Are Customers loyal to the Tesco Superstore in Roundhay

Table of Contents

1 CHAPTER 1 Introduction to the Dissertation
1.0 Introduction to the Topic
1.1 Personal Interest in the Topic
1.2 The Tesco Supermarket in Roundhay
1.3 Research Aim
1.4 Terms of Reference
1.5 Structure of the Dissertation

2 CHAPTER 2 Methodology
2.0 Introduction
2.1 Secondary Research
2.1.1 Background
2.1.2 Sources of Secondary Research
2.2 Primary Research
2.2.1 Quantitative Analysis
2.2.1.1 Type of Questionnaire
2.2.1.2 Sampling Technique
2.2.1.3 Sample Size
2.2.1.4 Questionnaire Design
2.2.1.5 Pilot Questionnaire
2.2.2 Qualitative Analysis
2.3 Limitations to the Research
2.4 Chapter Summary

3 CHAPTER 3 Literature Review
3.0 Introduction
3.1 Marketing Development
3.2 The Marketing Mix
3.3 Relationship Marketing
3.4 Customer Loyalty Marketing
3.4.1 Loyalty Measurements
3.4.2 Loyalty Management
3.5 Customer Retention Concept
3.6 Market Segmentation
3.7 Managing Complains
3.8 Database Marketing
3.9 Integrated Marketing Communications
3.10 Chapter Summary

4 CHAPTER 4 Primary Research Analysis and Discussion
4.0 Introduction
4.1 Findings of Quantitative Research
4.1.1 Customers’ Intentions to Repurchase
4.1.2 Customers’ Intentions to Cross-Buy
4.1.3 Customers’ Intentions to Switch to a Competitor
4.1.4 Customers’ Intention to Recommend the Roundhay Supermarket to Others
4.1.5 Customer Satisfaction
4.2 Findings of Qualitative Research
4.3 Chapter Summary

5 CHAPTER 5 Conclusions and Recommendations
5.0 Introduction
5.1 Conclusions
5.2 Recommendations

List of Figures

1i Tesco’s Values

2.0i The Research Process ‘Onion’

3.1i Transaction Versus Relationship Focus of Marketing
3.2i The Expanded Marketing Mix
3.2ii Buying Decision Purchase Theory
3.2iii Customer Delivered Value
3.3i The Relationship Marketing Ladder of Loyalty
3.4.1i Relationship Stages
3.4.2i Customer Loyalty Matrix
3.5i Customer Retention Concept

4.1i Respondents’ Age Groups
4.1ii Respondents’ Life Style Bands
4.1.1i “How often do you go shopping at this store?”
4.1.1ii “I do my main shopping at this store.”
4.1.2i “How often do you buy products from the non-food sector?”
4.1.3i “I use other supermarkets for shopping, too.”
4.1.3ii Respondents’ Use of Different Supermarkets
4.1.3iii “I shop at different supermarkets to get the best deals.”
4.1.3iv Comparison of Monthly Spending Volume
4.1.3v Drivers for shopping at the Roundhay store
4.1.3vi “I go shopping here because I have a Tesco Clubcard.”
4.1.3vii “If a new supermarket opened up more convenient for me to reach I would still come to this store.”
4.1.3viii Factors that influence the 13 loyal customers
4.1.3ix Response of the 13 customers towards: “If a new supermarket opened up more convenient for me to reach I would still come to this store.”
4.1.4i Active and Passive Word of Mouth
4.1.5i “Consider all your experience with the store, how satisfied are you in general with this supermarket?”
4.1.5ii “Imagine a supermarket offers everything you expect. How close to this ideal status do you consider this Tesco store?”
4.3i Respondents on the ‘Relationship Ladder of Loyalty’

A.3i The Research Process

Executive Summary

The subject of customer loyalty has become of increasing interest to marketers and businesses over the last decade. In the food retailing industry companies are facing an ever-increasing level of competition due to a high saturation point and low customer switching costs. Growth is only possible by gaining market share from competitors. Under these conditions the effective management of customer loyalty has become a key issue in securing competitive advantage.

This study focuses on the review of theories behind customer relationship and customer loyalty marketing found in academic literature. It sets out to explore customer loyalty at the Tesco Superstore in Roundhay.

Tesco plc is acknowledging the value of customer retention. Through the Tesco Clubcard and value added services Tesco tries to bond customers to the company to achieve long-term growth and superior profitability.

A questionnaire was carried out on Tesco customers to investigate whether customer loyalty at the Roundhay supermarket exists. The survey was used further to identify which marketing mix variables influence customer retention at this store. Further, a semi-structured interview with the Tesco Customer Service Manager was used to investigate Tesco’s attempts at building up a loyalty based relationship with its customers.

It was found that customer loyalty – determined by the customers’ emotional commitment to the Roundhay supermarket – is low. The research has shown that even although Tesco tries to increase customers’ life-long loyalty by offering value-added services the majority of customers are influenced by low involvement factors like convenient location.

Recommendations have been made for Tesco plc to increase customer loyalty at the Tesco Superstore in Roundhay.

Acknowledgements

I would like to deeply thank my supervisor, Ruth Beedham, for all her support, advice, and guidance during my dissertation. Despite an extremely hectic schedule to manage and assisting lots of students she had always a moment to assist me on my work.

Sincere thanks go the Jo Julian, Customer Service Manager at the Tesco Superstore in Roundhay, for all her help during my primary research.

Further, I am grateful to every Tesco customer taking the time to complete the questionnaire.

I would also like to thank Jamie Rae for checking my proposal and draft chapters for any spelling and grammar mistakes.

Finally, I would like to say thank you to my wonderful family! Without their love, support, and understanding I would not be what I am today.

Diese Arbeit ist meinen Eltern, Horst und Brigitte, gewidmet, für all ihre Liebe und Unterstützung.

