Journal of Critical Reviews

ISSN- 2394-5125 Vol 7, Issue 6, 2020

Review Article IS LOYALTY PROGRAM AS A MARKETING TOOL EFFECTIVE?

Ms. Nisha Nandal1, Dr. Naveen Nandal2, Dr. Ritika Malik3

1Research scholar. Ansal University, Gurugram 2Assistant Professor, Ansal University, Gurugram 3Management Consultant and Visiting Professor

Received: 15.02.2020 Revised: 14.03.2020 Accepted: 25.04.2020

Abstract Loyalty programs are an ubiquitous instrument of customer relationship management. Complexity of modern business requires managers to strive for innovative strategies to acquire and retain customers in any product market field. As acquiring new customers is getting costlier day by day, business organizations have offered loyalty programmes to retain & reward existing customers and maintain relationships. One of the best ways to keep customers coming back for more is by establishing an effective loyalty or rewards program. Loyal customers, it is said, are worth striving for. They spread positive word-of mouth, reduce defection rates, and amplify the purchase frequency, to name just a few examples. But what can be done to induce that loyalty? Can loyalty schemes help us to do so? In this paper, we try to determine whether loyalty cards issued by stores have an impact on customer loyalty. The aim of this research is to enhance our understanding of loyalty program effectiveness.

Key Words: Loyalty, Complexity, program.

© 2019 by Advance Scientific Research. This is an open-access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/) DOI: http://dx.doi.org/10.31838/jcr.07.06.188

INTRODUCTION Benefits of Customer Loyalty Programme A loyalty program is a promoting framework initiated by a • Increase in Customer Retention. business that rewards acquiring conduct accordingly • Increase in Customer Lifetime Value expanding the client’s inclination to remain faithful to the • Improved client Relation organization. A loyalty program may offer accommodation • Improved company reputation store credit prizes or some other advantage that would allure • Great ‘Customer Win back’ strategy to bring back lost the faithfulness of a client. Customer engagement Organizations customers. all through the country are presently using loyalty programs • Great way to encourage customers to move up from their more regularly than any other time in recent memory. These current spend level to a higher spend level. associations comprehend the significance of holding existing • Allows the flexibility to decide which segment of your clients and execute a framework coordinated particularly at client base you wish to spend your marketing budget on. building client loyalty. Of course, similar to all other showcasing • Loyalty Programmes give you the opportunity to acquire endeavours an all-around created dependability program new customers. Value Rewards requires assets that may presently be assigned towards • Gives you the opportunity to create brand advocates who different attempts. Customer Loyalty programme - a very can help you expand your customer base by giving powerful strategy Which has been accepted and implemented personal recommendation. by businesses big and small. • Allows laser targeted marketing based on the valuable

segmentation of a loyalty database.

History of Loyalty Program

Journal of critical reviews 1079

IS LOYALTY PROGRAM AS A MARKETING TOOL EFFECTIVE?

