Loyalty Scheme in a Retail Environment

Introduction

Retailing has been growing over the last thousand years (Findlay et al, 2000 p.39). As new products come to existence, new traders have discovered ways of marketing these new products in the market. Rising urbanization has made the consumers be at the same place and different geographical areas.

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According to Severini, (2002 2nd Ed.p.28) retailing involves the sale of commodities or merchandise from a set location and this may be a department, or a specific station. Retail marketing involves the use of marketing ideas and philosophy concerning operations of retail It involves various activities like environmental analysis, researching retail marketing, consumer analysis, products, and service planning, planning for the distribution of products, planning for promotions, pricing planning, and management of retail marketing.

Marketing involves the process of scheduling and executing ideas, pricing, promoting, and distributing ideas, merchandise, and services to enable trade that will meet personal and organizational objectives. Marketing helps to explain the four marketing basics and that is product, distribution, price and promotion.

“The structure for retail organization differs from one organization to another depending on the size and type of business undertaken.” (Shari waters). Small retail organizations are able to combine many divisions under one region while large retail organizations are more likely to have many divisions for every function with different level managers for each function.

A retailer adds value to the product that the consumer needs. This is possible through different utility and that is form utility, place utility, time utility, and possession utility. Form utility means that the retailer provides a finished product to the consumer, place utility means that the retailer provides the product to the customer at the right place that is accessible to the customer, time utility means that the retailer provides the product to the consumer at the time when the customer needs the product and possession utility is whereby the ownership of the product is transferred to the customer.

Evans et al (2007) affirm that for a retail organization to be successful, it will need to understand the market, its customers and must locate its stores in a strategic location convenient for its customers. The retail needs to make strategic decisions concerning where to locate the outlets and the targeted consumers for their products. Good retail marketing helps to keep customers aware of the available products and new products including promotions of products.

Relationship marketing

Evans et al (2007 p.42) argue that relationship retailing entails drawing, retaining, and enhancing customer relationships. Good product and selling strategies are needed for creating good relationships with customers. Products provided to customers are considered to be important to the customer in a long-term period and these products help to create success for the organization and attract more customers. Fornell and Wernerfelt used the term “defensive marketing” to describe an effort to reduce customer turnover and boost customer loyalty.

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Gordon (1999, p.336) argues that the marketing mix approach has restrictions that provide a usable framework for reviewing and increasing customer relationships in many businesses and should be reinstated by the relationship marketing option model where customer focus, relationships, and communication over time, rather than promotion and products.

It also entails the organization managing its customers directly without relying on market share information and ad hoc consumer analysis. The organization creates information systems that assist them to manage the customers. The more organization positions and strategically approach all along the strategic continuum the further a relationship strategy is identified and the more organization has to invest in interactive marketing, practical quality and domestic marketing.

Relationship marketing entails the use of marketing philosophy in every section of the company. All employees in the organization are referred to as “part-time marketers”. How Regis McKenna (1991) says, “Marketing is not a function; it is a way of doing business marketing has to be all-pervasive, part of everyone’s job description, from the receptionist to the board of directors.”

The process of retail marketing is appropriate,

  1. When the product that the customer buys has another alternative
  2. When the product is periodically bought by the customer

According to Reichheld and Sasser (1990, p. 105-111) increase by 5% can cause a growth in customer maintenance and cause an increase in profitability of about 25 and 85 percent this is in terms of net present value when relying on the business. Nevertheless, Carrol, P. and Reichheld, F. (1992, vol.13 no. 4) disagreed with these estimations, arguing that they end up from imperfect cross-sectional analysis.

When an organization notices that customers are living the organization should be able to determine the reasons for living. The following may be the reason

  1. If customers decide to buy a product of competitor and increase in the level of income and anticipations.
  2. When the price for the product is too high and change in fashion for the customers.
  3. When the problems of customers are not solved
  4. When there is no good care for the customers (obtained from Gratuits.com, Articles: Reasons for Changes in Customers’ Needs by Martin Hahn, 2007)

Loyalty scheme

Loyalty schemes are programmes that reward customers and encourage them to be loyal customers (Sharp et al, 1997p 473.). Having an effective loyalty scheme will help the organization retain more customers and attract others. Creating a loyalty scheme will help the organization reduce advertising costs and the organization will be able to build a database for monitoring customer trends.

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According to Sharp et al, (1997 p.473) retailers can issue loyalty cards which the customer can use to claim discounts when dealing with the retail. They can also be entitled to allotment of points which can be used for future buying of the retail products. When using the card, the customer is required to give identification and any other geographical data.

When retail is establishing a loyalty scheme it needs to understand the needs of the customer. This will help avoid irrelevance when coming up with a loyalty scheme. Loyalty schemes must concentrate on the relevance of the people they are trying to attract.

  • Push loyalty scheme. This scheme aims at attracting customers to a certain retailer to ensue benefits provided by the target retailer.
  • Pull loyalty scheme. It centered on increasing accessibility and increase customer transactions by providing customers with incentives that will attract them. In other words, it aims at pulling customers towards a particular retailer by providing benefits to the consumers.
  • Purchase loyalty scheme. This scheme encourages consumers to purchase products from a wide range of retailers. It encourages customers to buy in general.