Danke, dass es Euch gibt!

Eure Christina

CHAPTER 1

Introduction to the Dissertation

1.0 Introduction to the Topic

Throughout modern marketing literature there is extensive agreement that ‘Customer Loyalty’ is marketing’s newest challenge (Grönroos, Reichheld, Buttle, e.g.). Marketing’s main focus is shifting away from a transactional approach, focusing on the single sale, to a customer relationship approach, establishing, maintaining and enhancing relationships with customers (Grönroos, 1990).

Grönroos (1997) defines this stage as a paradigm shift in marketing. “A major shift in the perception of the fundamental of marketing is taking place” (p.322). He attributes this change to increasing globalization of businesses and evolving recognition of the importance of customer retention and long-term customer relationships. Buttle (1996) agrees with Grönroos (1997) and adds a more demanding customer base with rapidly changing buying behaviour patterns to the drivers of change. Duffy (1998) refers to increasing difficulties for marketers reaching customers due to fragmentation and proliferation of media options and increasing work life of both genders. Reichheld et al (2000) points out that today the advantages of cost efficiency, market share and service quality do not guarantee a company’s success any more. Companies need to invest in customer retention programmes to stay competitive.

“Corporate expenditures on loyalty initiatives are booming: The top 16 retailers in Europe, for example, collectively spent more than $1 billion in 2000” (Reinartz et al, 2002, p.86). Due to the belief that retaining existing customers is far cheaper than attracting new ones (Payne et al, 1995; Reichheld et al, 2000; Weinstein, 2001) relationship marketing has been receiving increasing attention in recent years. According to Hunt et al (1994) trust and emotional commitment are the key elements of a loyalty based relationship. The greater the mutual commitment to the relationship is the more loyal will be the customer (Too et al, 2001). Reichheld et al (2000) argues that loyal customers are more likely to pay an extra price and that their average expenditure will increase over time.

The launch of customer loyalty programmes has been the outcome of such enthusiastic beliefs. Today around 80 per cent of the UK population are loyalty participants (Duff, 2002). In February 1995 Tesco launched UK’s first national supermarket loyalty scheme, the Tesco Clubcard (Mintel Report, Food Retailing, 2001).

“It was seen as the forerunner of a whole new generation of relationship marketing initiatives, in which the best retailers would develop long-term relationships with their customers based around a quasi-personal understanding of customers’ specific needs and wants” (Mintel Report, Food Retailing, 2001, p.108).

In the highly competitive UK supermarket industry with increasing market share becoming a critical success factor loyalty cards’ main aim is to bond customers to the company. Today over 13.4 million customers use the Tesco Clubcard. (Frankel, December 2002).

But the Mintel Report, Food Retailing in Europe (2002), argues that loyalty cards are not appropriate any more. “They have proved a useful promotional tool, but loyalty has to be earned and cannot be bought by a few points on a card.” (p.10) Recent surveys by Mintel (Mintel Report, Food Retailing, 2001) point out further that only 15 per cent of all UK supermarket customers are loyal to one particular supermarket.

This investigation will focus on the degree of loyalty among Tesco customers at the Roundhay supermarket. According to the Mintel Report, Food Retailing (2001), 14 per cent of Tesco shoppers are loyal. But are these customers genuinely loyal to Tesco or do they “cherry pick” special deals around supermarkets?

The aim of this report is to answer these questions and to identify the reasons for customer retention among Tesco customers.

1.1 Personal Interest in the Topic

The reason for choosing this topic is based on the author’s strong interest the in the new opportunities offered by relationship marketing – not only using marketing as a tool, as intended by the marketing mix, but far more as a philosophy throughout the business. The author is impressed by the impact an efficient customer retention concept can have on the company’s overall profit. Due to a high saturation point, a wide range of offers, and low switching cost for customers, the food retailing industry is highly competitive. Considering the expenditure of one single person in the UK on food and non alcoholic drinks over a ten year period, the impact of customer retention becomes enormous. On average a person spends ₤ 25.43 on food a week. Multiplying this amount by 52 weeks and by ten years the customer’s future profitability within ten years is ₤13,223.60 (Mintel Report, Food Retailing, 2001).

The effectiveness of building up life-long relationships with customers has now been realized by UK supermarkets. Supermarkets have converted into department stores offering a wide range of non-food and convenient frozen food products to increase profit and satisfy customers’ increasing demands. Achieving high levels of customer satisfaction and retention has become today’s supermarkets’ key strategic objective, influencing the positive relationship between customer retention rate and superior profitability.

The author has chosen Tesco not only because of its unbeaten market leader position and its early approaches with loyalty schemes but also because the author is impressed by Tesco’s continuous improvements around its customers. These include offers such as online shopping, non-food selection, Express convenience stores, healthy eating lines, home-delivery service, 24-hour opening, and “customer champions” who welcome and help customers around the store. Through this value added processes Tesco aims to create “value for customers to earn their lifetime loyalty”. (Tesco Final Results (2002) <http://81.201.142.254/presentResults/results2001_02/Prelims/Report/pdfs/Tesco_Review_2002.pdf> [Accessed 04 April 2002])

But do these value added processes really help to increase customer loyalty at Tesco?

This study will attempt to address the answers to this question. Through the research undertaken the author will investigate if customers are genuinely loyal according to their emotional commitment to Tesco.