Types of Customer Loyalty Programs points are not just the numbers, they are converted into some Frequency Loyalty Program Loyalty rewards programs kinds of reward for you. Customers get a chance to redeem their This loyalty rewards program encourages the customers to buy points on the future purchase more. For example: If a customer has bought 4 items then he gets the 5th one free. Therefore, by rewarding the customer on 2. Spend Program the 5th purchase this loyalty scheme helps increase sales. On the basis of how much the customer has spent on purchasing, he gets credits. It has been seen that the amount on PROS: This is the simplest type of customer loyalty programme. transaction increases by giving credit facility to customer It is easy and cost effective to set up this customer rewards program. It allows businesses to set up tiers to reward increase 3. Tiered Program in levels of purchase behaviour. One way to find the right balance between attainable and CONS: The Downside of this customer loyalty program is that desirable rewards is to implement a tiered system, which it’s too simple. Its simplicity does not allow companies to collect rewards initial loyalty and encourages more purchases. This customer information. You lose valuable data which can one is based on how much loyal the customer is. On every otherwise be used in further marketing efforts. purchase customer gets certain points. As the points increases, the level of loyalty also increases. Customer will start getting Earn Points to Get Rewards Customer rewards programs more points as the level increases In this type of customer rewards program customers earn points on each purchase. These points can then be exchanged 4. Paid Program – VIP member club for rewards. Rewards can be weekend getaways, movie tickets, This one does not come free of cost. One has to pay monthly or spa etc. annual fee for its subscription to enjoy special benefits & discounts. There are certain benefits which can only be PROS: It’s a simple process for customer to understand, set up accessible by their members, they are made exclusive for them and follow. Once rewarded customers remember their rewards for a long time which encourages them to stay loyal to your 5. Value – based Program products and services. This one is based on the customers value. First, it is very important to define your values. Let’s imagine that you run an CONS: This customer loyalty program needs a careful system to online pet store and you know that your audience values animal track points correctly. Since there is no instant gratification for welfare. One thing you may do it, is to start a loyalty program, customers, they could lose interest in the programme and similar to the point system, where customers’ purchases abandon it. Customers constantly need to be reminded of the translate into currency. Then, every time a customer makes a points they have earned. 50€ purchase, you would donate 5€ to an animal rescue

organization.The reward when choosing the value-based Cash Back Loyalty Program best reward programme program is to connect with customers on a deeper level by In this type of Rewards Programme, your customers will earn creating a strong and ethical relationship with them. money after crossing a certain spend limit. They can then spend this earned cash on their future purchases. 6. Partnered Program PROS: It is a simple system to set up and follow. Customers love Can be super effective regarding customer retention, as you the idea of earning money by spending money which offer them more opportunities. At the same time, it can help encourages them to come to you more frequently. the growth of your business by building new business relationships (partnerships).While providing your customers CONS: You may not be able to attract customers in low spending with value that is relevant to them and goes beyond what your category using this type of Loyalty Program. It may not be company can exclusively offer them, you are showing them that suitable for businesses where the customers have no need to you truly understand and care about their needs. frequent your store. 7. Game Program Some other types of Loyalty programs Loyalty programs sometimes sound boring for the customers. 1. Point Program To make it interesting, a unique idea is to convert loyalty It is the simple & common program used widely by the firms. program into a game application to encourage repeat According to this, if you Spend more, you will get more points purchases, increase customer loyalty, entertain customers and in return. In this method, what happens is when a customer visit help strengthen your brand’s image in a more entertainment website or store to make a purchase, on the basis of amount of way. purchase certain points are added in their loyalty card. These

Journal of critical reviews 1080

IS LOYALTY PROGRAM AS A MARKETING TOOL EFFECTIVE?

8. Hybrid Loyalty Programs (FA & RF, 2019)Concluded that Social bonding strategies should Is a combination or merger of 2 different loyalty systems. In this be used by companies to have loyal customers and must program, 2 different systems are merged such as tier and game provide value to everyone involved in exchange process. program, whenever customers reach a certain level of loyalty, Customer loyalty will come along with many benefits but for means that they have completed a new level in your game. that company should understand first, how customer loyalty is The most commonly used combination is point-based system built. This study revealed that Loyalty programs found to have with tier program because in this calculation of points is easy positive effect on Customer loyalty. Although Loyalty programs for the customers and motivates them to so for next loyalty level give benefits to customers, yet they compare the price with by making more purchases. competitors.

