Description
Customer loyalty is a company's ability to retain satisfied customers. Maintaining customer loyalty is one of the toughest challenges for any marketing department in a business enterprise, since the wants of a customer are modified at much faster rate than their needs.
JÖNKÖPING INTERNATIONAL BUSINESS SCHOOL
JÖNKÖPING UNIVERSITY
Is C u s t o me r C lu b a U se fu l To o l in C reati n g C u sto mer L o y alty?
- A Case Study of Stadium
Bachelor Thesis within Marketing Authors: Genfors, Martina Gustafsson, Camilla Liljeblad, Erica Tutor: Jenkins, Anna Sasinovskaya, Olga Jönköping January 2007
INTERNATIONELLA HANDELSHÖGSKOLAN
HÖGSKOLAN I JÖNKÖPING
Är kundklubben ett användbart v e r k t y g f ö r a t t s k a pa kundlojalitet?
- En fallstudie av Stadium
Filosofie kandidatuppsats inom Marketing Författare: Genfors, Martina Gustafsson, Camilla Liljeblad, Erica Handledare: Jenkins, Anna Sasinovskaya, Olga Jönköping: January 2007
Acknowledgements
The authors would like to thank their supervisors, Anna Jenkins and Olga Sasinovskaya for their help and assistance during the process of writing this thesis.
We would also like to thank Johan Swärdh, the Manager of Stadium Card, for giving us the opportunity to get a greater knowledge about Stadium.
Martina Genfors
Camilla Gustafsson
Erica Liljeblad
Bachelor’s Thesis in Marketing
Title: Author: Tutor: Date: Subject terms: Is Customer Club a Useful Tool in Creating Customer Loyalty – A C ase Study of Stadium Martina Genfors, Camilla Gustafsson, Erica Liljeblad Anna Jenkins, Olga Sasinovskaya 20072007-0101-22 Customer Loyalty, Loyalty, Customer Club, C lub, Stadium, Stadium Card, Relationship Marketing
Abstract
Introduction: Creating a relationship between the customer and the organization has come to be of great importance during the last decade. Companies are realizing that loyal customers are coming back and are not only increasing sales through repeat purchase, but is also decreasing the cost of obtaining new customers which exceeds by far the cost of retaining old ones. One tool used by companies to keep customers loyal is loyalty programmes, one example being customer clubs. As other loyalty activities the customer clubs main objective is to build long-term relationships with the customers. Purpose: During the recent years the numbers of customer clubs has increased dramatically and something that was looked upon as unique and a “new” approach to gain customer loyalty is today found everywhere, in every industry. With the notion that customer clubs are today more of a standard feature than something exclusive, led us to the purpose of this thesis, to draw conclusions on if Stadium’s customer club, the Stadium Card, is a useful tool in creating customer loyalty. Method: By conducting a survey among Stadium’s customers our focal point was quantitative, but we also wanted to interview the manager of Stadium’s club card, which would give us some depth and perspective of loyalty and customer clubs, a qualitative study. Conclusion: To answer our purpose we can conclude that there is clear evidence that Stadium builds a stronger relationship with members with Stadium Card than with nonmembers. With our limited research we can not draw any conclusion on whether Stadium’s customer club actually generates customer loyalty. We can see that customers that are holders of Stadium Card are more loyal but we can not see if Stadium Card is the true cause behind this. Do members become more loyal after joining the customer club or do they join the customer club because they are loyal? Even if it is uncertain if Stadium’s customer club creates loyalty there are strong evidence that the club keeps loyal customers loyal.
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Kandidatuppsats inom in om Marknadsföring
Titel: Författare: Handledare: Datum: Ämnesord Är kundklubben ett användbart verktyg för att skapa kundlojali kundlojalitet – En fallstudie av Stadium Martina Genfors, Camilla Gustafsson, Erica Liljeblad Anna Jenkins, Olga Sasinovskaya 20072007-0101-22 Customer Loyalty, Loyalty, Customer Club, C lub, Stadium, Stadium Card, Relationship Marketing
Sammanfattning
Introduktion: Intresset för att skapa en relation mellan kunder och företag har ökat avsevärt under det senaste tio åren. Företag har insett att lojala kunder återkommer och att de inte bara ökar försäljningen men genom återkommande köp också minskar kostnaderna för att finna nya kunder, vilket markant överstiger kostnaden att behålla redan existerande kunder. Ett verktyg som företag använder för att hålla deras kunder lojala är lojalitetsprogram, exempelvis kundklubbar. Som andra lojalitetsskapande verktyg är kundklubbens huvuduppgift är att skapa långsiktiga relationer med sina kunder. Syfte: Under de senaste åren har antalet kundklubbar ökat dramatiskt och något som ansågs vara unikt och ett nytt tillvägagångssätt att skapa kundlojalitet finns idag inom alla industrier. Med vetskapen om att kundklubbar idag är mer av en standard än något unikt leder oss in på vårat syfte, att kunna dra en slutsats om Stadiums kundklubb, Stadium Card, är ett användbart verktyg i att skapa kundlojalitet. Metod: Fokusen på denna studie var kvantitativ då vi genomförde en undersökning bland Stadiums kunder. Vi intervjuade även den ansvarige för Stadiums kundklubb, vilket gav oss djupare kunskap och breddare perspektiv om lojalitet och kundklubbar. Slutsats: Vår slutsats är att det finns starka bevis för att Stadiums kundklubb skapar starkare relationer med sina medlemmar än med ickemedlemmar. Med vår begränsade studie kan vi inte dra en slutsats om huruvida Stadiums kundklubb verkligen genererar kundlojalitet. Vi kan utläsa att medlemmar i Stadium Card är mer lojala, men vi kan inte avgöra om Stadium Card är den sanna orsaken bakom detta. Blir medlemmar mer lojala efter deras medlemskap eller blir lojala kunder medlemmar? Även om just detta är oklart så finns det starka bevis för att Stadium Card håller lojala kunder lojala.
