How To Increase Store Customers & Traffic
The goal of this study is to obtain a deep understanding of the impact
of customer loyalty programs on customer retention. This study was
applied to Jordanian customers. The study investigates the impact
of independent variable; loyalty programs: point system, tier system
reward, charges an upfront fee for VIP benefits and non-monetary
programs, on the dependent variable: customer retention. To achieve
the objective of the study, a survey was conducted to collect data
from the sample. In total (350) questionnaires were distributed randomly
to Jordanian customers who could be reached by the researchers, and
were contacted through friends, relatives, students and local malls.
The participants had different social, educational, and
occupational backgrounds. Response rate was (81.14%) Percent. The
findings clearly show: there is significant evidence of the effect of
all loyalty programs on building and maintaining customer retention. The
major effect was for Tier system reward followed by charge Up-front fee
for VIP benefits, and then point system, the weakest effect was for
Non-monetary programs.
The use of loyalty programs as a powerful tool of relationship
marketing is becoming popular to encourage customer loyalty. (Roking
2005). The use of loyalty programs can introduce benefits to both
customers and companies. Customer loyalty is an important issue for the
success of any retail organization, because it is known that drawing
new customers is more expensive than keeping existing ones. (Singh
& Imran 2012) Singh & Imran (2012) estimate that on average
online retailers lose 25% of their customers every year, and a small
increase in customer retention can increase profits by more than
25%. Relationship marketing aims to create life time customers
because when customers have a relationship with a company, they
are ready to forget any other competitors offer. Customers are
motivated to do that because it gives them a greater efficiency in
decision making, reduces the information processing, achieves a greater
cognitive consistency in decisions, and reduces the perceived risks
associated with future decisions. (Singh & Imran 2012) To build
loyal customers companies use several types of loyalty programs. 57% of
airlines and 41% of hotel chains reward consumers for a range of
engagement behaviors. A typical approach uses Platinum, Gold and Silver
tiers, typically based on purchase volumes. (Shaw Ray, 2015) In spite
of the fact that the average US household has over 21 loyalty program
memberships, fewer than half of these are active. Key reasons for that
are loyalty programs include lack of reward relevance, rigid reward
structures, and poor quality customer service. More than half of
consumers admitted that they had abandoned at least one loyalty program
according to a survey and social media scanning by Consulting Date.
However, Loyalty programs need to be designed with more targeted
rewards, differ according to different groups of members based on their
value, and they need to provide greater value at higher customer value
tiers, by rewarding best customers to encourage higher spending
levels. In order to do that the organization needs to understand
their customer’s needs and behaviors, by creating customer profiles with
relevant data on customer interactions to have a complete picture of a
customer’s preferences. (Ray Shaw, 2015)
2. Theoretical Frame Work 2.1 Customer Retention According to kotler
“The key to customer retention is customer satisfaction”. Customer
retention means the company keeps its customers by providing a great
customer experience. Customer retention is the key to healthy business
growth. Loyalty can help the business to retain most valuable customers. Recommended web app (https://www.customerturn.com) . Loyalty reflects relationship development and
retention reflects relationship continuity. Customer retention is a
crucial component of customer relationship. The main aspect of customer
retention is the emotions evoked by the customer experience combined
with the organization’s strong reputation. Without the emotional bond
which is essential to retain customers, customer loyalty will be
impossible. Customer retention is important to most companies
because the cost of acquiring a new customer is greater than the cost of
maintaining a relationship with a current customer”. (Singh &
Imran 2012) Retention programs aim to turn the occasional customer
into a frequent customer; they would be more likely to recommend the
business to their friends and relatives. They also raise the
probability of changing customers from being a one or two item
purchaser to purchasing several products. ( Rocking, 2005) Because
the high cost of losing customers is rising every day, companies seek
new techniques to acquire, and retain their loyal customers. Service
has long been an important factor in customer retention, and new
research suggests its role is more critical than ever and will continue
to grow in the future. (Potter -Brotman Jennifer, 1994). Customer
retention earns the business a good reputation and goodwill in a
competitive market. (Singh, & Khan, 2012).Customer retention is all
about the customers and their experience. Customer relationship
management is the practice of analyzing and using marketing
and leveraging communication technologies to determine corporate
practices and methods that maximize the life time value of each customer
to the firm (Reinartz, 2004). The fact that customer retention is
widely accepted as it is central objectives in relationship marketing.