Objective of the study (Shugan, 2005)Concluded that loyal customer should serve as • To study impact of Loyalty program on Customer an asset for the company rather than liability. True loyalty loyalty programs don’t demand trust, they built trust and believes in investing now for the future. There are some loyalty programs • To enhance the understanding about Loyalty which generate short term revenue to customers, but in long Programs term they become obligations for the customers. A real loyalty • To know how effectively Loyalty programs are used program is the one that becomes asset rather than liabilities for as a tool of marketing? the customers. Instead of passing the benefits in future, the

company should provide current benefits to the customers. By Research Methodology making customers more attached to the brand, assets are The methodology applied is descriptive in nature. Data is created in the form of loyal customers. Attachment does not collected using secondary resources. Various reports & studies come by its own, it needs learning, experience, Customization have been referred in the present research. The sources from or habit. where the data has been collected for the present study is listed below – (Hasim, Mahmud, Shamsudin, Hussain, & Salem, • Research paper on related topic 2015)Concluded that loyalty programs help in promoting • Web resources related to the topic products and services of Banks. Banks are making use of loyalty • All the other published material has been referred during program to retain their long-term relationship with the the research customer as well to attract the potential customers. To know how much effective the loyalty program is, bank has to find out LITERATURE REVIEW how many customers are satisfied & their satisfaction level (Hofman-Kohlmeyer1, 2016)Concluded that loyalty program from the loyalty program. comprises of affective and financial components. By just (Saklani, 2009)Concluded that millions are spent on setting up offering monetary benefits won’t guarantee retention of & maintaining loyalty programs, so to find out their outcome is customers. Consumer reward program is a valuable source of important. When free membership is offered to the customers, Information and customer database. Collected data of involvement in the enrolment is seen to be low. The company customers must be used to build marketing strategy. To should identify the customers first, from whom the results can maintain the privacy of Customers is the responsibility of be expected. After that, customers who find the program Manager, how loyal the customers are depending on the fact valuable are relevant and raise in their purchase post that how much they trust on the company. Researcher also membership can be expected. Others might shift to the analysed that loyalty program are proved to be more profitable competitors if they offer better value. as they are made to retain the existing customers. To attract new, one is less expensive than retaining existing one. (Mathur, 2015)Concluded that there is a tough competition prevailing in Organized retailing in India and to survive in this (Gomez, Arranz, & Cillan, 2006) Concluded that effectiveness of competitive environment, one has to create strong bond with loyalty program gets strengthened with time. The study was the customers by understanding them better and to do so the focussed on grocery retailing companies, the industry with firm has to build and develop the loyalty program consisting of highest loyalty programs. The study revealed that companies attractive tangible and intangible benefits for their loyal with loyalty program enjoy greater behavioural loyalty as customers. In future, retailing performance can be enhanced by compared to the competitors who don’t run such programs. effectively implementing loyalty programs. Participants of loyalty program showed higher positive attitude, commitment, trust and satisfaction as compared to (Babu & Sultana, 2017)Concluded that Loyalty program attract non-participants. Hence, loyalty programs are successful in customers to visit the stores more frequently & to spend more. attracting most loyal customers. All loyalty programs initiatives are focussed towards Customer retention. To maintain Customer relation & retention, company (Zakaria, et al., 2014)Concluded that there exists a significant & has to rely on Loyalty programs. These programs are a way of positive relationship between Customer satisfaction & Loyalty maintaining long term & profitable relationship with programs of JUSCO AEON. The findings clearly indicated that customers, to value the customers & to keep trust into the Gift Redemption, special price, members day, rebate gift brand. voucher, shopping partners programme etc. influence the level of Customer satisfaction. The study also revealed that magazine (Dr.K.Arunmuhil & Dr.A.Arumugam, 2013)Concluded that and insurance coverage does not influence customer loyalty retailers are using some predictive software to find out the much. The customers who found to be loyal to the JUSCO AEON buying pattern & potential customers. Many retailers ate taking are also loyal to other retailers. So, for most loyal customers advantage of internet to promote their loyalty programs company should have special rewards. through websites and e-mail. They are taking efforts to reconnect with their customers by catering their changing (Liu & Yang, 2009)Concluded that to maintain relationship with needs. Earlier shoppers used to identify the needs of customers customers, the best tool is loyalty program. To have competitive but now this task has been assigned to the computers. Loyalty advantage over the firm, loyalty program must come with other programs encourage staff to put more efforts in knowing the complementary resources to fully realize its value. It has been customers personally, making them feel that they are valued seen that not every firm gets advantage from loyalty programs, and respect their privacy. Loyal customers are most important the lift in sales in only seen in high share firms using loyalty for business, therefore loyalty programs should be designed programs. The companies should not offer too much loyalty and implemented well in order to increase profits and to have programs as it reduces the return of individual program too. If competitive advantage. the company is using new channel of marketing, then loyalty program proves to be more appealing by attracting & (Chodisetty & Reddy, 2019)Concluded that in India majority of influencing them to buy more the retailers are using loyalty programs to increase traffic of customers In their outlet and to enhance store loyalty with aim

