Impact of loyalty program on retailing business in India: creating long term customer relationships.

AuthorSrivastava, Chetan
PositionReport
  1. INTRODUCTION

    Loyalty programs have become the core in creating relationship with customers. The hyper competition in the business world has prompted most of the organizations to implement the loyalty programs, whose sole purpose is to build long term relationship with customers. Maintaining good relationship with customers is vital for any organizations to sustain, survive and win in the market. Loyalty programs are implementing in every industry like Retailing, Banking, Travel, Services industry etc. Loyalty programs are established with an accrual system for earning a reward over a longer period. As the loyalty programs evolves, so does the relationship between the brand and the customer.

    Factors which influence loyalty with regards to retail industry are :

    1. satisfaction emanating from prior purchase experience with a retail outlet motivating a consumer to come to the store again which would surely result in repeat purchase and cross selling.

    2. switching barriers, once a consumer signs a loyalty program, if he leaves it, he loses the point accumulated on previous purchases made. Thus, once a consumer becomes a member of any loyalty program, switching barriers get created, which prevent more or less switching of the customers.

    3. interpersonal relationships : If a customer frequently visits the store, interpersonal relationships develop as shopping of groceries requires frequent visits to the store. This also helps in strengthening loyalty & creating a switching barrier; d) attractiveness of alternatives, in the context of retail store if there is any new outlet which is closer than the current store; proximity enhances the attractiveness of it & may create a barrier to loyalty

    Customer Loyalty

    Customer loyalty has been well established as a key to profitability and long-term sustainability (Keating et al., 2003, Reichheld, 1996; Reichheld & Aspinal, 1993). Reichheld & Schefter (2000) maintained that, while it is important for a commercial enterprise to attract a large client, a sizeable customer-base by itself does not offer any assurance of long-term profitability unless the firm can earn loyalty from its customers. Consistent with this view, Kandampully (1998) argued that the ability of a service organization to create, maintain and expand a large and loyal customer base over a longtime horizon is critical to achieve and sustain a winning position in the marketplace. This indicates that in any business sector, customer loyalty is a major competitive advantage. A clearly examination of the literature on customer loyalty revealed several differences in the conceptualization of this construct. For example, Shanker et al. (2003) view loyalty purely as an attitude, whereas Hofmeyr & Rice (2000) consider loyalty to be "the behavioral propensity to buy a brand repeatedly".

  2. REVIEW OF LITERATURE

    Customer loyalty involves building a long-term relationship between the supplier and the individual customer in order to improve profitability. To achieve this, supplier needs to understand the customers' spending habits and know what products they currently buy (and don't buy) so that any communication can be meaningful. In simple terms, customer loyalty from Czepiel's (1990) perspective "is a notion to describe the end result of a relationship between the organization and the customer". In order to...

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