Because customer retention focuses on repeated patronage of a marketer
or supplier, it is closely related to repeat purchasing. (Hennig &
klee, 1997) 2.2Customer Loyalty Customer loyalty is the customer
attitude and behavior to prefer one brand over all competitor ones,
whether? due to satisfaction with the product or services. It encourages
consumers to shop more consistently. (Peiguss, 2012) Customer loyalty
is defined as the willingness of any given customer to purchase the
company’s goods or services over competitive ones available in the
marketplace. (Singh, Khan, 2012). Due to the fact that loyalty is the
result of developing past positive experiences with the customers and
having them return to the company various times due to these
experiences, customers will return again and again to do business with
the company; regardless of whether it may not have the best product,
price or service delivery (Ghavami & Olyaei, 2006) Zikmund, (2002)
demonstrate that loyalty is more than a repetition of behavior.
Customers can demonstrate loyalty to price, brand, company, and
other customers. However, Customer satisfactions important to
any company and it affect clients repeatedly coming back to the company
due to its service. This expects that the crucial factors affected
customer loyalty are customer satisfaction, emotional bonding, trust,
choice reduction/ habit, and company history.(Ghavami & Olyaei,
2006).Therefore, customer satisfaction with a company’s products
or services could be considered the key to a company’s
success and long-term competitiveness. Customer satisfaction is
viewed as a central determinant of customer retention.(Peiguss, 2012)
Singh, & Khan, 2012) pointed out that satisfaction is not enough
because less than half of the company satisfied customers will come
back. The company needs to transfer satisfied customer to loyal
customer. It's so important because it costs so much to influence
customers to buy and so little to induce a repurchase. Customer
loyalty is a result of a positive emotional experience, physical
attribute-based satisfaction and perceived value of an experience, which
includes the product or services. Recommended web app (https://www.customerturn.com)
2.3 Loyalty Programs Loyalty programs: are structured marketing
efforts that reward, and therefore encourage, loyal buying behavior,
which is potentially beneficial to the firm (Sharp, B. and Sharp A.,
1997). The rewards programs are offered by a company to customers who
frequently make purchases. A loyalty program may give a customer
advanced access to new products, special sales coupons or free
merchandise. Customers typically register their personal
information with the company. Loyalty programs work as an
incentive by providing benefits based on cumulative purchasing over
time. Loyalty programs encourage consumers to shift from myopic or
single-period decision making to dynamic or multiple-period decision
making. These programs encourage repeat buying and improve retention
rates by providing incentives for customers to purchase more frequently
and in larger volumes. (lewis, 2004) The first usage of loyalty programs
in business was many years ago originally in Germany, where price
completion was disallowed by government. In 1981 was the first
launched of loyalty programs by American Airlines and quickly used by
other airlines and hotels, car rental companies, credit card
organizations and retailers. As reported in the New York Times,
Forrester Research found that across 12 industries, retailers are the
most loyalty while others, like TV service providers and internet
service providers proved more unsteady. Retail loyalty programs are
offering points, rebates, discounts or combinations of them.
Loyalty programs are considered part of a comprehensive customer
relationship strategy. Even though, there is a fundamental mistake of
many marketers who confuse “loyalty” with “rewards”. Loyalty offers
support and commitment not points. Organizations used rewards programs
to retain their best customers. Frequent customers are awarded
redeemable points that can be converted into free services, upgrades in
class, and exchange of other products and services. Loyalty programs not
only a tool to increase the organization’s loyal customers, but they
are an opportunity to gather information about customer shopping habits
and preferences. This information helps in customizing the
organization’s services. Retailers recognized that without “customer
database," they were unable to identify the best customers and reward
them for their preferable behavior. (The Loyalty Marketer's Association)
Due to the fact, that not all customers are potentially loyal
customers, the ideal loyalty program would benefit only loyal and
potential loyal customers. This means that the customers have first
sorted into groups, and then to be approached in different ways.