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Table of Contents
Table of Contents
1 Introduction .......................................................................... 1
1.1 1.2 1.3 1.4 1.5 2.1 2.2 2.3 2.4 2.5 2.6 Background ................................................................................... 1 Why Stadium for our Case Study? ................................................ 2 Problem Statement........................................................................ 2 Purpose......................................................................................... 2 Research Questions...................................................................... 2 Customer Value............................................................................. 3 Relationship Marketing.................................................................. 3 Customer Loyalty .......................................................................... 4 2.3.1 Four Types of Loyalty ......................................................... 4 2.3.2 Economic Value Creation with Customer Loyalty ............... 7 Measuring Loyalty ......................................................................... 8 Loyalty Programs .......................................................................... 9 2.5.1 History of Loyalty Programs................................................ 9 2.5.2 Benefits and Goals of Loyalty Programs............................. 9 What is a Customer Club? .......................................................... 10 2.6.1 Different Types of Customer Clubs – Open and Limited......................................................................................... 10 2.6.2 Types of Rewards in Customer Clubs .............................. 11 2.6.3 Target Groups for Customer Clubs................................... 11 2.6.4 Recent Frequent Monetary Analysis................................. 12 Research Approach..................................................................... 13 Case Study.................................................................................. 13 Validity and Reliability ................................................................. 14 The Interview with Johan Swärdh, Manager of Stadium Card..... 14 Selection of Respondents ........................................................... 15 The Questionnaire....................................................................... 15 3.6.1 Question One to Seven .................................................... 15 3.6.2 Question Seven to Eight ................................................... 17 3.6.3 Question Eleven to Eighteen ............................................ 18 3.6.4 Question Nineteen ............................................................ 18 3.6.5 Question Twenty............................................................... 18 The Past and Present of Stadium................................................ 19 Stadium’s Marketing Approach.................................................... 19 Stadium Card .............................................................................. 20 4.3.1 Bonus System................................................................... 21 4.3.2 The Purpose of Stadium Card .......................................... 21 Sex and Age................................................................................ 23 Time and Frequency ................................................................... 24 Member vs. Non-member............................................................ 26
2 Theoretical Framework ........................................................ 3
3 Method ................................................................................ 13
3.1 3.2 3.3 3.4 3.5 3.6
4 Empirical Framework - Stadium ........................................ 19
4.1 4.2 4.3
5 Results and Analysis.......................................................... 23
5.1 5.2 5.3
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Table of Contents
5.4 5.5 5.6 5.7 5.8 5.9 5.10 6.1
Preferred Communication Channel ............................................. 27 Recommendation ........................................................................ 27 Influenced by Membership .......................................................... 29 Important Criteria......................................................................... 30 What Would Change Buying Behavior ........................................ 31 Four Types of Loyalty.................................................................. 34 The Brand Emotional Loyalty Pyramid ........................................ 35 Contribution to Stadium............................................................... 38
6 Conclusion.......................................................................... 37 7 Future Studies .................................................................... 39 References ............................................................................... 40
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Table of Contents
Figures
Figure 1-1 Figure 2-1 Figure 5-1 Figure 5-2 Disposition of the Thesis ............................................................vi The Brand Emotional Loyalty Pyramid ....................................... 6 Sex ........................................................................................... 23 Age........................................................................................... 24
Appendix
Appendix 1, The Questionnaire in Swedish ................................................... a Appendix 2, The Questionnaire in English ..................................................... d Appendix 3, Questions for Johan Swärdh, Manager of Stadium Card, in Swedish............................................................................................. g Appendix 4, Questions for Johan Swärdh, Manager of Stadium Card, in Swedish...............................................................................................i
Tables
Table 5-1 For how long have you been shopping at Stadium? .................... 24 Table 5-2 How often do you shop at Stadium? ............................................ 25 Table 5-3 Do you have Stadium Card? ........................................................ 26 Table 5-4 Do you have a club card at Stadium, if no, why not? ................... 26 Table 5-5 When receiving offers/membership information, which communication channel would you prefer? .............................................................. 27 Table 5-6 I recommend Stadium Card/Card with Account to my friends and relatives ........................................................................................... 27 Table 5-7 I recommend Stadium to my friends and relatives ....................... 28 Table 5-8 I shop more often at Stadium since I joined Stadium’s customer club? ........................................................................................................ 29 Table 5-9 I believe that I do the majority of my purchasing of sporting goods at Stadium? ......................................................................................... 29 Table 5-10 Important Criteria ....................................................................... 30 Table 5-11 Would you stop purchasing at Stadium if you experienced better service in another sporting goods store?......................................... 31 Table 5-12 Would you stop purchasing at Stadium if you could get a better price for the same product in another sporting goods store? ................... 31 Table 5-13 Would you stop purchasing at Stadium if another sporting goods store moved closer to you? ............................................................. 32 Table 5-14 Would you stop purchasing at Stadium if you discovered that another sporting goods store had better presented premises? ....... 32 Table 5-15 Would you stop purchasing at Stadium if you noted that the quality of the products were better in another sporting goods store?.......... 33 Table 5-16 Would you stop purchasing at Stadium if you observed that another sporting goods store had equal or better brands? ........................... 33 Table 5-17 Would you stop purchasing at Stadium if you discovered that another sporting goods store had better offers/discounts?.............. 34 Table 5-18 Would you stop purchasing at Stadium if you noted that another sporting goods store had a wider range of products?...................... 34
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Disposition
The disposition shows the different chapters and will guide the reader through the thesis.
Introduction
Chapter 1: The Introduction introduces our focus for this thesis and narrows it down to the research questions which are followed by the problem statement and purpose. Chapter 2: Theoretical Framework illustrates the importance of creating a relationship with ones customers, and we discuss how customer clubs is one way to achieve that. Chapter 3: The Method describes how we conducted our empirical study.
Theoretical Framework
Method
Empirical Framework
Chapter 4: The Empirical Framework is based on the material we have collected through our choice of method for our study. Chapter 5: The Results & Analysis is examining the empirical results and shows how it can be connected to the theoretical framework. Chapter 6: The Conclusion is where we look at our results and reflect on our research.
Results & Analysis
Conclusion
Future Studies
Chapter 7: Future Studies in related areas within the subjects are discussed.
Figure 1-1 Disposition of the Thesis
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Chapter 1
Introduction
1
Introduction
?????????????????????????????????????????????????? This chapter will introduce the topic of this thesis and narrow it down to the problem statement which is followed by the purpose and the research questions that will be focused on in this thesis. ??????????????????????????????????????????????????
1.1
Background
Today’s development of competition in the business environment, has forced the companies to analyze and revise every action and activity they take on to gain competitive advantage. Two common methods to compete in the market place have been with price and quality. However, as studies show, these both are easy to imitate by competitors and are therefore losing their dominance in creating sustainable competitive advantages. Instead it has come to be of great importance to focus more on ones customers and to create loyalty towards the company. By creating a relationship between the organization and the customer, the company is creating something unique and special, which is hard to duplicate by competitors. (Abt Associates Inc., 2006) Loyalty becomes evident when choices are made and actions are taken by customers. Many confuse high satisfaction with high loyalty, but that is not necessarily true according to Griffin (2001). She argues that loyalty is demonstrated by the actions of the customer; customers can be very satisfied and still not be loyal. As a company, one would like its customers to do something, to take action. It could be signing up for a newsletter, visit the company’s website or make a purchase. When they have done it once, one would like them to continue this behaviour. Companies ought to try to create a “loyal” customer who engages in profitable behaviour. (Griffin, 2001) Loyal customers that are coming back to the companies are not only increasing sales through repeat purchase, it should also be remembered that the cost of obtaining new customers exceeds by far the cost of retaining old ones (Duchessi, 2002). Therefore, if the companies can create high degree of customer loyalty the overall profitability will increase. With this common knowledge, more and more companies are taken upon themselves activities with the mission to enhance customer loyalty. This is done for example by launching customer clubs or offering company related activities to interested customers. Since the introduction of customer clubs they have increased rapidly. It has come to the point that every other company offers some kind of loyalty program to their customers. It is no longer something distinctive for a company, but more as a standard feature that customers expect them to have. The customer club originates from Germany since organizations had to find a way to avoid the restrictions put on the possibility of giving discounts to special customer groups, a reduction in price has to apply for all customers. However, it was allowed to give a discount based on performance, for example on purchase basis. The inability to give discounts but the need for creating customer loyalty led to the creation of customer clubs. (Butscher, 1998) Butscher (1998) defines customer clubs as a marketing activity initiated by an organization in order to increase loyalty and relationships to customers by offering benefits regularly. The concept of the customer clubs in combination with today’s technology enables the
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Chapter 1
Introduction
company to meet customer’s needs and expectations with a one-to-one marketing approach.
1.2
Why Stadium for our Case Study?
We decided that we wanted to include a company in our thesis, to be able to get a better and deeper understanding of loyalty and customer clubs. Stadium is a sporting goods company that has been around since 1974 (Stadium, 2006). We decided on Stadium because of its long history and with their long presence in the market they would be able to offer us great knowledge about their field and how they handle customers and their loyalty. Stadium introduced their customer club, Stadium Card, in 1996 (J. Swärdh, personal communication, 2006-11-23), which makes them one of the long runners using this tool to enhance customer loyalty. When considering all this knowledge and their success in implementing their loyalty program we found this company very interesting for our thesis.
