LONDON SOUTH BANK UNIVERSITY

Research Topic - Customer Loyalty Program

Research Question: What is the impact of a loyalty program on

customer lifetime value and overall profitability in the retail sector?

Individual Report for Research Methods

Submitted by: Kalpana

Student ID:
Course – M.Sc IBM (Internship) Sep 2022

Submitted to: Joseph Teal

Module Leader
Research Methods

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Contents
Executive Summary............................................................................................3
Introduction.........................................................................................................4
Literature Review................................................................................................6
Research Methodology......................................................................................10
Data Analysis and Findings...............................................................................11
Ethics................................................................................................................ 13
Limitations........................................................................................................ 13
Reference List...................................................................................................15

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Executive Summary
The purpose of this study is to demonstrate a look at how well some customer loyalty programs
can work to foster customer loyalty and boost the client’s faith towards the company. The
foundation of the study is based on the thorough examination of the past research studies
published on various types of customer loyalty programs and many more. A assessment of the
literature on consumer loyalty programs as well as data analysis from surveys and interviews with
customers and management of businesses that have implemented loyalty programs were part of
the research approach. According to the study, customer loyalty programs can be a useful tool for
boosting customer loyalty and increasing customer retention. However, the type of programme,
the structure of the rewards, customer engagement, and communication are just a few of the
variables that can affect how successful a program is tailored to their specific customer segments
and business objectives. The study also recommends that companies should use a combination of
rewards, including both tangible and intangible rewards, to incentivize customers to remain loyal.
Overall, this study provides valuable insights into the effectiveness of customer loyalty programs,
which can help companies to design and implement successful loyalty programs that can enhance
customer loyalty and increase customer retention. The study analyzes data from a survey of more
than 500 customers who are members of various loyalty programs in retail sector in the United
Kingdome. The study has been divided into the parts such as introduction, a detailed literature
review, methodology, the measure and instrument for customer loyalty program, the ethics, and
the limitations as well as scope of future research expansion in the same area of study.

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Introduction
Ever since the term Internationalization has come into existence, different companies around the
world wants to extend the business in every noon and corner of the world and by doing this, they
can sustain their growth in the respective sector but that can only be possible if their customer is
satisfied with their product, services, and the innovation. Especially in the retail business,
everything is related to customers. It also leads the customer to have a positive attitude towards
the company and its products & services because the positive attitude plays an important role to
rebuy the products or services in the future from a specific company (Kamran, Mantrala, Izquierdo
& Ruiz, 2017). A satisfied customer will always be keen to buy in the same shop or the company
without even bothering about the special discounts or interesting offers.

There are various methods by which a company or an organization can measure customer
satisfaction. It is also determined by the quality of the product and the process of development
which is being used by the company. According to Magatef & Tomleh (2015) it was conducted in a
case study that if a loyalty program is performed in a good and efficient manner then it became
more easier to build or manage the customers for the companies. The definition of customer
loyalty can be the will or the wish of a customer to buy a company’s services or the product
instead of choosing the competitor company. There are certain ways to attract the customers to
buy products. Some of the companies offer reward gifts to the customer which is only possible if
they make some purchase. Apart from reward gift programming, there can be other forms which
are used to make it easier for the customer to choose different products with free gifts, discount
cards or offers on new products. According to Lewis (2004) such attractive programs always
support the level of purchasing the same products from the company again and also to maintain a
certain level of sales by offering big discounts to customers who are frequent buyers of the
company. In such programs the company offers some membership cards, discount card,
promotional coupons for the customer as well as for the non-customer which will work as word-of-
mouth scenario about the products of the company. Some commonly used loyalty programs for

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the customers are Fee Based Loyalty System, Non-Monetary programme and some sort of
Organic Loyalty as well (Alazzam and Bach, 2014)
Talking about the practical significance of the customer loyalty program then it cannot be wrong to
say it plays an important role in the business environment of the company. There are many ways
in which customer loyalty program help the business to grow. Such by using the customer loyalty
program scenario, company can increase the retention of the customer which convince the buyers
repeatedly visit the store. Apart from this improved customer satisfaction, increasing the spending
of the customers and above the customer data which we get is nothing less than a gold for a
company.

The success of a business is now significantly influenced by its ability to satisfy its customers.
Customers who are happy with a firm are more inclined to buy from them again, refer friends to
the business, and write favourable reviews, all of which can improve sales and income. As a
result, it is crucial for businesses to comprehend the variables that affect client happiness as well
as how to assess and enhance it. The goal of this research study is to examine the available
literature on customer satisfaction, including its definition, essential factors, measuring techniques,
and effects on a firm's bottom line. The results of this study can help organisations understand
how to improve customer happiness and ultimately succeed over the long run-in today's cutthroat
industry.