Journal of critical reviews 1081

IS LOYALTY PROGRAM AS A MARKETING TOOL EFFECTIVE? of creating lifetime customers. In Big Bazaar majority of the REFERENCES card holders have silver with them, but it has been seen that 1. Babu, D. G., & Sultana, D. N. (2017). Loyalty Program as a gold card holders are more loyal. By looking at increasing retail Tool of Customer Relation, Customer Satisfaction and density, Big Bazaar has come up with various facilities and Customer Retention: A Study on Organized Retail schemes to strengthen their loyalty. They are also attracting Industry in India. International Research Journal of people by its special big Wednesday offer. Commerce Arts and Science, 340-354. 2. Chodisetty, R. S., & Reddy, S. (2019). Role of Customer (Mayor, 2018)Concluded that Loyalty programs are significant Brand Loyalty with Reference to Big Bazaar-An Empirical in building & maintaining customer loyalty. Looking at current Research. International Journal of Innovative Technology scenario some random rigid loyalty program won’t work, Jet and Exploring Engineering, 794-797. airways has to take efforts in building flexible one. Positive 3. Dr.K.Arunmuhil, & Dr.A.Arumugam. (2013). AN IMPACT relationship was found between customer longevity and repeat OF LOYALTY CARDS ON CONSUMER PURCHASING sales. The company is well aware of the fact that to acquire new BEHAVIOUR IN APPAREL INDUSTRY. International customers will be expensive than retaining the existing one. Journal of Business and Management Invention, 73-92. Referrals and positive feedback given by the customers brings 4. Dr.K.Arunmuhil, & Dr.A.Arumugam. (2013). AN IMPACT more subscription in their loyalty program. All aspects like age, OF LOYALTY CARDS ON CONSUMER PURCHASING gender, attitude etc should be included while making loyalty BEHAVIOUR IN APPAREL INDUSTRY. International programs and company must ensure that there should be some Journal of Business and Management Invention, 73-92. differentiation in loyalty programs. Cost and revenue analysis 5. Dr.K.Arunmuhil, & Dr.A.Arumugam. (2013). AN IMPACT of each program should be done before implementing it. OF LOYALTY CARDS ON CONSUMER PURCHASING (Gupta & Srinivasan, 2019)Concluded that to retain the BEHAVIOUR IN APPAREL INDUSTRY. International profitable customers and to attract the new ones, every brand Journal of Business and Management Invention, 73-92. in today’s time is making use of loyalty programs. These 6. FA, Y., & RF, N. (2019). Effect of loyalty programs on programs will help the brand in identification of their buying customer loyalty: insights from experts literature and preference, likes, dislikes and their habits, enabling the brands findings. International Journal of Commerce and to serve them better and increasing customer satisfaction. Economics, 1-7. Researcher studied the big brands like Pantaloons, Van Heusen 7. Gomez, B. G., Arranz, A. G., & Cillan, J. G. (2006). The role and Westside & their loyalty programs and how they differ from of loyalty programs in behavioral and affective loyalty. each other. Journal of Consumer Marketing, 387-396. 8. Gupta, R., & Srinivasan, A. (2019). Loyalty Programs and (Singh & Rakesh, 2012)Concluded that gender of customers has Their Importance. International Journal of Science and significantly different perception towards loyalty programs Research, 217-220. which implies that men and women respond differently 9. Hasim, M. A., Mahmud, K. N., Shamsudin, M. F., Hussain, H. towards the loyalty programs of apparel retailers. While I., & Salem, M. A. (2015). Loyalty Program & Customer offering loyalty programs, the difference in perception of Loyalty in Banking Industry. Global Journal of gender is not considered. The findings revealed that all benefits Interdisciplinary Social Sciences, 16-21. offered by the loyalty programs are not liked and preferred 10. Hofman-Kohlmeyer1, M. (2016). CUSTOMER LOYALTY equally by all the customers. The study was limited to Delhi PROGRAM AS A TOOL OF CUSTOMER RETENTION: NCR. LITERATURE REVIEW. CBU INTERNATIONAL CONFERENCE ON INNOVATIONS IN SCIENCE AND (VCSMR, 2013)Concluded that merely satisfying the customers EDUCATION, (pp. 202-206). Prague, Czech Republic. with your products in not enough in today’s competitive 11. Liu, Y., & Yang, R. (2009). Competing Loyalty Programs: environment. To retain the customers, extra efforts need to be Impact of Market Saturation, Market Share,and Category taken by the firms. That is the reason retailing companies Expandability. American Marketing Association Journal of engage themselves in CRM activities. Loyalty programs offers Marketing, 93-108. more value to the customers. To run these programs is not a 12. Mathur, D. D. (2015). INFLUENCE OF CUSTOMER simple task, one has to continuously update and maintain the LOYALTY PROGRAMMES. INTERNATIONAL RESEARCH database of customers. The findings revealed the success of JOURNAL OF MANAGEMENT AND COMMERCE , 1-16. these loyalty programs in UAE as they result in acquiring and 13. Mayor, S. (2018). Impact of Customer Loyalty Program to retaining customers. Customer Retention with Special Reference to Jet