1.2 The Tesco Supermarket in Roundhay

The information being introduced in this section was provided by the Tesco Customer Service Manager in Roundhay and (Tesco Final Results (2002) <http://81.201.142.254/presentResults/results2001_02/Prelims/Report/pdfs/Tesco_Review_2002.pdf> [Accessed 04 April 2002]),

The Tesco supermarket in Roundhay is a Superstore. This store profile with a total number of 445 stores throughout the UK is the most common one among Tesco plc’s 729 UK stores. It is 40,000 sq ft big and is located on Roundhay Road just outside the centre of Roundhay. It is on the border between the affluent area of Roundhay, and Chapeltown, a poorer and ethno-mixed part of Leeds. Tesco’s competition is determined by a three mile radius around the store. The competitors are Sainsbury (Moor Allerton, three miles away), Sainsbury (Carlton, three miles away), Asda (Killingbeck, three miles away), and Safeway (Roundhay Road, 1/3 mile away). Due to its small store size the Safeway supermarket is not considered as a direct competitor. Next to the Tesco Superstore is Homebase, a building material and gardening superstore. The Tesco supermarket is surrounded by a big customer car park.

The Superstore was opened in 1986 and for the past four years it has offered 24-hour opening. An average of 32,000 customers weekly visit the Roundhay Superstore with eleven per cent each on a Monday, Tuesday, and Wednesday, 15 per cent on a Thursday, 21 per cent each on a Friday and Saturday, and ten per cent on a Sunday. The customer base is divided by geographic and social segmentation. The Customer profile consists of 35 per cent upper-middle class, 35 per cent middle class, and 30 per cent working class. The store has the strongest appeal to shoppers in the age-range of 35 to 50 years with children.

350 employees work at the Roundhay supermarket. It carries Tesco’s full range of food products, home-bakery, and delicacy counters, and a wide range of non-food items including electronic equipment, detergents, cosmetics, stationery, pharmacy, and the Cherokee, Florence, and Fred clothing lines.

1.3 Research Aim

illustration not visible in this excerpt

1.4 Terms of Reference

- To explain the concept of relationship marketing
- To discuss the theories of customer retention
- To review critically the theories behind customer loyalty marketing
- To establish how Tesco applies these concepts in order to “create customer lifetime value”
- To design and pilot a questionnaire to investigate customer loyalty at the Tesco Superstore in Roundhay and to identify which marketing mix variables influence customer retention at the store
- To define the loyalty state of the respondents according to the ‘Relationship Marketing Ladder of Loyalty’
- To define the relationship between Tesco and its customers
- To conduct an interview to examine any discrepancies between Tesco’s objectives and the consumers’ attitudes about their relationship
- To analyse and discuss all data gathered
- To make recommendations for Tesco plc to increase customer loyalty at the Superstore in Roundhay

1.5 Structure of the Dissertation

A brief summary about the each chapter in this dissertation is given.

1.5.1 Chapter 2 is the Methodology Chapter which will explain how data was gathered through primary and secondary research and will outline limitations to the research.

1.5.2 In Chapter 3, Literature Review, secondary data is being reviewed and critically discussed. The secondary sources are based on marketing development over time, concept of customer retention, the theory of customer relationship and customer loyalty marketing. Relevant theory will be related to Tesco.

1.5.3 Chapter 4 focuses on the findings of the primary research conducted. Data will be analysed and discussed.

1.5.4 Chapter 5 is the final chapter in which recommendations to Tesco plc are given.

CHAPTER 2

Methodology

2.0 Introduction

Chapter 2 aims to explain and evaluate the theoretical background of the primary and secondary research undertaken. Information about primary and secondary data collection techniques, research strategy, research design, reliability and validity of research and interpretation of data will be given. The chapter will be completed with a section highlighting limitations to the research.

illustration not visible in this excerpt

Figure 2.0i The Research Process ‘Onion’ (adapted from Saunders et al, 2000)

Research Philosophy

Throughout the research a positivist approach to the study was used based on the nature of information required to satisfy the research objectives. According to Saunders et al (2000)

“the researcher in this tradition assumes the role of an objective analyst, coolly making detached interpretations about those data that have been collected in an apparently value-free manner” (p.85).

By using this approach the researcher was able to retain a greater degree of control over the project.

Research Approach

A deductive approach to research was used that “involves the development of a theory that is subjected to a rigorous test” (Saunders et al, 2000, p.87). Through the primary and secondary research undertaken the theory of customer loyalty was tested.

Research Strategy

The concepts and theories behind customer loyalty were tested within one company. This approach is known as a case study approach where the research focuses on one particular case to develop detailed and intensive knowledge (Robson, 2002; Saunders et al, 2000).

Due to the author’s strong interest in UK’s largest loyalty programme the research was limited to Tesco plc (Frankel, 2002). After taking the Tesco plc store profile into consideration – consisting of 729 stores throughout the UK with 445 Superstores, 168 Metro/high street stores, 75 Express Stores and 41 Extras – it was deduced that a Superstore would best represent an average Tesco supermarket and the Tesco Superstore in Roundhay was chosen.

Time Horizon

Customer loyalty at the Roundhay supermarket was studied at a particular point in time. According to Saunders et al (2000) this approach is known as a cross-sectional study. The survey was undertaken in the week from March 16th to March 21st, a time of the year that is not affected by any seasonal occasion such as Christmas or Easter that may influence respondents’ behaviour.

Data Collection Method

A multi-method approach was used, combining secondary research with primary research, consisting of quantitative and qualitative research methods (Robson, 2002; Saunders et al, 2000). Even although the research aim focused on customer behaviour observation did not prove a suitable research method. The researcher was unable to observe, record, describe, and analyse customers’ behaviour and their emotional commitment to the Roundhay store in the predetermined time-period (Saunders et al, 2000).

2.1 Secondary Research

“Secondary data analysis is the analysis of an existing data set” (Blaxter et al, 2001, p.168) As Finn et al (2000) suggest, secondary research was used as a starting point and guiding framework to help explain and understand primary research findings. Starting a research project with secondary research will provide cost and time advantages and sensitize the researcher to the research topic (Saunders et al, 2000).