The objective of the research study on customer loyalty program is to investigate the effectiveness
of loyalty programs in increasing customer loyalty and retention in the retail industry. The study
aims to identify the factors that influence customers to participate in loyalty programs, their
perceptions of the value of rewards offered, and the impact of loyalty programs on customer
satisfaction and loyalty towards a brand or retailer. Additionally, the study aims to explore the most
effective ways to promote and design loyalty programs, as well as the impact of customer
demographic and sector-specific differences on program effectiveness. Ultimately, the research
aims to provide insights and recommendations for retailers to optimize their loyalty programs and
increase customer retention and profitability.

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Literature Review
Customer satisfaction has been interpreted in the literature of the business environment as a asset
which is completely based on the market which is related the efficiency and the effectiveness of
the resources of the firm and major factor for the enhancement of the firm (Beckers, Van Doorn,
and Verhoef, 2018). There are many studies that has been published to demonstrates the
customer satisfaction criteria in which customer loyalty.

Loyalty Program
The customer loyalty program can be defined as a program which is usually offered by a
company to its customer to strengthen the emotional as well as futuristic relation with the company
or the product / brand (Tarigan, Wijaya, and Marbun, 2020). The exact science behind this
program is to support the rebuying of the products by providing incentives to the customers which
encourages customer to buy the same products or similar services from the same company again
and again (Doyle, 2013).

Member Card or Club Card

This is the most useful program which is being used by different companies in the present world.
For the example Tesco used its club card to benefit its customers. It is basically a frequency cum
marketing card which is provided to the customers and this exercise help the company to create a
data base of the buyers (Kottler and Keller 2009). Difference companies in retail sector has
difference names for their membership card. It can be defined as a customer card, club card,
membership card or loyalty card etc. As defined by Magatef, and Tomalieh (2015), the aim of
loyalty program through different techniques using cards is rebuilding the business by providing
participations to the customer who have not participated in any programs yet. By doing is widen
the scope of business the new buyers as well.
The membership card can be used as a necessity of an organization. It is obvious that the
customers who have become the members of a company or an organization is automatically

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indulge themselves with the strong bond with the company. In other words, they tend to have
some emotional and psychological relationship with the same company for many years and their
relationship with the company are usually stronger than the relation of non-customers.
Hypothesis: Membership/Club cards positively effects the customer satisfaction.

Discount Price.
A discount can be defined as a reduced price of a particular product or service offered by a
company (Bismo, Sarjono, and Ferian, 2018). The main motive behind providing discount is to
make buyer happy and for the company the products are being sold which also beneficial for the
company as well. For example, even if we talk about ourselves, then we always tend to search for
company who give discounts on certain products which we are thinking of buying. The customer
satisfaction is usually affected by the decision of buying which shows that giving discount to the
customer can be an important factor for not losing customers. (Breugelmans, Zhang, Kopalle, P&
Wünderlich, 2015)
Reduced prices can also assist companies in getting rid of extra inventory or selling off items that
aren't doing well. Businesses may encourage clients to buy these things quickly by providing
discounts, which will make them feel compelled to do so. As a result, there will be more room for
new goods and lower inventory expenses. Discounted rates can also aid companies in fostering
consumer loyalty. Discounted rates may make customers feel valued and appreciated by the
company, resulting in a better view of the brand and higher customer retention.
Hypothesis: Discount program indirectly effects the customer loyalty and customer
satisfaction as well.

Customer Behavior and Sales

There are several attributes related to service which certainly impact the behavior of customer
towards the company and its products. Some of these attributes includes like introduction of the
product, brand loyalty, price dependency and of course the loyalty scheme as well. The customer
who are already satisfied with the product of a certain company, they tend to the shopping from
the same store or the company even if the competitive companies are offering many attractive and
lucrative offers. There is another theory that there are several groups of people who like to shop
within the limited proximity if they are bound to receive attractive and promotional offers. According
to Ramanathan (2013) the loyalty feature and the easy to access feature for the customers can be
measured by the intention of visiting customers and their word-of-mouth scenario to the friends
and their related.
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The degree of client participation in the purchasing process is one of the major variables that
affect consumer behaviour. Consumers are more likely to undertake in-depth research and take a
longer time making decisions when they are heavily involved in the purchase process, such as
when buying a new car or house. Customers who are less engaged in the shopping process, such
as those who are buying groceries or home goods, are more prone to make hurried and impulsive
selections.
Hypothesis: The retail sales have a positive link with the customer behavior.

Customer Satisfaction.
If we must measure the success of a product or a service, then there is no way other than
customer satisfaction. It is possible to use the assessment and feedback given by the customer to
find out the success level of a product. According to Oliver (1993) customers are more likely to be
satisfied when their experience with a company or its products are consistent and reliable. If the
customers are satisfied with a company, then it will automatically increase the customer lifetime
value and the revenue as well.

