Customer Loyalty to achieve Competitive Advantage: A comprehensive study on Tesco

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1.0 Introduction

Customer loyalty is the flip side of customer satisfaction. Customer satisfaction is more about the customers’ assessments of what the business or organization provides. It’s about whether a business feels they get what they want from the client. Customer loyalty comes as a result of customer satisfaction. Customer loyalty is about making customers love the company and its products or services. It also entails retaining the clients (Truss, 2001). The increased customer satisfaction assists enhancing the level of customer loyalty. Customer loyalty tends to be more profitable to the company as it costs less to service an existing customer than to win a new customer. Recommendation from the existing clients plays a big role in growing business. This places loyalty of the clients at the core of business growth and expansion.

1.2Types of customer loyalty

Monopoly loyalty

This is where clients have little or no choice and hence they become loyal to a given business. It is resentful. Studies however show that customer that have fewer options tend to be dissatisfied.

Cost of change loyalty

In majority of the cases, the cost difficulty or hassle in changing from one product or service to the other become so great that clients will only do it as a last option. As well, research indicate that customers tend to live with much lower costs than normal levels of satisfaction prior to changing to the new product (Thomson, 2000).

Incentivized loyalty

This has been the most over hyped marketing policy in the past years. The type of loyalty has effects on client who are not using their own money. Making flyers is an example.

Habitual loyalty

This might be the most rampant form of repeat business. Sometimes, when the goods become scarce, familiar routines that can be easily accomplished with less thought becomes part of life.

Committed loyalty

This is where the customer is committed to a given business or product or service. The customer tends to make all the purchases from the given business. This normally happens when the client is in one way or the other related to a given business.

1.3Factors affecting Customer Loyalty

There are a number of factors that the businesses must put into consideration in its endeavours to offer customer service. First, diversity is very important since every customer has his own needs and wishes that these needs be met by the organization (Stewart, 2006). The link between proper customer service and value addition to the organization has been underscored by attempting to delineate the value brought to the organization by proper communications strategy that is intermarried with relevant marketing skills to offer the desired services. The impact of the customer service on the company delivery is another factor that must be put into consideration (Orlando & Johnson, 2001)

Quality in loyalty programmes is an imperative aspect in the development of teams meant to conduct business organization’s activities (Rahim & Minors, 2003). Quality is usually aimed at eliminating the main causes of the problems, through continuous process improvement programs and therefore reduces the variations from the target to the aimed objectives in the firm (Graetz, 2002). It is aimed at improving the customer satisfaction through provision of better services and also removes the activities that have no value to the organization and customers. They also remove services that add no value to the clients.

1.4Conditions of loyalty

Conditions of loyalty vary from one organization or business to the other and also depend on the type of customer loyalty programme being undertaken. One of the conditions is membership. All participants have to first become members of the loyalty programme before participating. Points are associated with given prices and goods or services (Robinson & Kleiner, 2006). The prices are to remain constant for all members. The more the participation the greater the earnings are also applicable to all members or participants.

1.5Measuring loyalty

Customer loyalty is measured based on the customer increased or decreased purchaser of goods or services. It can also be measured form the reaction of customers towards a given good or services post the introduction of the loyalty programme (Langley, 2000). It can also be measured form the increased profits acquired after the introduction of the loyalty. However, the increased sales or profits cannot be a trusted measure since increased purchase can be contributed by various factors and thus the earned points per each client can be ultimate measure (Rumelt, 2004).

Customer loyalty, measured by the help of surveys is assessed through the use of questions and items, reflecting the aim of the loyalty. For every good or services, clients are asked to rate their level of satisfaction. The commonly used measure include

Customer satisfaction

Chances of choosing again the same product or service

Chances of recommending

Chances to continue buying similar product

Chances of buying different product

Chances of increased buying of the same product or services

Chances or likelihood of changing to another services provider

However, as earlier noted method of determining the level of customer satisfaction is company dependent and should follow the type and aim of the loyalty. There remains to standard measure of the loyalty.

1.6Managing loyalty

Managing loyalty is customer satisfaction and appropriateness of the loyalty programme. Loyal customers lead to customers coming for the same product again and build brand value. There are various benefits of the customer loyalty programmes (Lepak & Snell, 2009). Since the programmes vary from one business to the other depending on the aim of the programmes among other factors it is imperative to a suitable programme for a given group. In cases where the customer incomes and expectations vary by margins, two or more loyalty programmes can be designed (Sutton, 2005)

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1.7Elements of a loyalty strategy

Among the elements of loyalty strategies are;

Segregate your customers

All businesses are not similar or operate in same environments and so the differences in clients. All clients are unique and have varied tastes and preferences on each and every good and service. The aim when segregating customers is to recognize a potential client forms the existing ones. The managers tend to look for the key indicators for example, where the client comes from, the income of the customer, taste and preferences, customer potentiality among other factors (Hubert, 2000).