2.1.1 Background

In order to satisfy the research aim, secondary literature about customer relationship marketing, customer loyalty, and the concept of customer retention was identified, critically assessed, and reviewed as demonstrated in Chapter 3 Literature Review. The main emphasis was put on academic literature written within the last five years. However, early studies from relevant authors who highly influenced the theories of customer relationship marketing and loyalty marketing were reviewed, too, to demonstrate the development of relationship marketing over time. Secondary data obtained was later applied to the findings of primary research and used for further discussion.

For secondary research the Leeds Metropolitan University Library and the Hamburg University Library in Germany were used. The libraries provided the researcher with relevant academic textbooks, journals, and newspapers. Secondary data was also acquired from a number of tertiary sources including library catalogues, and academic search tools like Ebsco and Emerald.

2.1.2 Sources of Secondary Research

The following sources of secondary literature were used:

- Textbooks
Textbooks provided the theoretical framework required to conduct primary research and complete the literature review (Chapter 3). Further, textbooks about research methods were used to develop an effective research strategy as discussed in Chapter 2.
- Journals
Various business journals were used, from early authors like Levitt (1983), Grönroos (1990), Reichheld (1990) to recent ones like Reinartz (2002), or Mitchell (2002, 2003). Journals provided the researcher with relevant and recent academic references to support the study.
- Mintel Report
The Mintel Report, Food Retailing (2001), and the Mintel Report, Food Retailing in Europe (2002), enabled the researcher to build up extensive knowledge about of the food retailing industry.
- Websites
Websites like www.tesco.com provided the researcher with important information about Tesco plc, corporate identity, and its corporate attempts in building up a loyalty based relationship with its customers.
- Non-Written Materials
For secondary research audio visuals were used to develop a general understanding of the food retailing industry.
- Newspapers

Newspapers including the Financial Times, The Guardian, Handelsblatt, and The Times provided up-to-date information. Newspapers helped to generate a basic understanding of the food-retailing industry.

The various secondary data were critically analysed by the researcher and further investigated and developed through primary research.

2.2 Primary Research

“Research needs a theory as a framework for analysis and interpretation, and theory needs research to constantly review/modify/challenge theoretical details” (Finn et al, 2000, p.14).

Primary data was generated by the researcher’s own study and employed after and built upon secondary data collection (Saunders et al, 2000).

Descriptive research was used allowing the researcher to build up extensive knowledge about the theories behind relationship marketing and to investigate customer loyalty at the Roundhay supermarket. It was used further as a “forerunner” (Saunders et al, 2000, p.97) for explanatory research. Explanatory research helped to comprehend the relationship between Tesco and its customers and to identify which marketing mix variables influence customer retention at Tesco. Exploratory research was not carried out because the research aim did not focus on seeking new insights into the concepts of customer loyalty marketing (Saunders et al, 2000).

Data Collection

For primary data collection methodological triangulation was used. Triangulation “is a method of finding out where something is by getting a ‘fix’ on it from two or more places” (Robson, 2002, p.371). Methodological triangulation combines qualitative and quantitative research approaches to compare and contrast findings on the same topic (Denscombe, 1998). Both quantitative and qualitative research was carried out to identify and compare attitudes about the relationship between Tesco and its customers.

2.2.1 Quantitative Analysis

The aim of quantitative research is to measure phenomena to transform them into numbers (Denscombe, 1998). Data obtained can be standardised to provide generalised descriptions (Oppenheim, 1992).

Questionnaire

It was decided to use questionnaires because they are extremely efficient at providing a large amount of data, at relatively low cost, in a standardised way, from a large number of individuals (Bell, 1993; Blaxter et al, 2001; Oppenheim, 1992; Robson, 2002; Saunders et al, 2000).

Robson (2000) argues that questionnaires “provide a relatively simple and straightforward approach to the study of attitudes, values, beliefs, and motives” (p.233). Customer interviews and focus group discussions did not prove to be as suitable data collection techniques because a large number of customers, in a predetermined time-period had to be questioned to satisfy the research aim. Interviews and focus group discussions are more useful when extensive data from fewer people is required (Burns, 2000). Burns goes on to point out that due to time and financial constraints interviews only allow a limited number of respondents to be questioned.

2.2.1.1 Type of Questionnaire

There are various types of questionnaires depending on how data is administered. Saunders et al (2000) divide questionnaires into two subgroups: self-administered questionnaires – consisting of on-line questionnaires, postal questionnaires, delivery and collection questionnaires – and interviewer administered questionnaires – including telephone questionnaires and structured interviews. To minimize interviewer and participant bias often caused by interviewer administered questionnaires a delivery and collection questionnaire was chosen (Oppenheim, 1992). Oppenheim (1992) argues that an interview survey can be affected by the interviewer’s characteristics and interactions including verbal and non-verbal language. Robson (2002) adds the danger of participant bias often found in face-to-face interviews when respondents answer only out of politeness, boredom, or the desire to be seen in a good light by the interviewer. Due to a response rate of 15 to 20 per cent a postal survey was not taken into consideration (Saunders et al, 2000).

To avoid any observer error the questionnaires were only handed out by the researcher herself (Finn et al, 2000). The presence of the researcher also encouraged participation and involvement (Robson, 2002). At first it was considered to ask Tesco if a Tesco gift voucher could be handed out to the respondents as a grateful recognition. This idea was dismissed because a gift-voucher could be an incentive for price-sensitive customers to take part in the survey and lead to bias.

2.2.1.2 Sampling Technique

A non-probability sample was considered as the most adequate sampling technique for the primary research undertaken. As Robson (2002) argues “exigencies of carrying out real world studies can mean that the requirements for representative sampling are very difficult, if not impossible, to fulfil” (p.266). He attributes his argument to the eventual impossibility of obtaining a sampling frame as required in probability sampling to take a random sample. Saunders et al (2000) define a sampling-frame as “a complete list of all the cases in the population from which your sample will be drawn” (p.154). With reference to the research aim the sampling frame had to consist of a complete list of every customer shopping at the Tesco supermarket in Roundhay. Tesco was not prepared to provide this sampling frame.