1.3
Problem Statement
During the recent years the numbers of customer clubs has increased dramatically and something that was looked upon as unique and a “new” approach to gain customer loyalty is today found everywhere, in every industry. With the notion that customer clubs are today more of a standard feature than something exclusive, we believe that it would be of great interest to study if it is still a useful tool to enhance customer loyalty? Something that is of great importance to Stadium is the knowledge of how the customers actually perceive these customer clubs; are customers really more loyal to Stadium if they own a Stadium Card? These questions have lead to the purpose stated below.
1.4
Purpose
The purpose of this thesis is to draw conclusions on if Stadium’s customer club, the Stadium Card, is a useful tool in creating customer loyalty.
1.5
Research Questions
Which criteria do Stadium’s customers consider to be important when making a purchase of sporting goods products? Are members of Stadium Card satisfied with their membership? Are Stadium’s customer club members more loyal than non-members?
.
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Chapter 2
Theoretical Framework
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Theoretical Framework
?????????????????????????????????????????????????? This chapter will present relevant theories that are needed to examine the research questions. We will start by discussing different aspects of customer value, and then introduce the concept of customer relationship marketing. We will continue with our focal point on customer loyalty and narrow it down to loyalty program which finally results in customer clubs. ??????????????????????????????????????????????????
2.1
Customer Value
Duchessi (2002) argues that to be successful in today’s business world all companies must create value, if not only the impression of value, for their customers. That is, according to Duchessi (2002), the key to success. Duchessi (2002) reports that it costs five times more to acquire a new customer compared to retaining an existing loyal customer, that does regularly purchases. This is due to the fact that companies often invest large amount of money in advertising, promotion, sales calls, and channel development to get an initial trial purchase. Every time a company looses a customer to their competitor the company looses its initial investment and incurs a substantial cost to replace him or her. (Duchessi, 2002) A study by the Technical Assistant Research Program (TARP) found that only four percent of unsatisfied customers complained to the company and the other, 96 percent, do not complain, they just go somewhere else. Another interesting fact from TARP´s study is that only nine percent of the unsatisfied customers came back, 91 percent left forever. The study also found the alarming finding that dissatisfied customers tell eight to ten people about their unsatisfied experience. This put the importance of keeping ones customer pleased in perspective.
2.2
Relationship Marketing
During the past several decades, companies have mainly done their marketing through the form of mass marketing. Through great investments in mass-media advertisement they reached huge amounts of potential customers. However, in the twenty-first century marketers have more and more moved away from this approach and into the field of relationship marketing. Improvements in information technology are also speeding up the movement towards segmented marketing and enable the marketers to develop marketing programs designed to build closer relationships with customers and easier ways of communicating with more tailored messages. Companies are not giving up on mass-media advertising, but are finding new ways to reach both current and potential customers. (Kotler, Wong, Saunders & Armstrong, 2005) The concept of relationship marketing has been widely discussed by many authors, which has resulted in many different definitions, both broad and narrow. A broad definition is given by Morgan and Hunt (1994); they argue that “relationship marketing refers to all marketing activities directed toward establishing, developing, and maintaining successful relationships”. However, this definition has been criticized for being too broad and including too many variables, such as supplier partnerships and internal partnerships, therefore including variables outside of the domain of marketing (Peterson, 1995). In the writings of relationship marketing there is an agreement on the importance of customer retention. Varva (1992) considers relationship marketing only as a tool of customer retention, a way
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Chapter 2
Theoretical Framework
for companies to keep their customers loyal, repeat purchasing behavior as well as a way for the company to stay in touch with customers after the sale is made. The information technology that exists today has made it possible to focus on individual or one-to-one marketing with customers, and building long term relationships. The core idea with all definitions of relationship marketing is the focus on cooperation and relationship between the firm and its customer. Such cooperative relations should be long-term oriented and of mutual gain rather than single transactions in the short-term. (Dwyer, 1987; Ganesan, 1994)
2.3
Customer Loyalty
There are many different terms when it comes to customer loyalty; Relationship Marketing (RM), Defensive Marketing (DM), Customer Relationship Management (CRM), retention marketing and “one-to-one marketing” are just few to mention (Söderlund, 2001). The focus on customer loyalty has increased drastically during the recent years. Companies have realized that price and quality are competitive advantages that can easily be copied, and have searched after other ways to reach success. Creating customer loyalty has become one way to reach advantages in the competitive market place that are current today. But what is customer loyalty? Loyalty becomes evident when choices are made and actions taken by the customers. Many companies argue that high satisfaction equals loyalty, but Griffin (2001) argues that this is not true; there are no studies that show a clear positive correlation between the customer satisfaction and customer buying behavior. She believes that the lack of relation between the two may be partly due to the difficulty of accurately and reliably measuring customer satisfaction (Griffin, 2001). Novo (2004) argues that customer loyalty is the tendency of a customer to choose one business or product over another for a particular need. Söderlund (2001) defines it as the individual consistent relationship over time to a specific object. And Kunal (1994) describes customer loyalty as the strength of the relationship between an individual’s relative attitude and repeat patronage. We believe that there is no clear cut definition of customer loyalty; however we think there are some key words: • • • 2.3.1 Preference Consistent relationship over time Frequency Four Types of Loyalty
According to the LaPointe (2006) and studies done by Marketing Advisor Update (2006) there are four key types of loyalty, each with its own benefits, risks, and measurement approach. These are Contractual loyalty, Transactional loyalty, Functional loyalty and Emotional loyalty.
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Chapter 2 2.3.1.1 Contractual Loyalty
Theoretical Framework
Contractual loyalty is something that is most common in business-to-business situations (LaPointe, 2006). LaPointe argues that it comes about when a customer purchase from a company through a formal agreement. It often occurs that the customer receives a volumepricing discount and the customer often represents a lot of revenue and repeat business for the company. Contractual loyalty also applies to consumer situations such as subscriptions for newspapers and telephone services. (LaPointe, 2006) According to LaPointe, when looked upon strictly on the present value of the contract contractual loyalty can be very profitable. But it is often less lucrative as contracts come up for renegotiation and competitors see these times as great opportunities to use aggressive marketing tactics to steal ones customers. To some degree contractual loyalty can bring about dissatisfaction from the customers point of view. They may feel trapped in a business arrangement that they do not feel happy with. (LaPointe, 2006)
2.3.1.2 Transactional Loyalty
Transactional loyalty is when repeat purchasing without any contractual obligations occurs (LaPointe, 2006). Loyalty is, according to Marketing Advisor Update (2006), based on customer’s perception of value one offer for that particular transaction. This perception can be based on factors such as price, value, and convenience. The customer does not feel any loyalty to the company and will, if offered better price, switch without hesitation. (LaPointe, 2006) Transactional loyalty is easy to stimulate with promotions or rewards programs. When trying to gain this kind of loyalty it is important to keep in mind the cost versus what the loyalty will entail for the company. (LaPointe, 2006) If the reward to the customer exceeds more than the actual business that the customer would bring if becoming a loyal customer, there is no point for the company to target that specific customer. Here LaPointe (2006) argues that it is important to be very calculated when selecting potential loyal customers. Transactional loyalty can be achieved solely due to customer’s perception of the switching cost associated with moving their business elsewhere. With insurance services, consumers may perceive a hassle in switching insurance company for marginally superior value propositions. (LaPointe, 2006)
2.3.1.3 Functional Loyalty
When creating functional loyalty it is important to get ones customer to perceive the tangibles attributes of ones products to be superior, thus preferable than ones competitors’ products. This is often the first step to differentiate, to offer something unique and special that no other supplier has to offer. LaPointe (2006) claims that if one succeeds with creating this kind of loyalty one can be sure to gain more market shares and higher revenues.
2.3.1.4 Emotional Loyalty
With this kind of loyalty LaPointe (2006) argues that it is all about creating that special relationship with ones customer. When it comes to emotional loyalty the customer develops preferences for products or services based on their appeal to the individual’s values, ego, sensibilities, or other intangibles attributes (LaPointe, 2006). It is more about the feeling the customer get when entering ones store than anything else.