Define the customer groups

Each group of customers behave differently and so deserve different treatments. The loyalty programmes should be aimed at addressing the requirements of customer groups. In cases where the taste and preferences are too varied to be bridged, different loyalty programmes are necessary (Gabriel & Griffiths, 2002)

Setting Goals for each segment or customer group

After the loyalty programme has been defined and set for a given customer group, low level strategy should be in place. The goal and targets required for the clients should be something achievable or measurable. This should be average billing, more referrals of clients, and increased number of visits among other factors. The loyalty should be specific to accomplish one or two objects.

1.8Loyalty and loyalty schemes

Customer loyalty is among the most important assets to be possessed by a company. With the multiple in the number of competitors and goods and services, many product and services, and the expansion of the internet trading, loyalty is rarely existent in the modern retail environments. A customer loyalty programme is a structured and non-short termed marketing effort which gives incentives to the repeat clients (Dulewicz & Higgs, 2009). The programmes are meant to encourage the clients to make more purchase of some products or services, increase their number of visits and make them refer others to buy the same good or service. The loyalty schemes differs form one company to the other depending on the aim of the loyalty and the expected outcomes (Farmer & Kingsley, 2001).

1.9Reward design

Often, rewards are designed dependent on the number of earned point. In majority of the cases, they range from silver, diamond and gold. The naming however varies from one business to the other like starter, middle, and advanced. This is dependent on the reward aim and the expected population.

1.10Competitive advantage and its factors

One retail expert says that because it’s planning to locate where Wal-Mart has a relatively small presence, “Tesco is beating them to the punch” in California. Tesco has a great advantage if it begins by establishing its stores in the areas with low competition. Since other businesses have already built a name in other parts, taking advantage of California is the only option of Tesco (McNamara, 2007). If it attains customer trust in these areas, its fame will spread to other areas giving it a business advantage. There are very important factors that must be considered when selecting a stole for any retail businesses. These include visibility, accessibility, traffic and population’s age and income. This is to ensure that the business is located at an area that is convenient for the majority of the target customers. The visibility of the store should be analyzed from a customers’ view point (Johnson, 2001). The more visible it is the less the advertisement needed. Tesco is taking advantage of the small retail shops by Wal-Mart and other businesses. If Tesco puts up large retail stores in these areas, it is likely to draw customers from Wal-Mart and prevent other customers from shopping in other shops. The visibility of the retail stores attracts customers as it acts as a means of advertisement without cost (Giannini, 2000). Building stores near Wal-Mart stores will help undercut on the number of customers purchasing goods from Wal-Mart. This will be possible if Tesco offers similar products as Wal-Mart and extra quality products and services.

1.11Customer satisfaction and Competitive advantage

There is a great paradigm shift in the contemporary business environment and this intermarried with the day-to-day economic conditions that various businesses are subjected to; it becomes very essential for every business to explore the aspect of customer satisfaction thoroughly as an important aspect and process of business survival and growth (Collins & Porras, 2004). By exploring customer satisfaction, the business organizations not only gain knowledge of the customer satisfaction drivers but establish strategies to retain them and have a competing edge over the competitors in the market (Combs, & Skill, 2003).

Knowledge of the customer satisfaction factors is a strong backbone upon which an organization can base its customer retention by knowing the satisfaction drivers of the customers it has attracted (LeBlanc, et al, 2000). Furthermore, though there is a great significance of using customer opinions and attitudes in various fields, not many studies have specifically focused on assessing the attitudes of customers with respect to their satisfaction with the products offered especially in developing economic systems (Buren, 1999). This section attempts to give an assessment of the studies that have been undertaken in an attempt to investigate the relationship of the two broad dimensions of customer satisfaction and that of customer retention. These two dimensions are powerfully related when attempts are made to understand or debunk on customer satisfaction (Crutchfiled, 2000). After all, the ideological significance of endeavouring to satisfy the customer is to retain the attracted customer and attract more hence creating a pool of loyal customer in the market. The end result: – strong customer base and hence formidable market dominance.

In definition, customer satisfaction can be understood as an attitudinal concept which reconciles the customer expectation and actual experience. When the difference between the two aspects (for instance expectation and actual experience) is wide, then there is little satisfaction and an organization stands high chances of losing the attracted customers (Chen, 2001). With the changing characteristics of the market platform on which business is conducted, the aspect of customer satisfaction becomes even more relevant. Online businesses that deal with clients in a virtual world would wish to know the satisfaction of their customers.