Due to these constraints a purposive sampling was chosen which allowed judgemental selection of cases (Denscombe, 1998; Robson, 2002; Saunders et al, 2000). “A sample is built up which enables the researcher to satisfy her specific needs in a project” (Robson, 2002, p.265). Patton (1990) referred to in Saunders et al (2000) suggests to identify sample selection criteria first before selecting the sample. The selection criteria used were based on Tesco’s target segmentation used for Clubcard Magazine consisting of students, young adults with and without children, older people, and pensioners (Payne et al, 1999). The main emphasis when conducting the survey was put on customers aged 35 to 54 with children, this being the largest subgroup at the Roundhay Superstore (Customer Service Manager). In advance the Tesco Customer Service Manager was asked when the degree of probability would be highest to reach each segment. This helped to avoid any potential bias that could occur.

2.2.1.3 Sample Size

The sample was taken from the sample frame which consists of 32,000 customers shopping weekly at the Roundhay supermarket. The author is aware that when calculating minimum sampling size the level of confidence and the margin of error have to be taken into consideration to estimate the proportion of expected responses (Saunders et al, 2000). To ensure a minimum of non-responses the handed out questionnaires had to be filled out and handed in immediately. The actual response rate was 100 per cent.

According to Oppenheim (1992) sampling “often requires compromises between theoretical sampling requirements and practical limitations such as time and costs” (p.43). Hoinville et al (1985) (referred to in Saunders et al, 2000) adds that “the final sample size is almost always a matter of judgement rather calculation” (p.155). Due to time and financial constraints it was impossible to survey every customer at the Roundhay supermarket. Collecting data from fewer cases also mend that more detailed information could be collected (Saunders et al, 2000) and a sample size of 100 customers was estimated.

2.2.1.4 Questionnaire Design

The validity and reliability of data obtained depend to a large extent on the questionnaire design (Saunders et al, 2000). Foddy (1994) emphasises that

“the question must be understood by the respondent in the way intended by the researcher and the answer given by the respondent must be understood by the researcher in the way intended by the respondent” (cited in Saunders et al, 2000, p.290).

When designing the questionnaire it was ensured that language was kept simple and any leading or long questions were avoided (Robson, 2002). Personal questions were left to the end of the questionnaire because they “tend to be very offputting to the respondents” (Oppenheim, 1992, p.109).

Different types of closed questions were used providing advantages of minimal writing time, convenient fill in process for respondents, and asking more questions in a given length of time (Saunders et al, 2000). Closed questions used consisted of ‘list questions’, where the respondent could choose from a list of possible answers, ‘category questions’, where the respondent could choose only one answer, and ‘rating questions’. A Likert-style rating scale was used to collect attitude and belief data. For Likert-scale a five point scale was designed as suggested by Bell (1993), Oppenheim (1992), Robson (2002), and Saunders et al (2000). The five point range enabled the respondent to be more discriminating and helped the researcher to categorize answers in greater detail. Ranking questions were not used because the pilot survey demonstrated that respondents had difficulties filling them in.

To ascertain reliability in the case of category, list and attitude questions internal checks were put in the questionnaire. As Oppenheim (1992) suggests important facts were asked from two different perspectives to discover if the answers were reliable in factual matters. Attitude questions were further designed as a set of questions instead of single opinion items to reduce instability due to the respondent’s momentary mood (Oppenheim, 1992). The questionnaire can be viewed in Appendix 4.

Analysing data

Data collected was coded to facilitate analysis and was put into a data matrix. Microsoft Excel was used for analysing and designing various graphs and tables to illustrate primary data findings as demonstrated in Chapter 4 Primary, Research Analysis.

2.2.1.5 Pilot Questionnaire

Prior to pilot testing, the questionnaire, as suggested by Saunders et al (2000), was handed out to five final year Business Studies students – serving as a group of research experts – who were asked to comment on the structure and design. This helped to establish content validity (Finn et al, 2000). After a few amendments the pilot was undertaken. As suggested by Bell (2002) and Saunders et al (2000) the pilot sample included ten respondents sharing very similar characteristics to the final sample. The pilot study helped to refine the questionnaire and to obtain an idea of each question’s validity and reliability.

2.2.2 Qualitative Analysis

Qualitative data is descriptive and characterised as being more detailed, flexible and unstructured when compared to quantitative data (Denscombe, 1998). Eisner (1979) explains that

“qualitative methods are concerned with processes rather consequences, with organic wholeness rather than independent variables, and with meaning rather behavioural statistics” (cited in Burns, 2000, p.12).

Interview

Moser and Kalton (1971) describe an interview as “a conversation between interviewer and respondent with the purpose of eliciting certain information from the respondent” (cited in Bell, 1993, p. 91). Literature distinguishes between three types of research interviews – structured interview, semi-structured interview and unstructured interview – differing in structure, formality, and degree of control exercised by the interviewer over the interviewee (Denscombe, 1998; Robson, 2002, Saunders et al, 2000). For qualitative research a semi-structured interview with the Tesco Customer Service Manager in Roundhay was carried out. Interviews of this nature have predetermined questions but the order is based on the interviewer’s perception and further questions or information can be added (Mason, 2002). As proposed by Saunders et al (2000) open ended question were used to encourage the interviewee to provide extensive answers and reveal attitudes. The interview lasted for approximately one hour and a half.

As Wass and Wells (1994) (cited in Saunders et al, 2000) suggest the semi-structured interview was used to explore and discuss in depth important themes that have emerged from the survey. The interview was used to investigate further Tesco’s attempts of building up a loyalty based relationship with its customer.