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Chapter 2
Theoretical Framework
LaPointe (2006) argues that emotional loyalty is the main goal for many marketers, being that it is most often sought and least often attained (LaPointe, 2006). One of the major advantages with emotional loyalty is that it has the ability to withstand challenge when it comes to the economic or the service relationship (LaPointe, 2006). If a company has succeeded in creating this kind of loyalty, the customer is often more forgiving if the company at some point does not live up to the expected standard and is despite of this still interested in maintaining the relationship. Another advantage with emotional loyalty is that it is often associated with price premiums in powerful brands that have no other significant difference. (LaPointe, 2006) One of the biggest advertising firms in the world, OgilvyOne, has created a way of measuring emotional loyalty. They have introduced the Ogilvy Loyalty Index (OLI) which draws its data from an on-going consumer research project. The study is based on over 250 000 interviews, covering more than 70 categories of products and services in 27 countries. The study is looking at buyers’ feelings and purchase behaviour for more than ten thousands global and local brands. For every brand that is covered by the study, OLI can create an Emotional Loyalty Pyramid, which classifies all categories buyers based on the strength of their relationship with the brand. (Ogilvy, 2006)
Bonding Advantage Relevance & Performance Presence No Presence
Figure 2-1 The Brand Emotional Loyalty Pyramid
The Brand Emotional Loyalty Pyramid is the key model of the OLI. The pyramid has five levels; No Presence, Presence, Relevance & Performance, Advantage and Bonding. For a customer to move from one level to another they must satisfy all the requirements for each step before they can climb to the next. (Ogilvy, 2006) At the bottom there is No Presence. The first determination is whether the category buyer can possible have any emotional loyalty at all. If they do not have any they are placed in this level. If they have heard anything about the brand, are aware of it or tried it the customer is qualified for the next level, the level of Presence. Here is where the emotional loyalty is starting to show. But in order to have a strong relationship with the brand, customers need to feel that the brand is relevant to his or her need and budgets, and that it performs adequately. If that would be the case, the customer is moved to the next level, the Relevance and Performance level. (Ogilvy, 2006)
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Chapter 2
Theoretical Framework
To be able to move to the next level, the Advantage level, customers must feel that a brand has something that gives them some extra value that no other brand has to offer. That could be an advantage based on something rational or emotional. The customer that reaches this level is showing strong feelings about the brand and genuinely like it. (Ogilvy, 2006) To reach the top of the pyramid, the level of Bonding, the customer has to have truly strong feelings for the brand. They must believe that the brand has something unique and special to offer, something that is hard to find in any other brand. Simple put, the customer not only like the brand, they love it. (Ogilvy, 2006) 2.3.2 Economic Value Creation with Customer Loyalty
According to LaPointe (2006) the promise of customer loyalty implies potential economic value creation with some combination of five dimensions; At the beginning of the relationship many companies invest excessively in customer acquisition. According to LaPointe (2006) the plan is by retaining customers and captures a share of their spending year after year that this will pay off this initial investment many times over. Second, loyal customers may be inclined to buy more volume of ones products and services and thereby generate an enhanced return over the life of the relationship. (LaPointe, 2006) The third dimension according to LaPointe (2006) it that loyalty can be a strategy for reducing ongoing expense. The cost of losing ones customer and replacing them is a huge cost for each and every company. By creating loyalty the company can improve profitability considerably. Every company is well aware of the fact that competition is brutal. Most of them are also aware that customers can be very disloyal, doing business with their competitors and the fact that it costs more to acquire a customer than it does to retain one (Hill & Alexander, 1996). Studies shows that loyal customer tend to be less price sensitive. They are often having more willingness to pay more for the privilege of doing business with the specific company. Less price sensitivity means, what every company is looking for, larger margins. (LaPointe, 2006) According to LaPointe (2006) the final dimension entails that a loyal customer equals a happy customer and a happy customer means referrals. Loyal customers often become unpaid ambassadors to the company (LaPointe, 2006). When a customer has experienced something that was very much to their liking they are not shy to talk about it. They tell their friends and family all about their experience. According to Lago, Moscoso and Menchero (2006) word-of-mouth result from customers’ perception that the value received from one organization is greater than what another company can offer. This higher value is what distinguishes re-purchase, one of the keywords of customer loyalty. Word-of-mouth not only gets the customer to behave more loyal it also attracts new customer, and that really saves real money in reduced customer acquisition costs (LaPointe, 2005).
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Chapter 2
Theoretical Framework
2.4
Measuring Loyalty
The key when measuring loyalty is having a very clear picture of the economic value one is trying to create. When the goal is to create a specific behavior one needs to have a game plan how to reach this goal, as with any other marketing activity. Earlier studies suggest that to successfully measure loyalty one need to have a clear definition of the term which is applied to the desired outcome (LaPointe, 2006). Reichheld (1996) claims that every industry and organization will have its own unique situation to consider in trading off current profits against loyal customer and the secured future profits that comes with them. Each industry will probably have their own way of defining loyalty. According to LaPointe (2006) several marketers measure loyalty by commitment. They monitor the correlation between customers’ actual purchase behavior and another variable that they believe is important to the specific organization, for example interactions with customer service channels or responses to price increases or discounts (LaPointe, 2006). The commitment actions, taken by the customer between purchase events, are generally good indicators of the customers’ likeliness to repurchase or purchase complementary products or services. This is the bases of the bundling model, which LaPointe (2006) argues is getting to become more and more common in the retail industry. Phone companies as well as cable companies are general the ones that are taking this model close to heart. Each kind of loyalty, the Contractual, the Transactional, The Functional and The Emotional, has their own ways to be measured according to LaPointe (2006). Since contractually loyal customers are purchasing under some sort of agreement, the agreement and its status need to be measured. One can for example measure the share of market under the contract, incidence of contract expansion into new product lines or business units or why not by measuring the frequency of customer referrals. (LaPointe, 2006) To calculate the speed of change in segment mobility or the time between transactions are two different example of how to measure the transactional loyal customers (LaPointe, 2006). According to LaPointe (2006) to measure how customer perceives the tangibles attributes of ones products is tricky, but there are ways. The key is to keep an eye on the basis of the functional preferences. Top-of-mind awareness on main functional dimensions and price elasticity are two ways to go about measuring the functionally loyal buyers. (LaPointe, 2006) When it comes to measure emotional loyalty there are many different approaches, argues LaPointe (2006). A simple approach is to conduct an attitudinal survey with questions like; “prefer over other brands” or “a brand I can trust”. One could also measure it by looking at price insensitivity, problem tolerance and resistance to competitive offers. (LaPointe, 2006) What LaPointe (2006) believes to be the bottom line when it comes to measuring loyalty is that the goal of the process is to forecast changes in customer profitability. Loyalty is a leading indicator of future buying behavior and thereby profitability. As mention before, loyalty is not about satisfaction. As Griffin (2001) concludes many confuse high satisfaction with high loyalty. Customers can be very satisfied and still not be loyal (Griffin, 2001). According to Griffin (2001) the key for a successful process is to measure more, do it faster and to connect ones measurements to the economic outcomes of the organization.