Service Operations Attributes.

As the study is concentrated in the United Kingdom region, there are main two key dimensions
when it come to the customer services. One is empathy and the other one is responsiveness
which as a result will affirms the behavior of purchasing order of the customers (Smith and
Reynolds, 2009). Therefore, it is obvious that the store who have helpful and friendly workforce
are more likely to attract customer than the other stores.

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 Figure 1: A abstract model of Retail Sector

Apart from this, other ease to access factors like accessible transactions and benefit also play a
major role in the perceptions of the customers towards the company. Such practices always attract
customer in any region or the sector.
Hypothesis 4: Effective services operations and co-operation of workforce is positively
related to the customer behavior and satisfaction.
Factors which can impact as well as affect Loyalty Programs:
 There can be several factors which can affect the customer Loyalty Programs. One of
which is perceived values of the rewards. It has been found in the study that the customer
always prefers the rewards which has some value in it for them. (Kim, Choe, and Petrick,
2018). Apart from this customer always prefers easiness when choosing their rewards. If
the rewards the complicated, they would totally ignore the same. If it is easier to get
redeemed, then they will go for it for sure. So, it becomes compulsory for the companies to
have rewards and coupon which are easier to understand and collect.
 Effective communication about the program i.e. customer loyalty program or may the
reward program is crucial for its success. Companies need to effectively communicate their
offers, rewards or the loyalty program so that people or the customers comes to know that
what the company is actually offering to its buyers and what are benefit of this. Time to time
innovation is also required such as proper marketing strategies as well
 The design of the program, as discussed in the first point of this section, needs to be easy
and straightforward. It must be easy to navigate according to the requirements of the
customers achieve the values. It also will be personalized according to the needs and
preferences of the customers.

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Research Methodology
In order to focus on the study and to get the required outcomes, a detailed literature review has
been conducted in the earlier section of this report to understand what is expected from this study.
The data which has been used in this report is the secondary data available with published
articles, case studies and reports by researchers. To write this report, I have used the mixed
method research design technique in which Qualitative and Quantitative both approaches has
been used to collect data from the secondary sources. Questionnaire and the discussion
mentioned in this report is based on the literature review as described above. As per the case
study, the questionnaire was validated by the regular shopper and who are good with customer
behavior. By using the survey method, the research was done on the top four retailers in United
Kingdome i.e., Tesco, Asda, Sainsbury & Morrisons.
The responses of almost 150-250 customers were recorded through survey questionnaire to
analyze the data for the case study. While doing the survey, every single participant was assisted
by the research assistant to support them if they had any questions about the same. To complete
the survey, the questionnaire was divided into 2 parts in which the first part was to concentrate on
the developed hypotheses whereas the motive of the second part was to get the data related to
the age, income, gender, and preferences of customers.
According to the research done by Ramanathan, and Vijaygopal (2017), a survey was done and
out of 605 responses, 280 male participants shared their view while the remaining 325 responses
were recorded from the female customers. In the study 51 percent of the responses were from the
age group of 21-30. The percentage of responses from the age group of 31-40 was 21 and the the
teenager participants were 4% and rest of the data was recorded from the other groups of
customers. The data collected in this research shows that 441 out of 605 customers had monthly
income of £1601 and 22 customers had the income of more than £2800. The remaining
participants comes in the category of the income from £1601 to £2800.
SPSS was used for a descriptive analysis once the data was collected from the questionnaire and
the surveys. To have a successful analysis ten factors were identified which is store loyalty, store
convenience, price dependency, sales and customer behavior, introduction, loyalty scheme, brand
loyalty, customer services etc.
Measurements and Instruments:
Following are some of the measurement techniques which has been used in this report to make
the research more successful as well as meaningful.

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Customer Loyalty Scale: This type of scale is a set of some questions which measure the level
of customer loyalty. Such set typically includes products and factors related to satisfaction, re-
buyable products and their frequency of purchasing again, the willingness of customer to
recommend the brand and the product by words of mouth to the non-buyers of the companies.

Behavior Measurement: This include the money spending habit of the customers, they frequency
of visiting the store or buying the products which can be daily, weekly, or monthly and also the
products which they used most commonly.

Customer Satisfaction Survey: With some specific aspects of customer service such as quality
of the product, customers services and the pricing survey will be used to achieve the customer
satisfaction.