A face to face interview was chosen to witness non-verbal language of the interviewee, too (Mason, 2002). Robson (2002) points out that non-verbal language may provide information which help in understanding the verbal responses. But he also argues that “biases are difficult to rule out” (p.273). Further advantages compared to a telephone interview were that personal contact and trust could be established (Finn et al, 2000).

One week before the interview was conducted the interviewee was provided with a brief about the interview themes. According to Saunders et al (2000) giving the interviewee time to consider information will promote reliability and validity. To avoid prepared and well-considered answers that may not reflect true beliefs the actual questions were not handed out.

At the interviewee’s request the interview was not tape-recorded. As pointed out by Saunders (2000) and Denscombe (1998) the researcher believes that not tape-recording allowed the establishment of a closer relationship between the interviewee and the interviewer, and reduced inhibition and increased reliability. Notes were taken.

As Saunders et al (2000) point out “perceived interviewer bias may lead to interviewee or response bias” (p.256) it was ensured that the questions were read out in the same tone and that non-verbal behaviour was kept to a minimum (Finn et al, 2000). Complex, leading questions, and particular wording indicating bias were also avoided (Robson, 2000) (see Appendix 5).

2.3 Limitations to the Research

Lote et al (1993) (cited in Punch, 2000) argue that limiting conditions and restrictive weaknesses are unavoidably present in a study’s design.

The main limitations the researcher faced were based on time and financial constraints. Due to these constraints the researcher had to be realistic when setting research aim and objectives. The decisions of sample size and research methods were highly influenced by these constraints. Because of this, as already discussed, a high emphasis was put on designing, sampling, piloting and analysing the data to allow more detailed information to be collected (Saunders et al, 2000).

Initially, consideration was given to conducting a focus group interview with Tesco customers in addition to the questionnaire. Important issues arousing from the survey could have been discussed and the group of customer could have freely expressed their feelings and views about their relationship with Tesco. But this idea was dismissed because it would have generated too much data to analyse in depth and discuss with confidence in the required time.

The researcher faced also limitations when collecting secondary data. Most academic literature identified was supportive and it proved to be difficult to find critics of relationship marketing. The quantity of supportive secondary research was a further limitation. As identified by Finn et al (2000) it is impossible to read everything. However, it was considered that the literature reviewed provides a basic framework of the concepts and theories of relationship marketing.

2.4 Chapter Summary

The multi-method approach being used – consisting of primary and secondary data – provided a rich understanding about the concepts of customer loyalty. Secondary research provided a starting point from which to conduct primary research. It was used as a framework for further investigation and to help explain and understand primary research findings. The methodological triangulation combining qualitative and quantitative research helped the researcher to compare Tesco’s and its customers’ attitudes towards their relationship and identify any discrepancies in their beliefs.

CHAPTER 3

Literature Review

3.0 Introduction

The following chapter will focus on the development of marketing over time. The main emphasis will be put on theories of relationship marketing and customer loyalty marketing. The author believes that the theories reviewed are essential to investigate customer loyalty at the Tesco Superstore in Roundhay. Relevant theory will be applied to Tesco demonstrating its approach in building up a loyalty based relationship with its customers. The aim is to highlight key areas that will become important when analysing and discussing primary research findings in Chapter 4.

3.1 Marketing Development

“If the 1950s was the era of mass–marketing, and the 1970s the era of market segmentation, then the 1990s represent the genesis of personalized marketing, in which knowledge about individual customers is used to guide highly focused marketing strategies“ (Buttle, 1996, p.1).

Over the last twenty years marketing has changed from its transaction orientated view to a long term customer relationship orientated approach. In the table below (figure 3.1i) the different characteristics of the transaction and relationship focus of marketing are compared.

illustration not visible in this excerpt

Figure 3.1i Transaction Versus Relationship Focus of Marketing (adapted from Payne et al, 1999)

Traditional definitions of marketing like the one of the Chartered Institute of Marketing,

“Marketing is the management of identifying, anticipating, and satisfying customer requirements profitably” (cited in Buttle, 1996, p.2),

do not take any long term relationship with customers into consideration. Instead they focus on the single product or service exchange, known as transactional marketing, as in Kotler’s et al (2002) definition of marketing as

“a social and managerial process by which individuals and groups obtain what they want through creating and exchanging products and value with others” (p.826).

Modern Marketing theorists like Levitt (1983) and Grönroos (1990, 1994, 1997) argue that marketing is not only about the single purchase but far more about delivering high customer satisfaction throughout the customer life cycle. Grönroos (1997) considers relationship marketing as a new approach to the traditional marketing mix which is more market orientated, less manipulative, and more customer focused. Levitt (1983) points out that because our economy becomes more service and quality orientated, marketing needs to shift from its traditional focus of single sales into “continuous contact and evolving relationships” with customers over time (in Payne et al, 1995, p.24).

Grönroos (1990) even stresses the fact by stating that

“Marketing is to establish, maintain, enhance, and commercialize customer relationships (often but not necessarily always long term relationships) so that the objectives of the parties involved are met. This is done by mutual exchange and fulfilment of promises” (in Payne et al, 1995, p.84)

3.2 The Marketing Mix

The marketing mix was first introduced by Neil Borden in 1948. Originally it included twelve elements. In 1960 McCarthy formed, based on Borden’s idea, a framework that consisted of four variables known as the Four P s– p roduct, p rice, p lace, and p romotion- that the company blends to serve value to its customer and influence demand. Kotler et al (2002) added later the Four C s – c ustomer needs and wants, c ost to the customer, c onvenience, and c ommunication.

Throughout academic literature there is little argument that the Four Ps are the fundamental starting point for any marketing strategy to influence demand. But critics like Payne et al (1999) point out that the Four P framework is a “mechanistic, almost manipulative, approach to customers” (p.407) which does not fulfil the requirements of today’s service-orientated environment anymore. Grönroos (1997) states that the “paradigm is beginning to loose its position” (p.322) and causes a paradigm shift in marketing. He underlines his argument by adding that the traditional Four P framework does not include various interactions and resources that appear in a buyer-seller relationship at different stages of the customer relationship life cycle.