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Chapter 2
Theoretical Framework
2.5
Loyalty Programs
With the increased competitiveness in the market place that has taken place during the recent years the use of loyalty programs has increased substantially. Sharp and Sharp (1997) describe loyalty programs as something that provide customers with loyalty incentives such as points redeemable for prizes. They argue that highly defensive activities, such as loyalty programs, are differentiated from other marketing efforts by their emphasis on increasing repeat purchase loyalty rather than purely on gaining market share (Sharp & Sharp, 1997). Björk (2000) defines loyalty programs as a program that aims to create and maintain customers, a program that should integrate the entire organization. Loyalty programs can be based on many different activities which together shall contribute to an increased customer loyalty. One of these activities is customer clubs. (Björk, 2000) 2.5.1 History of Loyalty Programs
The customer club originates from Germany since organizations had to find a way to avoid the restrictions put on the possibility of giving discounts to special customer groups, a reduction in price has to apply for all customers. The inability to give discounts but the need for creating customer loyalty led to the creation of customer clubs. (Butscher, 1998) In 1981 American Airlines introduced their Frequent Flyer Program and was thereby the first organization to introduce this kind of big scale loyalty program that we are familiar with today to their customers. Close thereafter other airlines followed suit and today these kinds of loyalty programs are found in almost every industry, from the retail to the hotel sector. (Butscher, 1998) This came about with the acknowledgement that marketing had not paid sufficient attention to customer retention (Kotler et al., 2005). 2.5.2 Benefits and Goals of Loyalty Programs
As with the concept of relationship marketing, loyalty programs has many definitions but as can be understood there are many common attributes among them. Each year companies all over the world loose some of their customers to their competitors. Identifying this pattern and recognize its severe impact it has on the companies competitiveness and profitability, the organizations must realize that they need to move away from the long accepted market share strategy to a more long term business approach: building customer loyalty. (Griffin, 2001) Loyalty programs operate differently from other marketing efforts such as advertising campaigns and sales promotions, where short-term increase in sales is the main goal (Kotler et al., 2005). Loyalty programs put their emphasis on building a repeat-purchase relation with the customer and encouraging loyal behaviour towards the company (Kotler et al., 2005). The goals of a loyalty programs obviously differ in different companies, however common outcomes is to be expected from a loyalty program are (Kotler et al., 2005); • • • Increase repeat-purchase rates Decrease in switching to other brands Increase usage frequency
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Chapter 2
Theoretical Framework
According to Butscher (1998) the main goal of a loyalty program is to increase profit, revenue and market share. Other important goals are customer retention, attract new customers, getting information about the customer, and creating a communication channel between the customer and the company (Butscher, 1998). Griffin (2001) states that increased loyalty can bring cost savings to a company in five areas; • • • • • Having loyal customers a company does not need to spend capital on customer acquisitions, which then reduces the marketing costs. Economy of scale gives lower transaction costs, such as contract negotiation and order processing. With fewer customers leaving the company, the organization will experience reduced customer turnover expenses. More satisfied customers lead to more positive word-of-mouth, which studies shows is the most influential aspect in the purchase decision process. Better knowledge about ones customer leads to reduced failure costs
Björk (2000) has also come to some conclusion regarding benefits of loyalty programs; increased market shares, greater retention levels, better opportunities to understand ones customer, reduced marketing expenses, higher entry barriers and more secured future incomes. The outcome of a loyalty program, as with any other marketing campaign, has to be evaluated and compared with the goals. (Butscher, 1998) By comparing the results for members and non-members the effect of the loyalty programs can be isolated.
2.6
What is a Customer Club?
One type of loyalty programs is the customer club. As other loyalty activities customer clubs main objective is to build long-term relationships with the customers. Marketing efforts are focused on holding on to existing customers for repeat-purchases instead of attracting new customers. (Sharp & Sharp 1997) According to Butscher (1998) the definition of a customer club is a marketing activity initiated by an organization in order to increase loyalty and relationships to customers by offering benefits regularly. One of the factors behind the implementations of customer clubs is the “80/20 Rule”. The rule states that only a small percentage of customers make up for most of the company’s sales. Typically 80 per cent of the revenues come from 20 per cent of the customers. It is therefore beneficial for the organization to target their marketing towards these customers. (Dowling & Uncles, 1997) 2.6.1 Different Types of Customer Clubs – Open and Limited
There are two types of customer clubs; the open and the limited club. The open club is as the name implies open for everyone, no cost and no entry conditions. The simplicity of becoming a member often leads to many members but seldom are all of them of benefit for the organization. Here the company needs to calculate if it is worth to have an open club considering the costs to send brochures and information to stay in touch with their members, even though the customer may not be a profitable customer (Butscher, 1998). Limited clubs are the opposite of open clubs; customers have to pay to become a member and of-
10
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Theoretical Framework
ten have to fill out a more complicated application (Butscher, 1998). In this way there will only be a few members who will be truly interested in the club. 2.6.2 Types of Rewards in Customer Clubs
Research about when and how customer clubs is effective have shown that the reward system is of great importance (Butscher, 1998). In order to attract customers to the organization’s customer club the rewards must exceed the costs of joining the club. The prospective customer must feel it is worth giving out their personal information and in some cases to pay the fee for a membership in order to get the club benefits. Butscher (1998) states that there are three key fundamentals to consider when it comes to choosing which customer club benefits the organization wants to offer. The first is value, the benefits must be of such a high value that it is desirable and makes the membership attractive. The second fundamental is called perceived value; the customer must feel that the benefits satisfy them. The last fundamental is that the organization should choose the benefits from the customer’s perspective not their own in order to make the benefits sufficient. (Butscher, 1998) The goal with the customer club rewards should be to offer long-term unique benefits for the customer club members. In order to achieve this it is important that the organization listen to their members and learn what type of benefits they would prefer. Neglecting of examining the customers wishes and instead offers benefits the organization feels is sufficient would most likely not lead to success. (Butscher, 1998) According to Butscher (1998), there are two kinds of rewards in customer clubs; financial rewards, such as discounts, and emotional rewards such as recognition from the company. He also states that everybody loves hard cash but that it is the emotional reward that gives the extra value. The negative aspect of hard benefits it that they are easy to copy; they often have a similar approach in all organizations and are therefore not especially unique. Consequently a customer that joins a club in order to receive discounts will leave the club for a competitor if they offer bigger discounts. (Butscher, 1998) The benefits that are intangible, emotional, and harder to copy and therefore become more unique are called soft benefits. Soft benefits can be clarified as special treatment and recognition that the customers are looking for. The soft benefits are often those that have the largest positive impact on loyalty, they are not easily imitated which makes it hard for the customers to find these benefits in another organization. 2.6.3 Target Groups for Customer Clubs
According to Butscher (1998) the target group for an organization’s customer club should be the customers that they want to build a relationship with or to improve the one already existing with the current customers. One question the organization should be asking is if they should be focusing their customer club on existing customers or potential. Answering this question two different schools of thought can be considered. The first school is of the opinion that current customers already have a relationship with the organization and are therefore loyal even without the club’s benefits. Since the existing customers already are loyal the main focus should be on the potential customers in order to try to increase their purchasing volume. The second school is of the opposite opinion; they believe that the focus should be on the current customers since they are the most important for the organizations revenue and profit. (Butscher, 1998) Considering the “80/20 Rule”, losing one of these important customers
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Theoretical Framework
has a huge impact on revenue therefore these important customers should be the focus, the target group of the customer club. (Dowling & Uncles, 1997) Novo (2004) agrees with the second school of thought, that the customers that spend the most, the “rocket fuel customers” should be the target group. According to Novo (2004) these customers have both high existing value and high possible value, due to the fact that they at present are the customers that spend the most they are likely to spend more than others also in the future. Considering that the “rocket fuel customers” are the ones that most likely will generate 80 percent of the profit in the future the organization would like to see trough that these customers are happy and gets special attention. Dividing customers into three elements; best, average and worst customers Sheth and Parvatiyar (2000) goes as far as saying that the worst customers should be fired since they are not profitable and never will be. They believe that the efforts should instead be focused on putting the average customers in the right direction and bond even more with the best customers (Sheth & Parvatiyar, 2000). 2.6.4 Recent Frequent Monetary Analysis
The Recent Frequent Monetary (RFM) analysis is based on three behavioral attributes among customers; Recency of purchase, Frequency of purchase, and Monetary value of purchase (SIAM, 2006). By using statistics from the company’s customers database such as the date of last purchase, how often the customer purchases and for how much the purchase is, a company can segment its customers in order to select which group to prospect (Multichannel Merchant, 2005). The RFM analysis is one of the earliest techniques of segmentation and has been used for over 50 years by direct marketers to target customers segments, saving costs and improving profits (SIAM, 2006). The analysis is based on the following three observations (SIAM, 2006) that have been made across multiple industries; 1. Customers who made a recent purchase are more likely to purchase again compared with customers who has not purchased in a long time. Customers who have purchased recently are also more likely to respond better to messages. 2. Frequent buyers are more likely to purchase again than infrequent buyers. 3. Customers who are big spenders often respond better to messages then low spenders do. Grouping customers by RFM a company can concentrate on market the top segment. The company can also use this information to identify among which customer they have the biggest success and evaluate why this is. (Multichannel Merchant, 2005) One downside to the RFM analysis is that it is very limited, a company can for example not be sure how the customer spends the rest of his/her money. (J. Swärdh, personal communication, 2006-11-23)
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Chapter 3
Method
3
Method
?????????????????????????????????????????????????? In this chapter we will describe our methods that we found best suited for this thesis. We will describe our choice of case study, the selection of respondents and finally a thorough description of our questionnaire. ??????????????????????????????????????????????????
