, encourage word-of-mouth support and endorsement, attract a larger pool of customers, and/or increase the amount of product bought. Although the applied marketing literature suggests that there are very high expectations for customer loyalty programmes, in reality they are surprisingly ineffective and it has been suggested that almost 50% of programmes partly or completely miss their business objectives (Reinartz & Kumar, 2002).

Findings
Successful loyalty programmes do not exist in a vacuum; they are a coherent element of a company's overall strategy and capabilities. They are not a replacement for any of the basic loyalty drivers but a supplement to them. Just as a hammer does not build a house, a loyalty card does not build customer loyalty. Both the hammer and the card are tools that, when properly and appropriately used, help bring the architect's blueprint to life.

'Brand value' is a key ingredient in a loyalty programme's genetic code. A loyalty programme is the active expression of a firm's brand personality and value. Whatever the characteristics of the brand are, the qualities that customers recognise and admire, the loyalty programme is that brand in action. Tesco term it as 'Reward the behaviour you seek'. Tesco establishes priorities for the change it wants to see in customer behaviour. Besides, the customer management should have the ability to link and integrate customer information across the entire business, at different customer interfaces and throughout the duration of the customer relationship. A sense of belonging should be created, which is an essential element of successful customer loyalty programmes that is difficult to emulate for competitors due to its emotional and intangible nature (Dowling & Uncles, 1997).

Loyalty marketing should be established at the heart of the business. The staff at every level should be made to understand why the scheme is important to the customers and to the firm's future, and should be made to nurture and encourage it at every opportunity. If a loyalty scheme is to be integrated within the business, it has to be a part of the working lives of front-line staff, too (Cigliano, et al., 2000).

Successful retail loyalty programmes are created by matching good marketing skill and commercial pragmatism with a hard-headed attitude to data (Gilbert, 2003). Data analysis should be pragmatic: it is not important to use data to answer every question about every customer, but to answer some of the biggest questions about most customers. The big step forward is not to launch a card with magnetic stripe on it; it is in understanding the value of the information it provides. A firm must use intuition and creativity as well as statistical know-how to make best use of the technology available. At the same time, it should realise that technology supports the customer experience rather than drives it.

In addition, loyal customers value help and advice as much as cash. Tesco's Baby Club provides information at a time when potential parent needs it. The value of that information builds on the fact that Tesco is a trusted brand, offering straightforward advice on a range of different subjects. When Tesco provides information that is objective and useful, it deepens the trust amongst the customers. The World of Wine Club provides easily digested specialist advise on wine enjoyment, and has been successful at engaging more experienced premium wine purchasers who might otherwise not have considered Tesco as their wine merchant.

A loyalty programme should constantly create value for the business along the way and should help make customer segments helpful and relevant. Segmentation should not just be a freak measurement effect, but a significant clue to customer behaviour. Segmentation does not necessarily work through spectacular changes in customer behaviour, but by encouraging fractional changes in the way shoppers shop. 'Every Little Helps' as it is said in Tesco. A loyalty programme should be a part of the decision making process at every stage.

What is 'market research' should be 'customer insight' and success should be measured in the form of 'share of customer' and not just 'share of market'.

Recommendations for Marketing Managers
Data should be analysed with an eye on desirable economic outcomes and companies should make sure that they establish what they are trying to accomplish with the programme. Performance of loyalty programme should be continually measured. All too often programmes are started and then left to run by them. Rarely, do companies go back to see if they were successful in changing their customer behaviours as planned.

Retailers should quantify the success of benefits in driving shopping behaviour. Some of the things they can look at are changes in the size of the market basket, increases in use of products or services, amount of transactions involving loyalty programme ID numbers, and the amount of redemptions being made. Customers are perverse, emotional, awkward, unreasonable people who want things done on their terms. In trying to understanding what really matters most to customers, retailers should not only think in terms of appropriate service and quality strategies that match the most important needs of the target customers but also have the ability to deliver.

Before embarking on a loyalty programme, following questions need to be clearly answered…

• What demand-side goals are there for the loyalty programme – maintaining customer loyalty or enhancing it? How will these goals be set and assessed?
• In general, will the programme focus on the most profitable customers? What time frame is to be used to assess the programme profitability?
• What is the appeal of the programme for these customers?
• How will the programme be used in combination with other marketing activities?
• Will these initiatives grow share and sales revenues?
• Can the customer data be analysed in useful ways?
• Are the sales and cost data reliable? Is the evidence contradictory?
• What benchmarks have been chosen to assess the loyalty programme and are these appropriate?
• How will the overall profitability of the programme be calculated?

…and the following questions need to be looked at to avoid major traps.

• Are there too few customers who will actually be interested in loyalty programme? Does the scheme have little appeal for customers? Or, has the scheme been too indiscriminate – perhaps all three types of customers have joined because they see it as a (relatively) free option and/or a reward for their current purchase behaviour?
• Are customers more loyal to the scheme than the brand?
• What are the chances of a competitor retaliating to nullify the impact of the programme? Have competitors already launched a counter-initiative?
• Is the need to service large numbers of members driving up running costs?

References
Brown, S. A. (2000) Customer Relationship Management New York: John Wiley & Sons
Christopher, M , Payne, A & Ballantyne, D (2002) Relationship Marketing Oxford: Butterworth-Heinemann

Cigliano J., Georgiadis M., Pleasance D. & Whalley S. (2000) The price of loyalty McKinsey Quarterly 4 pp.68-77

Dowling G. R. & Uncles M. (1997) Do customer loyalty programs really work? MIT Sloan Management Review 38(4) pp. 71-82

Ehrenberg A. & Goodhardt G. (2002) Double jeopardy revisited, again Marketing Research 14(1) pp. 40-41

Gilbert, D. (2003) Retail Marketing Management London: FT Prentice Hall
Odin Y., Odin N. & Valette-Forence P. (2001) Conceptual and operational aspects of brand loyalty An empirical investigation Journal of Business Research 53 pp.75-84

Pearson, S. (1996) Building Brands Directly London: Macmillan Business

Reinartz W. & Kumar V. (2002) The Mismanagement of Customer Loyalty Harvard Business Review Article Product Number: 1407

Rundle-Thiele S. & Bennet R. (2001) A brand for all seasons? A discussion of brand loyalty approaches and their applicability for different markets Journal of Product and Brand Management 10(1) pp. 25-37

Stone, B (1997) Successful Direct Marketing Methods (6th edition) Illinois: NTC Business Books