Customer Loyalty in Retail Sector

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Role of Customer Loyalty Programs in the Retailing Sector

Executive Summary:
Customer loyalty schemes (or programs) are explicit efforts by the retailers in different formats to gain the long term patronage from the customers. Loyalty schemes are designed and developed for variety of reasons: to reward the loyal customers, to generate more information about the customer behaviour, buying patterns. It also helps to influence consumer behaviour, and as defensive measure to combat a competing scheme. The purpose of this study is to describe the objectives of the loyalty schemes, the origin its evolution over the years, the important aspects of its implementation and strategic approaches to maximise the impact. This will also focus on the retail sectors and its effect on consumers, economies, and businesses. Successful retailers connect with the customers through loyalty programs at three levels starting with initiation, retailer communication, and finally the customer-retailer feedback loops.

Customer loyalty programs
Loyalty programs are ways for the retailer to encourage the ongoing patronage of the customers. It allows the retailers to gather the information about customer buying behaviour in order to understand the trends, and reward them appropriately with loyalty. It has many forms which varies in its application and industry sector. It is an engagement between the company and the customer for building a sustaining relationship over a period of time. There are two types of customer loyalty programmes, credit card rewards programme and frequent flyer programs. A brief history:

It started in 1981 as frequent flyer programme in American Airlines, the first of its kind to retain the airline’s most frequent flying customers by rewarding them for using the airline services. Its database of 150,000 premium customers was identified to be a part of the AAdvantage club. This was copied by other airlines and much before that there used to be coupons: the idea was similar to encourage repeat business by rewarding customers for their loyalty. The Consumer Buying Process:

The consumer usually goes through the five stages of the buying process. The need recognition and problem awareness leads to information search in the marketplace. Then after searching through the plethora of information the customer is able to do justice by evaluation of the alternatives. The customer asks people around him like personal sources, commercial sources, public sources, and experiential sources who had used the product or service. Then the ‘aroused’ customer seriously thinks of the purchase concern for a particular product of his choice. After the purchase has been done, he consumes a service or a product that results in the formation of experiential outcomes about the product. The theory of cognitive dissonance comes into play over here, where the feeling may be prevalent for the customer to switch brands for the next time. To manage the post purchase stage in the consumer’s mind the job for the marketing team is to engage the consumer closer to the brand values. This potential customer can only be swayed when the needs and criteria’s are fulfilled. The customer’s indecisive behaviour should be reinforced with positive elements about brand which would evoke a positive response in the sales figures. The evaluation process by a customer differs for a low involvement and a high involvement purchases (example buying a soft drink, and buying a car). It has been seen that customer feels that involvement factor, the degree of perceived relevance and personal importance attached to the choice. The lesson for the marketing team of retailers is therefore to provide trial or sampling of the product in the hope of securing a sale. The same concept is being adopted by the airlines and hospitality industry where the offers is not through a sampling of a product but through up-gradation to upper class of seats, business suites, cabins, or services which is...
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