Customer Retention Rate: In this research study, the data will be collected to measure how many
customers are loyal or we say continuously purchase something in the given period of time. The
formula behind this to get the desired result is to divide the number of retaining customers by the
total numbers of buyers at the start of the period

Data Analysis and Findings

After carefully studying the published research, it has been found that the hypothesis which has
been developed in the literature review section has been tested using the regression analysis by
the researchers. To have a successful test, first it is required to understand the relationship
between operations features provided by the company and the customer behaviors. To do that, the
characteristics were categories into ten categories which were display, introduction, name location
etc. In the regression analysis the customer behaviour will be declared as the independent
variable. After the test it is provided that the all the factors which included in services operations
has positive influence on the customer behavior which made hypothesis 4 true.

Customer membership card has also positive impact on customer satisfaction. The researchers
conducted the hypothesis testing to find out the coefficient value of the customer value which
proved to be positive and since the relationship between both were in the same direction, it was
clear that the customer satisfaction is completely dependent on the quality of the membership card
and the services it offers to the customers.

Another finding which has arisen from this study has the role of service operations attributes on
the loyalty attributes customer relationship. It is not wrong to say that the service operations plays
a major role between the relationship of loyalty features and the customer relationships. There
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maybe a some time when customers are not happy with the product or the services of a store and
in that case they will try to find out suitable replacement in the other store or from the other
company in their residential area. This will lead to the store taking it seriously so that they can
innovate something which will help them to retain such customers. And this approach will help the
retailers to develop some faith in the customer towards themselves. For example, to retain the
weekly buys, Tesco has developed its club card feature which provides points to the customer on
high quality brands. This process also involves suppliers as well because they make sure that the
most used and loved brand by the customers are more frequent than the least demanded
products. Once the store has identified the preferences of the customers then they can create
more efficient services and products to help achieve more customer satisfaction.

An online survey will be delivered to a sample of consumers who are currently registered in
customer loyalty programmes as the primary data gathering tool. The survey will contain questions
about the loyalty program's efficacy in retaining consumers, satisfaction levels, and reasons
influencing their decision to enrol in a customer loyalty programme. In-depth interviews will also be
performed with a select group of participants to acquire a better grasp of their experiences and
viewpoints.

Secondary data will be gathered by reviewing current literature on customer loyalty programmes,
corporate reports, and academic publications.

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Ethics
While conducting the research about the customer loyalty programs, following are some of the
ethic principles which will be kept in mind to have a successful study.
Informed Consent: According to Arjoon and Rambocas (2011) it is always important to inform
each and every participant in a research study. The same will be done when the research will be
done on the customer loyalty program. Every single participants will be informed about the
purpose as well as the outcomes of the study before they give their consent to do the same. It will
also be informed that how their data will be used and proper precautions will be taken for their
privacy.
Fairness: When it comes to conduct research on a topic that it related to general public or we say
that customer then it becomes more crucial for the researchers to have a selection criteria which
didn’t concentrate on a one specific group of people (Arjoon and Rambocas 2011). Avoidance of
discrimination or disrespecting the values of a particular group will be strictly prohibited.
Responsibility: The researchers in this study will take full responsibility of the work done whether
it is the interview or the survey questionnaire.
Integrity: As suggested by Engelbrecht, Heine, and Mahembe (2017), integrity should be an
important part while conducting research because every researcher needs to adapt the highest
level of integrity for the study and the actions. In this study the same will be implemented and any
deceitful and misleading practices has been completely avoided.

Limitations
In the current times, the competitions in the retail sector especially in the United Kingdom is rising
by every passing day and thus, it has become compulsory to study as well as the customer
behaviors for a stable economic status. The data which has been discussed in the report was
taken from the research which were done in the north of the England, and it has come to the
notice that the customers in the retail sectors are proven more loyal to the store and the
companies where they find ease to do the shopping for their household things. It is not only about
the loyalty programs, but it can also be measured by the convenience of the store because it is
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also possible that the loyal customer can also change their loyalty if they don’t find a convenient
store for their weekly shopping. The reason behind such things is that the if a customer is loyal to
specific store, he can travel a distance to get to that store but stock-out in that store can lead to
customer dissatisfaction which will automatically force the customer to purchase the good
wherever it is available (Grewal and Roggeveen, 2012). There are several factors which needs to
closely focus by retail sector in these competitive times which includes such as attention to the
improvement of customer operations, fulfillment of customer needs and involvement of
understanding and by doing such exercised it will be easier for the company to understand the
behavior, buying pattern and preferences of the customer. The study shows that in the competitive
times like this, it has become challenging for the companies by facing changing customer
preferences and loyalties. To overcome this situation difference companies, use different
promotion strategies and management technique to keep their business in the market. When it
comes to measuring loyalty there are several factors like age of the customer and their income
plays an important role. Although the study which has been discussed in the report is related to the
secondary data which is already available but for the future, this research will be expanded in the
wider area of the retail sector in the UK.

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