Airways. International Journal of Innovative Science and CONCLUSION Research Technology , 380-404. Loyalty Program’s plays a crucial role in retaining & attracting 14. Saklani, A. (2009). IMPACT OF REWARD PROGRAMS ON new customers. A Company which provides loyalty program LOYALTY. THE ASSOCIATION FOR CONSUMER RESEARCH, benefits enjoys a competitive advantage over their competitors. 314-320. Loyalty program’s attract customers to visit the stores & spend 15. Shugan, S. M. (2005). Brand Loyalty Programs: Are They more. It helps in building a long-term & profitable relation with Shams? Marketing Science, 185-193. customers as well as building a personal relation with them. 16. Singh, M. S., & Rakesh, D. S. (2012). CONSUMER The success of loyalty programs largely depends on how well PERCEPTION TOWARDS LOYALTY CARD PROGRAMS - A they cater to the changing environment by continuously STUDY OF INDIAN CONSUMERS. Indian Journal of updating & maintaining the database of customers as well as Commerce & Management Studies, 58-62. identifying the choices, personal likes & dislikes which in turn 17. VCSMR, P. (2013). Relationship Marketing with Loyalty helps in increase in customer satisfaction. However, loyalty Programs in UAE Retail Markets. International Journal on programs should be implemented carefully so that the Customer Relations . profitability does not get impacted. There should be a proper 18. Zakaria, I., Rahman, B. A., Othman, A. K., Yunus, N. A., mechanism for feedback from customers by which one can Dzulkipli, M. R., & Osman, M. A. (2014). The Relationship identify the response towards its loyalty program. Moreover, between Loyalty Program, Customer Satisfaction and there should be a clarity on conditions of Loyalty program Customer Loyalty in Retail Industry: A Case Study . benefits as it should avoid conflicting situations & discretionary Procedia Social and Behavioral Sciences, 23-30. policies, also it is the responsibility of the company to educate their customers about the terms & conditions related to loyalty program benefits. Also, for an effective loyalty program, one should effectively utilize the importance of technology as more & more customers are going digital in making purchases

Journal of critical reviews 1082