1.13Business Strategy and competitive advantage

Since Tesco is relying on high technology to make the purchase of products more convenient for its customers, it is likely to attract more customers. Its system will involve making orders by phone, a factor that will result in saving time and transportation cost. Despite the fact that other business are on the low prices of their products, it is likely to loss many customers to Tesco. Tesco will thrive faster in areas where Wal-Mart has not expanded its services (Boxall, 2006). By gaining more customers in the area where Wal-Mart is less known, Tesco can easily build on customer confidence. It will later expand to areas where Tesco is well established basing its support from it excellent customer services in other areas. This will negatively affect Wal-Mart as it will loss customers and Tesco will remain its threat even in the future (Oxman, 2002).

1.14Innovation and competitive advantage

To innovate is to create and commit to a strategic focus for creativity and innovation to succeed. It is vital that leaders give their organizations and teams the strategic focus for the desired creativity and innovation. A question is the innovation needed to re-create a market or products should be in mind? Is it acceptable to redefine the business model, without an insight into these boundaries ideas is likely to be too readily considered too difficult? This direction need not be detailed. It should merely create and bound a focus for innovation (Bartel, 2004).

There are generally various types of innovations that companies consider for pursuit. Some of the innovation types are more applicable in given cases as compared to others. This depends on the status and stage of company development and objectives. For a starting company, the type of innovation might differ from the ones employed by the growing company (Bontis, 2006). Product innovation, or service innovation which is the most common types of innovation, results from improvements that are made to existing products and services. Almost all companies that have been established should focus on service or product innovation or they might not gain market share to a more violent competitor (Chauvin & Hirschey, 2003).

1.15Core competencies and Competitive advantageAccessibility to Grocery storesProximity is another issue that the grocery shoppers will analyze before purchasing any product. A consumer may prefer to purchase other groceries in the nearest stores when Tesco is far away (Knight, 2000). Thus the managers of the Tesco should make the stores available in the small towns that were not served by the competitors as this will allow it to launch itself as the sole retailers in these areas thus the consumers will tend to purchase groceries from the stores more so if they are offering better prices than stores in the city which normally take two to four hours to get to by car (Adler & Kwon, 2002).

Grocery shoppers also want to shop in stores that are not too far away from where they live. A store could have a good name but if customers are not able to access then they will definitely not shop at that store. Grocery shoppers just like any other shoppers tend to have a favourite store. This is usually based on what the store offers which are mostly, reasonable prices, availability of items as well as good quality of the good and services (Brown et al. 2007). However if the customer at one point cannot access the store since they are away from their usual residence then that store will lose that sale.

Low pricesLow price is another strategy that the Tesco centres so as to persuade consumers in buying the groceries. With this hard economic period that is being experienced throughout the world, the last thing the consumers would want is to purchase goods in stores at a higher price whereas they can purchase the same products elsewhere at a lower price (Bontis & Fitz-enz, 2002). Thus the Tesco’s supercentres should try and lower the prices for their groceries to attract more consumers. Apart from reducing the prices, they can offer discounts to the grocery shoppers who have purchased a lot of goods. This will encourage the consumers to purchase more products as it is both pocket friendly and an addition to their groceries.

Quantity and VarietyQuantity and variety also matters a lot to the consumers. How many different types of groceries can a consumer get at a particular store and in what amount? Therefore these stores should offer a wide variety of produce under one roof to its consumers (Mayo, 2000). This will be aid in easing the consumers’ work of driving from one store to another in search of different groceries. These stores should also sell goods in more quantities than the other stores as these will give them an added advantage.

1.17Key Success Factors In Retailing

The programmes should have one main aim.

Offers should be provided for the repeat clients.

By all means, the programme should be kept simple.

1.18Summary

Based on the literature review, a number of issues are evident. First, given that customer satisfaction is not a quantitatively measurable variable and it ideally depends on the behaviour of consumers, more investigative efforts should be put in understanding consumer behaviour of consumers in a particular industry, geographic location and across gender (Liana & Buren,2006). However, it must be taken into account that consumer behaviour is not only a profound process in business interaction with the society but it also has many intervening variables which cannot be assumed. For instance, a business that wishes to gain customer loyalty without satisfaction is unlikely to succeed (Rastogi, 2000). On the same basis, an organization that wants to ensure a satisfied customer without examining the consumer behaviour of customer with respect to changes in quality of services offered and market approach strategies employed may also not be planning to succeed. Customer satisfaction and brand loyalty have a causal link, which means that utmost care must be borne in mind when attempts are made by business organizations to develop satisfaction strategies (Nerdrum & Erikson, 2001). An oversight may easily lead to the plan not working at all. Since the characteristics of the variables a long this causal link may not be similar across the industries and may also vary from business to business, every organization must examine directionality of its customer satisfaction thoroughly (Nahapiet & Ghoshal, 2008).

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