Payne et al (1999) agree with Grönroos (1997) but instead of calling for a replacement (Grönroos, 1997) they adjust the framework to relationship marketing objectives by adding three further elements - p rocess, p eople, p roactive and p ersonalized service-. These three elements are based on the theory that low staff turnover, highly motivated employees, value adding processes, and personalized customer service will lead to customer satisfaction and increase profit. Figure 3.2i demonstrates that all seven elements are linked together and that only an effective combination of these elements can provide high customer value.

illustration not visible in this excerpt

Figure 3.2i The Expanded Marketing Mix (adapted from Payne et al, 1999, p.411)

The task of marketers is to combine effectively these seven elements into a marketing programme to add value to the purchase process (Fill, 2002). As illustrated in Figure 3.2ii, each of the Seven P elements in the ‘Delivered Criteria’ box will influence the consumer’s buying decision process. Each element contributes differently to the value creation process depending on the individual customer’s perception; e.g. some consumers’ buying decision may depend on price or convenient location, while other consumers may concern themselves with friendly employees and persuasive advertisement. Consumers perceive the delivered value and act upon it. If the consumers’ perception is congruent with the delivered criteria, consumers will purchase. If not, they may go to a competitor who delivers higher customer value.

illustration not visible in this excerpt

Figure 3.2ii Buying Decision Purchase Theory

After the buying process, customers compare received value to value expected, which directly affects their satisfaction and repurchase behaviour (Kotler et al, 2002).

illustration not visible in this excerpt

Figure 3.2iii Customer Delivered Value (adapted from Kotler et al, 2002)

3.3 Relationship Marketing

In the early 1980s the theory of relationship marketing was introduced. Its basic idea is to build up, maintain and enhance a strong and long-term relationship between the company and its customers (Grönroos, 1990). Instead of focusing on winning new customers, relationship marketing concentrates on repeat purchases (Payne et al, 1999).

Levitt (1983), an early relationship marketing supporter, stresses the close relationship between a company and its consumers through the metaphor of marriage.

“The relationship between seller and buyer seldom ends when the sale is made. Increasingly, the relationship intensifies after the sale and helps to determine the buyer’s choice the next time around. …. The sale, then, merely consummates the courtship, at which point the marriage begins. …. The quality of the marriage determines whether there will be continued or expanded business, or troubles and divorce.” (in Payne et al, 1995, p.21)

Even though Levitt’s metaphorical description of relationship marketing is from 1983, it still addresses modern objectives. Behara et al (2002) take up Levitt’s idea of an eventual “divorce” if commitment or profitability is low, by saying “relationship marketing involves establishing, enhancing and terminating relationship with customers” (p.603). Both definitions of relationship marketing point out that it may not profitable to retain every customer. This idea will be discussed further in section 3.5 Customer Retention Concept.

‘The Relationship Marketing Ladder of Loyalty’

The buyer-seller relationship will go through different stages of relationship development until it results in such a marriage as described by Levitt (1983). Payne et al (1991) introduced the concept of a ‘Relationship Marketing Ladder of Loyalty’ (Figure 3.3i). It describes the different levels of relationship, from a ‘prospect’ to a ‘partner’ that a customer should follow during the relationship life cycle. The goal of relationship marketing is to turn customer relationships from a ‘prospect’ or ’purchaser’ status to an ‘advocate’ or ‘partner’ status. According to Payne et al (1991), ‘advocates’ and ‘partners’ have such close and loyal relationships to the company that they use positive word of mouth by recommending the company to others.

illustration not visible in this excerpt

Figure 3.3i The Relationship Marketing Ladder of Loyalty (adapted from Payne et al, 1999)

3.4 Customer Loyalty Marketing

According to Behara et al (2002) and Duffy (1998), relationship marketing’s overall objective is to establish long-term relationships that result in customer loyalty. Throughout the study of customer loyalty marketing, theorists describe loyalty in two different ways. Traditional definitions are based only on behaviour (e.g. Neal, 1999) while other definitions capture customers’ attitude and emotional commitment to the store or brand (e.g. Grönroos, 1990; Hunt et al, 1994). Neal (1999) defines customer loyalty as “the proportion of times a purchaser chooses the same product or service in a category compared with his or her total number of purchases in the category” (p.21).

Too et al (2001) argue that poor measurements of customer loyalty (e.g. Neal, 1999), looking only at repeat purchase behaviour, have negatively influenced the study of customer loyalty. They suggest considering psychological and behavioural indicators, too. Barnes (1995) agrees with Too et al (2001) by saying that “a succession of interactions does not necessarily lead to a relationship any more than repeat purchasing constitutes loyalty” (cited in Buttle, 1996, p.3). Reinartz et al (2002) and Payne et al (1995) add to Barnes’ and Too’s et al (2001) idea that customers may shop at one particular store out of inertia or convenience and not because of loyal commitment. When shopping out of inertia or habitual behaviour, normally occurring in low-involvement situations, consumers perceive little brand or store differentiation and repeat purchase on situational cues such as comfort or familiarity (Hoyer, 2001). Hunt et al (1994) argue that commitment and trust are the key elements of a loyalty-based relationship, with commitment being the enduring desire to maintain the relationship, and trust as the mutual confidence in the partner’s reliability (see also Buttle, 1996).

3.4.1 Loyalty Measurements

Looking at the ‘Relationship Marketing Ladder of Loyalty’ introduced in section 3.3, customers shopping out of inertia only reach the stage of a ‘client’, who purchases regularly but has, according to Payne et al (1999), a neutral position towards the relationship. In contrast, advocates and supporters are so emotionally involved in the relationship that they actively recommend the store to others. Due to this emotional commitment to the store, loyal customers are less likely to switch to competitors (Solomon et al, 1999). Grönroos (1990) and Too et al (2001) argue that trust and fulfilment of promises are essential elements of relationship commitment.