3.1
Research Approach
The goal of our study was to be as objective as possible. We have concentrated our study to few variables represented by a great amount of individuals. With that in mind we decided that quantitative study was the best option for us. Using the quantitative technique one avoid personal interpretations, which can in some cases have a great impact on the result. Avoiding these, one can be more objective in ones research. But we did not want to exclude one over the other, being that qualitative method has its pros as well. Qualitative research aims to give insights into perception, motivation and attitudes and aspires to answer questions like, what?, why? and how? (Winter, 1992) The choice between the two methods depends on what result one aim to achieve; if it is to gain a wider knowledge about a topic the quantitative method is preferable. However, if the purpose of the study is to gain a deeper understanding of the subject the qualitative method is best to use. (Winter, 1992) We decided to have our main focus on the quantitative method, but also to include the qualitative method. By conducting a survey among Stadium’s customers our focal point was quantitative, but we also wanted to interview the manager of Stadium’s club card, which would give us some depth and perspective of loyalty and customer clubs. To get information about Stadium’s main competitor, Intersport, we had a phone conversation, on December 7th 2006, with the Manager of Intersport’s customer club, Pernilla Nimmermark.
3.2
Case Study
According to Yin (1994), case study is one of the ways of doing social science research. Yin (1994) states that case studies are the preferred strategy when questions with “how” or “why” is used, but since we wanted to be able to get a better and deeper understanding of loyalty and customer clubs we believed that a case study was the right approach to use even though we did not use the recommended questions. Gillham (2000) defines case study as, “a unit of human activity embedded in the real world; which can only be studied or understood in context; which exists in the here and now; that merges in with its context so that precise boundaries are difficult to draw”. According to Gillham (2000) a case can entail an individual, a group, an institution or a community, such as an industry. But it can also involve multiple cases, making a study of number of units, product groups or different institutions. Which one is used depends on ones research question or questions. It is all about collecting evidence, evidence which is in the case setting, and which has to be collected in the best possible way to answer the research questions. Gillham (2000) states that the key characteristic of case study research is to use multiple sources of evidence, one kind or source of evidence is likely not sufficient on its own.
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Chapter 3
Method
Another important key factor when conducting a case study, according to Gillham (2000), is not to start the research with a specific theory in mind. It is after collecting all data and understanding the context that one will know which theory or theories that would work or be most useful (Gillham, 2000). We followed Gillham’s recommendation in the sense that we conducted a survey where we had 102 respondents. We also had an in-depth interview with the man responsible for Stadium’s customer club, Johan Swärdh. We collected our secondary data from different course literature, web pages, sources from three libraries and a number of databases. We also started our study with a clear set of minds. When not considering a specific theory we believe that we would come to the best conclusions.
3.3
Validity and Reliability
Validity can be explained as the degree of how accurately the chosen research method assesses the factor it is supposed to measure (Holme & Solvang, 1997). We conducted both qualitative, an interview, and quantitative, a questionnaire, research in our study. Conducting a face-to-face interview the interviewer has the advantage of being able to discuss the answers and questions to delimit errors and misinterpretations and increase the validity (Holme & Solvang, 1997). To be able to get accurate and relevant information we conducted the interview with a respondent with great knowledge about Stadium’s customer club. Using this reliable source increased the validity. To delimit errors even more we formulated the questions and conducted the interview in Swedish, the misinterpretations should be diminished. The questionnaire was also formulated in Swedish and by that the risk of misinterpretations decreased. When handing out the questionnaire we tried to distinguish ourselves from the Stadium staff so that the respondents would not feel a hesitation to answer truthfully. The degree, to which a result can be repeated next time it is measured, is called reliability. To increase the reliability in our interview we chose to have two interviewers conducting the interview, both taking notes to be able to catch all the information. After the interview the notes where discussed and compared to get the right picture of the information, to increase the reliability. Although Merriam (1994) claims that it is hard to reach high reliability when conducting research involving people, people is always changing and may therefore have a different opinion next time asked. The reliability in our questionnaire was increased due to the fact that we visited Stadium at different times. This should lead to a steadiness in our results. Since our respondents where picked now and then instead of everyone at the same time we would probably get the same results if we asked new respondents today.
3.4
The Interview with Johan Swärdh, Manager of Stadium Card
We chose to have a personal interview with Johan Swärdh who has been the Manager of Stadium Card for the last seven years. Our first contact with Swärdh was made by a phone call where he asked us to send an email explaining further about our topic of the thesis. This was made the same day, November 15th 2006. We later received an answer where he happily agreed on our request for an in-depth interview. As a courtesy we emailed Swärdh our interview questions in advance, to give Swärdh an opportunity to prepare him. The interview took place at Stadium’s head office, or service office as Stadium likes to call it, in
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Chapter 3
Method
Norrköping on Thursday the 23rd of November 2006. It was a pleasant meeting where we had a great discussion and the information we received was very useful. As we were leaving, Swärdh welcomed further questions if any would come up later on.
3.5
Selection of Respondents
When choosing a sample for a study there are two different techniques, according to Riley, Wood, Clark, Wilkie and Szivas (2000), probability and non-probability sampling. When each element in the population is randomly selected, probability sampling is used. Nonprobability is the technique where the chance of selection for each element in a population is unknown and extreme cases even zero. (Riley et al., 2000) A sample can never be an ideal reflection of a population but somewhat representative although it is more cost efficient and plausible to gather a sample than a whole population (Chisnall, 1991). When examining the efficiency of Stadiums customer club we wanted to compare Stadium’s different customers in order to see if it was a difference between the customers that was a member and those who where not. We therefore decided to visit the Stadium store at A6, a shopping mall in Jönköping, and ask customers to fill out our questionnaire, not just members but also non-members. In order to get a diverse customer base we visited Stadium at different times, trying not to exclude customers that prefer to shop at specific times. Using nametags with our and the schools name we aimed at differentiate us as much as possible from the Stadium staff.