Customer loyalty programs should increase customer happiness and
retention. A successful loyalty program has to be designed in the
consideration of the following rules: (Clark Peter, 2010)? 1. Acquire
customers that are likely to repurchase. 2. Recognize which customers
are unlikely to repurchase and limit the marketing spend for
this segment accordingly. 3. Focus the marketing budget on those who
exhibit the same profile as existing repurchases but have yet to buy a
second time.
2.3.1 Types of Loyalty Programs
Organizations have rewarded the loyalty of preferred customers
by enhanced services or price discounts. Recently, loyalty rewards
programs have become applicable in several sectors businesses. Loyalty
programs or memberships are structured marketing efforts that
reward, and encourage loyal buying behavior which is potentially
beneficial to the company. Specifically in retailing marketing it
includes: loyalty card, rewards card, point’s card, advantage card,
or club card which identifies the card holder as a member in
a loyalty program.(Singh& Khan, 2012) 1-Points system: This is
the most common loyalty program. Frequent customers earn points, which
translate into some type of reward: discount, gifts, or special customer
treatment, customer purchases toward a certain amount of points to
redeem their reward. Reward programs based on service usage levels
(frequent buyer programs) have become common in the transportation and
hospitality industries. This type of loyalty program is most appropriate
for businesses that encourage frequent, short-term purchases. (Peiguss,
2012) 2-Tier system: Offer small rewards as a base offering for being
a part of the program, and encourage repeat customers by increasing
the value of the rewards as the customer moves up the loyalty ladder.
The difference between points and tiered systems is that customers
extract short-term versus long-term value from the loyalty program.
Tiered programs may work better for high commitment, higher price-point
businesses like airlines, hospitality businesses, or insurance
companies. (Peiguss, 2012) 3- Charge an Upfront Fee for VIP
Benefits: Charge one-time (or annual) customers to start collecting
points by their purchases. Clearly this system is most applicable to
businesses that thrive on frequent, repeat purchases. For an upfront
fee, the customers are relieved of inconveniences that could impede
future purchases. (Peiguss, 2012)
2.3.3 Benefits of Loyalty Programs According to the Center for Retail
Management at Northwestern University Only 12% - 15% of customers are
loyal to a single retailer. This small number of loyal customers
generate between 55% - 70% of company sales. Some food retailers find
that 65%-95% of their sales go to members of loyalty programs. 53% of
food retailers offer loyalty programs, 75% of the loyalty programs
members using their loyalty cards at least weekly and 885 at least used
them once a month. Dates needed It is estimated by Colloquy (2015) that
there are over three billion loyalty program memberships in the US with
26% increase in comparison with 2013. By Average US households
participate in 29 programs. The average household active
participation is about 12 programs. (The Loyalty Marketer's
Association) The retail marketing literature demonstrates several
benefits for loyalty programs for both businesses and consumers. For
business loyalty programs are profitable because: • The costs of
serving loyal customers are less. • Loyal customers are low price
sensitive.
Loyal customers spend more with the company. • Loyal customers
pass on positive recommendations about their favorite brands to their
friends and relatives. (Dowling and Uncles, 1997) Loyalty programs
provide the company with a wealth of consumer information. While
companies can evaluate different purchases, the use of a loyalty program
gives additional information about the type of products that may be
purchased together, and whether certain coupons are more
effective than others. Recommended web app (https://www.customerturn.com)
Retaining customers is less expensive than acquiring new ones, and
customer experience management is the most cost-effective way to drive
customer satisfaction, customer retention and customer loyalty. Loyal
customers are more likely to purchase more, with a high-margin of
supplemental products and services. Loyal customers reduce costs
associated with consumer education and marketing, Regarding the
previous mentioned benefits of loyalty programs which affect customer
loyalty through customer experience management could be considered as a
sustainable competitive advantage. Recommended web app (https://www.customerturn.com).
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