Sharp and Sharp (1997:485) assert that “it possible to change the repeat purchase patterns for at least small degree and that loyalty programs are probably the only marketing effort which deliberately focuses on bringing about such change.”

Maintaining loyal customers helps to maintain the basic sales and reduce costs for advertising. However, the organization should not take advantage of the loyal customers and stop advertising services. This may make the organization lose its customers.

Retail Company

Shell Retail Company was formed in 1960 and it has outlets globally. It supplies energy and oil products worldwide. Shell Company aims at maximizing the shareholders’ returns and fulfilling social responsibility. Shell Company has concentrated mainly on biofuels, wind energy, solar power and hydrogen. Shell Company helps to meet the global energy demand in an economical and environmentally friendly manner. (Obtained from Shell oil Company website)

Currently, shell petrol retailers aim at winning on price and promotions. Price competition is the main form of competition among petrol retailers and this is expected to change to promotions. Modification in business performance is most likely to result in less clear pricing, rising operation costs, and this will increase the price of petrol to persons who are not able to bargain in promotion schemes. (Obtained from Shell Oil Company Website).

These retailers allow customers to accumulate petrol points and later they can redeem those points at other petrol stations. High-income earners are more likely to benefit from redeeming the petrol point than low-income earners. On the other hand, high-income earners are more likely to get petroleum products cheaply than low-income persons.

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Retailers that have high petrol prices are likely to offer more money off for every point gained by the customer and those that have a low price are likely to offer a lower discount for every point attained by the customer. (Obtained from Royal Dutch Shell Article by Ed Kemp).

Petrol retailers are encouraged to have a loyalty scheme that will attract customers and help to retain customers to the petrol retailer. Having a loyalty scheme will enable the petrol retailer to increase its market power and consumers like motorist will not stop at the cheaper petrol station but they will be loyal and purchase their petrol product from the retailer so that they can earn more point. The loyalty scheme is used together with Shell Plus Points allowing a customer to gather and accumulate vouchers which may be either used in other Shell petrol stations. (Obtained from Shell oil website)

Loyalty schemes are now part of the daily activity of the oil company providing fuel products. There is intense price competition and steady product offering. The loyalty scheme helps to create customer loyalty among the consumers of the oil products. This will also help to improve the sale of the retail company.

Most petrol customers may not be loyal to fuel retailers and if they are given the loyalty scheme, they are likely to improve their loyalty to the retailer. Oil credit cards have the potential to create customer loyalty for oil, retailers.

Impact of a loyalty scheme

The majority of consumers will rather retailers compete on price than loyalty schemes. At all the prices for loyalty schemes is included in the price of petrol products that consumers purchase.

The loyalty scheme is expected to enhance price transparency and since the scheme transfer price competition to non-price considerations it reduces price transparency and it disadvantages consumer who rather prefers lower price.

The consumers at Shell Company depend on human cashiers to key in their points and this may lead to errors of not recording well the number of points obtained by a customer. This happens because some shell stations do not have machines that can electronically record the points to the petrol pump payment system. Shell company customers are forced to rely on the accuracy of cashiers. (Obtained from shell oil website: Comments)

Conclusion

Customers must be treated with courtesy to make them feel valued. By valuing them customers will be loyal to the company and hence increase the profits of the company. For the organization to survive in the competitive environment it must put more attention to advertising. Giving prizes to customers will also help to attract more customers to the organization.

Loyalty schemes in the organization are capable of increasing the attitude of the customers towards certain products and also improve the loyalty behavior of the customer.

Finally, an organization will need to build a strong relationship with customers and all the targeted customers for the company to maintain and increase the number of customers. The company must attract, maintain and enhance good relations with customers.

References

Findlay, A. M. & Sparks, L 2002, Retailing Taylor and Francis, p. 39.

Evans, J. & Berman, B 2007, Retail Management New Jersey: Prentice Hall.

Severini, K W 2002. The Malling of America: travels in the United States of Shopping 2nd ed. XLibris.

About: Retailing Shari Waters Article: Retail Store Organization-Structuring Your Business.

Fornell, C. & Wernerfelt, B. 1987 Defensive marketing strategy: a theoretical analysis, Journal of Marketing Research, 1987, pp 337-346.

McKenna, R. 1991 marketing is everything, Business Review, p 65-70.

Gordon, Ian 1999. Relationship Marketing: New Strategies, Techniques and Technologies to Win the Customers, John Wiley and Sons Publishers. p.336.

Reichheld, F. & Sasser, W. 1990 Zero defects: quality comes to services, Harvard Business Review, p 105-111.

Carrol, P. & Reichheld, F. 1992 the fallacy of customer retention, Journal of Retail Banking, vol 13, no 4.

Martin Hahn Articles Gratuits.com: Reasons for customers living organization: Reasons for Changes in Customers’ Needs, 2007.

Sharp, Byron & Anne Sharp 1997, Loyalty Programs & Their Impact on Repeat-Purchase Loyalty Patterns, International Journal of Research in Marketing, vol. 14, Issue, p473-486.

Shell oil Company’s official website, article: U.S. Oil Company.

Royal Dutch Shell Article: loyalty scheme by Ed Kemp.

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