3.6
The Questionnaire
The primary function of the questions we used was to examine if the loyalty to Stadium differed between the customers that where members of Stadiums customer club compared with the customers that are not. Reading earlier studies concerning loyalty gave us some ideas which aspects, excluding the customer club, that could be relevant when it comes to loyalty to a specific retailer. The questionnaire that was handed out consisted of nineteen main questions and eight sub questions. We tried to make the language as easily understandable as possibly so the questions should be difficult to interpret in another way than intended (Ejlertsson, 1996). Before we handed out the questioners to Stadiums customers we did a pilot study to examine if our questions really answered what we wanted to know. We noticed that the respondents did not always understand the question and answered in an unintended way, we therefore changed some of the questions to more easily understandable. The questionnaire can be found in the appendix one and two. 3.6.1 Question One to Seven
When discussing how the layout of the questionnaire should be we concluded that we wanted to start out with the more easy questions in order to make the respondents feel more willing to complete the questionnaire. A nominal scale was used for the first seven questions, making the questions easy to answer since there was only one “right” answer; the respondent can not belong to both sexes or be both 23 and 46. The alternatives must be excluding, to only be the right answer for some classes in society (Christensen, Andersson, Carlsson & Haglund, 1998).
15
Chapter 3 3.6.1.1 Question One
Method
We here asked for the respondents’ age, since there are studies showing that age affect loyalty (Holmberg, 2004). Some studies show that elderly are more loyal than younger people, one of the reasons being that elderly have found the products and services they prefer throughout years of testing and now they are not interested in trying something else (Holmberg, 2004) . Other studies show that elderly people are less loyal than younger people because they have the time to go to different stores and compare prices to be able to find the lowest one (Holmberg, 2004). We wanted to examine if we can find a difference in loyalty between the different ages.
3.6.1.2 Question two
In this question we asked the respondents about their sex. An earlier research was done to find loyalty among the fitness center Friskis och Svettis’ members. Their conclusion was that among the members, females seem to be more loyal than males (Engblom, Ingemyr & Nordström, 2006). This conclusion is in conflict with the theory that Garton (1995) presents where he states that even though there may be a small difference between the sexes it is so small that it has a negligible impact. With these two theories contradicting each other we felt it was important to include this questions, as with age, to see which theory was accurate in our case.
3.6.1.3 Question Three
In question three we asked for how long customers have been shopping at Stadium. One way organizations can take into consideration when measuring their customer’s loyalty is looking on how long they have been customers of the company (Elinder, 1993). Although, we feel that that measurement is not efficient without taking other variables into consideration. A young person can be loyal even tough they have not been customers for a considerable amount of time, hence it is still interesting to know how long our respondents have been customers in their preferred retail outlet as combined with other variables it may show loyalty. We wanted to use direct timeframes to get more precise answers for an easier analysis. If we know more exact information about the respondent we can draw more precise conclusions (Christensen et al., 1998). Giving more concrete timeframes will also reduce the likelihood that the respondents will interpret the answers in their own way and answer in an unintended way. To diminish any misinterpretations it is very important to construct the question to be clear and direct, and by using how long and how often it is hard to interpret in another way than intended (Ejlertsson, 1996).
3.6.1.4 Question Four
In question four we asked Stadiums customer how often they buy products at stadium, the frequency. According to Elinder (1993) the more frequent a customer visit the retail outlet the more loyal the customer tends to be. Elinder (1993) claims that frequency is the most important and accurate measure when it comes to loyalty. Even though a customer spends a considerable amount of money in a retail store a customer that spends less money but comes in more often are considered more loyal and therefore more important to the retailer (Elinder, 1993). Given that frequency is seen as such an important loyalty measure, it is even one of our key words when defining loyalty, we wanted to ask our respondents their frequency in their preferred store in order to possibly identify some loyalty tendencies.
16
Chapter 3 3.6.1.5 Question Five
Method
In this question we asked the respondents if they have a membership card at Stadium or not. It is an important question for our study, without knowing if the customers have a card or not we can not compare them to each other. This is the factor we want to investigate to find out if there is a difference between the two when it comes to loyalty. The question is made as an open ended question to make it possible for the customer to answer why he or she does not want to be a member of Stadium Card. We felt it could be interesting to learn why a customer may not be interested in price cuts and special offers. This question made it possible to divide the members from the non-members and give the non-members the possibility to skip a pair of questions that only regards the members.
3.6.1.6 Question Six
We here asked which kind of Stadium Card the members have since Stadium has two different customer club cards: Stadium Card, which you collect bonus with and Stadium Card with Account that gives you the possibility of paying with your card. To apply for a customer club card with the credit function you have to give out more information than you have to for than ordinary club card, we therefore felt it was interesting to investigate if there was a difference between the two. 3.6.2 Question Seven to Eight
These questions are now designed in a likable scale (Christensen et al, 1998). We used this kind of scale to easy understand to which degree Stadium's customers agree with our assertions about the Stadium Card and their behavior being members of the Stadium Club. Using this sort of scale also makes it possible for us to calculate the average. In the scale, one stands for not recommending the club at all and seven meant that the member strongly recommends the club. “No opinion” is represented by zero in the tables.
3.6.2.1 Question Seven
In this question we asked the respondents that had answered the question if they were members of the customer club at Stadium, if they recommend Stadium Card or Stadium Card with Account to their people in their surroundings. To recommend the customer club you are a member of to your friends and family is often viewed as a signal of loyalty (Hill & Alexander, 2000). We therefore felt it was an important question when studying if the customers are loyal.
3.6.2.2 Question Eight
Here we asked the members if they felt that they spent more money at Stadium after they became members. One could conclude that if so, they would be a step closer to being loyal.
3.6.2.3 Question Nine
In this question we asked the respondents with a membership in Stadium Club about how they prefer to be contacted by Stadium to be able to compare how Stadium actually stay in contact with their customer. We chose to go back to the nominal scale again in order to get the respondents attention, if all the questions look the same it is a risk that the respondent just answers without reading the question thoroughly. We still wanted to use the nominal scale in order to make the questions easy to answer. Combining the answers with both
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Method
closed and open alternatives was a way for us to steer the respondents answer but in the same time if we have missed one important possible answer give them a chance to tell us with the open answer (Christensen et al., 1998).
3.6.2.4 Question Ten
In question ten we asked the respondents if they felt that they do the majority of their sporting goods purchases at Stadium. The proportion of the sum a customer spends within a category, as in our case is sporting products, may be a measure of loyalty. If the customer purchases for a large amount of money in Stadium it is easy to make the assumption that the customer is loyal. Although you have to keep in mind that that amount may only be 20 percent of the total spending on sporting products, the remaining 80 percent may be spend at the competitor (Hill & Alexander, 2000). Stadium has competitors in the same market and when asking the customers if they buy the majority of their sporting goods at Stadium we will notice if the customers favor Stadium over its competitors. 3.6.3 Question Eleven to Eighteen
In these questions we asked the customers why they chose to buy their sporting goods products at Stadium and which aspects they found to be the factors that make them chose Stadium before competitors. 3.6.4 Question Nineteen
Here we asked all our respondents if they recommend Stadium. As earlier stated, recommendation of an organization is often viewed as a sign of loyalty (Hill & Alexander, 2000). We wanted to compare if members recommended Stadium to a greater extent than nonmembers. 3.6.5 Question Twenty
In this question we asked the respondents if they would consider leaving Stadium for a company that performed better on one of the criteria listed in this question. In question twelve to nineteen we learned what most respondents thought were the most and least important variables when deciding on purchasing their sporting goods at stadium. When we now asked if they would leave their current store if they receive e.g. better service, price or a customer club membership elsewhere we will probably divide the customers that are loyal from the disloyal.
18
Chapter 4
Empirical Framework
4
Empirical Framework - Stadium
????????????????????????????????????????????????? The purpose of this chapter is to give the readers an overview of the company Stadium, its customer card, Stadium Card, and also the benefits that exist today within the company. This information will later be used in the analysis. To this chapter we have collected information from the homepage of Stadium and an interview with Johan Swärdh, the Manager of Stadium’s customer club, (personal communication 200611-23). We also had a phone conversation with Pernilla Nimmermark, the Manager of Intersport’s customer club, (personal communication, 2006-12-07). ??????????????????????????????????????????????????