Payne et al (1999) argue that for some customers it may be too costly to invest into the relationship development to a ‘supporter’ or ‘advocate’ because “commitment expresses the extent to which a partner is willing to maintain a valued relationship” (Too et al, 2001 p.295). Reichheld (1994) agrees with Payne et al (1999) by saying that a company should attract only customers whose loyalty the company is able to earn and keep. Following the idea of Too et al (2001), Payne et al (1999) suggest that different marketing strategies are needed at each level of the ladder. Figure 3.4.1i illustrates that trust and commitment are key determinants of customer loyalty (e.g. Grönroos; Payne et al, 1999; Too et al, 2001). The greater the mutual commitment to the relationship, the more loyal will be the customer (Too et al, 2001).

Abbildung in dieser Leseprobe nicht enthalten Figure 3.4.1i Relationship Stages

3.4.2 Loyalty Management

By taking customer loyalty and profitability into consideration, Reinartz et al (2002) deduced, as Payne et al (1999) that customers need to be treated differently. They developed a ‘Loyalty Strategy Matrix’ (Figure 3.4.2i) to manage each customer relationship according to the individual loyalty and profitability status. Basu et al (1994) introduced a similar matrix defining four specific loyalty conditions – “no loyalty”, “spurious loyalty”, “latent loyalty” and ”loyalty” - according to high/low levels of repeat patronage and relative attitude.

illustration not visible in this excerpt

Figure 3.4.2i Customer Loyalty Matrix (adapted from Reinartz et al, 2002)

According to Reinartz et al (2002), ‘true friends’ are the most valuable customers. Duffy (1998) points out that companies need to introduce special reward systems for this customer segment, which are integrally linked to the product or company, like the ‘Miles and More’ card from Lufthansa, the ‘Casa Buitoni Club’ of the Nestlé Buitoni brand, or the ‘Clubcard’ from Tesco. Through these integral reward systems customers “cannot experience the product without seeing the loyalty strategy” (Duffy 1998, p.439).

The research of Reinartz et al (2002) demonstrated further that attempts at converting ‘butterflies’ into ‘true friends’ are seldom profitable because ‘butterflies’ are strongly influenced by special sales and avoid building up a stable relationship with the company. Through temporary communication strategies, companies have to find out the right timing to stop investing in ‘butterflies’. Looking at this customer segment, it becomes obvious that “customer satisfaction has little to do with customer loyalty” (Neal, 1999, p.21). These customers spend a lot of money but “enjoy hunting out the best deals” (Reinartz et al, 2002, p.94). According to Neal (1999) true customer loyalty is a behaviour that can be measured. In contrast is satisfaction an attitude resulting from expectations and previous experiences. Reichheld et al (2000) agree with Neal by pointing out that “customer satisfaction may improve consideration, but there is overwhelming evidence that it does not improve loyalty” (p.23).

Reinartz et al (2002) point out that ‘barnacles’ are the most problematic customer segment; because of low transactions volume they do not generate any satisfactory returns for their loyalty. According to Yim (1999), cited in Too et al, 2001, companies have to divide these customer segments into hard core loyalist and reinforced loyalist to distinguish which of these loyal customers are potentially profitable. Hard core loyalists, who only buy at one store, do not have more spending potential. In contrast, can the average spending of reinforced loyalists be increased because they switch among stores and brands by making repeat-purchases to one or more alternatives to a significant extent (Yim 1999, cited in Too et al, 2001).

After the Clubcard launch in 1995 Tesco experienced a similar problem concerning market segmentation. At the beginning Clubcard owners were automatically rewarded for every ₤5 they spent in the store, over a minimum of ₤10 per visit (Payne et al, 1999). But pensioners and students, even though loyal to the Tesco, did not fall into the Tesco loyalty scheme due to a lower transactional volume at each purchase. Tesco soon discovered that these customer segments were profitable by considering their overall sales volume, including frequency and volume of shopping. As a result, Tesco lowered the minimum spending volume for pensioners and students to ₤5 per visit (Payne et al, 1999).

3.5 Customer Retention Concept

The theory of loyalty marketing and relationship marketing is build upon the ‘Customer Retention Concept’. Early theorists in relationship marketing like Berry (1986), Levitt (1982), and Jackson (1985) have not suggested any methods of measuring the profitability and impact of keeping customers. They only argued that marketing costs per unit of sales for existing customers are lower than prospects (Berry et al, 1986; Maister, 1989, cited in Payne et al, 1995). Instead, successive authors like Reichheld (1990) or Grönroos (1994) have introduced first attempts at measuring the profitability of customer retention. Reichheld (1990), for example, defines the customer retention rate as the percentage of customers from the beginning of a year that still remain at the end of the year.

In his studies Reichheld investigates the correlation between customer retention and the company’s profit. By analysing various companies he found out that a five percentage point increase in customer retention rates can increase the company’s profit by 25 per cent to 100 per cent (Reichheld, 1994). Rosenberg et al (1984) came to similar conclusions by finding out that customer acquisition is on average six times more expensive than customer retention.

Reichheld et al (2000) relates his finding to a series of three effects:

1. First order effect: “Loyalty measures whether superior value has been delivered” (p.137).

2. Second order effect: Customer retention will lead to growing revenues and market share through repeat purchase, decrease in serving costs, amortization of customer acquisition costs, and an increase in expenditure by loyal customers over time. It will lead further to decrease in staff turnover due to job satisfaction. This will in return reinforce customer retention through familiar and high service.

3. Third order effect: As costs go down and revenues go up, profits increase.

[...]