4.1
The Past and Present of Stadium
The concept of Stadium started 33 years ago, in 1974, when Ulf Eklöf took over a small sporting goods store in Norrköping. At that time the revenue was only one million SEK. Eklöf’s vision was to create a sporting goods store aimed to all people and not only to athletes. Instead of selling products over the counter, the goods were displayed customer friendly where the buyer could feel and try the different products, which was a huge hit. By 1983 the turnover had increased with 39 million SEK. The same year Eklöf’s brother, Bo, joined Ulf the company. They have since then worked together. The aim of reaching everyone has today been modified; Stadium’s target group is today people between the ages 16 to 49. The first Stadium store was opened in 1987 in Stockholm, and since then Stadium has opened additional 99 stores both in Sweden, Denmark and Finland. According to Swärdh Stadium have been looking into expanding to Norway, but because of they not being a member of EU it has been proven to be difficult to ship over products due to the different regulation. They have today a total of 3005 employees and have a turnover of 4 billion SEK. According to Swärdh Intersport is the main competitor to Stadium. Stadium has 85 stores compared to Intersport’s 124, but Stadium still has a larger turnover. Swärdh reported that in the sporting goods industry Stadium has approximately 15 percent of the market shares, as do their major competitor Intersport. All stores are fully-owned by Stadium and are centralized managed from the head-quarter in Norrköping. Since a couple of years ago IKANO (a company owned by Ingvar Kamprad) owns 25percent of the company. Swärdh is looking bright on the future. According to him Stadium has big plans to keep expanding across Sweden and our two neighboring countries. With the help of their partner, IKANO, they are even looking to expand outside the Nordic countries.
4.2
Stadium’s Marketing Approach
The overall task for Stadium’s marketing is to cherish and strengthen the brand of Stadium and to attract customers to the stores. The main focus on marketing activities is on print, direct mail and outdoor advertisements, like billboards. Stadium also uses the notion of Customer Relationship Marketing, where they in 1996 introduced their Stadium Card and Stadium Magazine, PR, events and also their webpage. The use of direct mail fluctuates a
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Empirical Framework
lot, but according to Swärdh the main focus on direct mail is to promote different campaigns and events. The Stadium Magazine is what Swärdh calls the base for their communication and is released four times a year. Included in this magazine is different inserts, which are based on earlier purchases. In Stadium’s database there is up to 25 different variables which decides which insert that should be used, for example woman, man, golf, junior and swimming. Stadium have different campaigns in order to attract new members one example is a Christmas campaign they had in 2006 where Stadium offered customers who became members with Stadium Card with Account no interest on all purchases until the new year. In the autumn of 2005 a new project started at Stadium, their new webpage, which is going to be launched in March 2007. Every product that Stadium has to offer will be displayed on their homepage. Swärdh expressed that the homepage will be seen as a complete contact channel. The homepage will be very much an integrated meeting place where customer can not only purchase their favorite pair of shoes, they will also be able to read information about them and get advice how to best take care of them. On the homepage it will also be possible for club members to choose by which way they would like to be contacted by Stadium. Something that Stadium has put on hold is to offer their customer to be contacted by text message. This is a new approach that some companies has chosen to stay in contact with their customers, but since it is just on trial basis for many companies Stadium has decided to wait and to take part of some feedback that will be generated later. A marketing activity that Stadium has decided not to use is TV commercials. According to Swärdh this decision was made due to the fact that commercial spots on TV is one of the most expensive marketing activity there is and Stadium feels that they get more out of their other approaches. Approximately five percent of Stadium’s turnover is invested in marketing which is then invested in many different marketing channels. Out of these five percent, about 20 percent is devoted to the customer club. This is a large investment, but records show that they are very well invested since it has been proven to give high returns.
4.3
Stadium Card
Stadium Card is an open customer club. This goes in line with Eklöf’s vision, to offer a sporting goods store with a complementary customer club aimed to all people. When Stadium started the customer club in 1996 they had two kinds of cards, Stadium Card, for its member so save bonus points with, and Stadium Staff, which is available for the employees. Four years later Stadium took the decision to develop the Stadium Card to also offer Stadium Card with Account. This is a kind of credit card which enables members to pay later for their purchases. Everyone that has turned 16 and has an address in Sweden, Denmark or Finland can apply to become a member of the Stadium Card, although to be able to apply for Stadium Card with Account, one must have turned 18. Since the establishment of Stadium Card the numbers of members have increased every year. In year 2006 Stadium Card had 765,000 Swedish members, 65,000 Danish members and in Finland there were 63,000 members. According to Swärdh Stadium can interpret that the number of members has increased approximately in the same rate as new stores have opened. To put the number of Stadium’s members in perspective, their major competitor Intersport has today 650,000 members (P. Nimmermark, personal communication, 2006-12-07). Each month Swärdh and his team receive approximately 12,000 applications
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Empirical Framework
from customers that want to become members of Stadium Club. But Stadium is experiencing a major downfall when it comes to keeping the members, every month around 4,000 members become inactive. A member will receive the “inactive” status when they have not used their membership card in 15 months.
“We are having problems retaining our members.”
(J. Swärdh, personal communication, 2006-11-23)
By recognizing this problem Swärdh feels like half the battle is won; “Now we just have to keep working on it”. Stadium has put some interesting statistics together. According to their sales figures, customer that are not member spend 314 SEK per purchase, member spend 482 SEK per purchase and the members with the credit card function are the big spender, they spend a total of 885 SEK at each purchase. This really gives Stadium an incentive to keep working to get customer to become members. And even more to get members to upgrade their membership to Stadium Card with Account. The customer club is not only of use to increase customer spending, Swärdh can conclude that since the start-up of Stadium Card their expenses have decreased since they now, with the help of their customer database, can target their advertisement better. The customer is no longer exposed to irrelevant direct marketing instead the customers today receive highly customized information. Stadium has also realized that the success of Stadium Card has helped them to plan better assortment for the future. They can now with their advanced customer data base predict to a great accuracy for the time ahead In order to detect loyalty Stadium uses the RFM analysis. This measurement is used to label their customers. A customer having purchased recently, high frequency and are big spenders are classified as most loyal. When it comes to the “80/20 Rule” Swärdh says that it truly applies at Stadium. A big part of Stadium’s revenues come from a small portion of their customer base, some families spend up to 70,000 SEK each year. 4.3.1 Bonus System
The bonus is based on earlier purchases that the member have done during one calendar year (January 1st – December 31st). It is then given out in the following year in March. If a customer were to spend between 2,001 to 4,000 SEK the bonus is two percent of that amount. Between 4,000 to 6,000 SEK the member would receive four percent. And if the member would spend as much as 6,000 SEK or even more they would be rewarded with as much as six percent. 4.3.2 The Purpose of Stadium Card
When we asked Swärdh about why Stadium decided to start their customer club, he explained that the idea behind Stadium Card was to learn more about their customer and to create a better relationship between their customers and the company. Another goal with
21
Chapter 4
Empirical Framework
the creation of Stadium Card was to stimulate more purchases and in higher frequency. These goals stand still today. The first couple of years were seen as a design and construction stage where the base for the customer club was built. During this time period Stadium tried to teach its customer what Stadium stood for and what benefits they were able to offer their members. This gave Stadium an opportunity to get some first hand feedback from their customers. Knowing more about ones customers’ makes it easier to target ones marketing activities, and this came to be very true to Stadium. Since the implementation of Stadium Card they have seen that many of their marketing campaigns have become more effective and profitable. Swärdh expressed that the start-up of Stadium Card was not an easy task. Since this was a new approach there was a lot of convincing of the board of directors to go through with this investment. They thought that creating a customer club would be a too great of a cost to take on. The administration around this kind of project means a huge investment and a great amount of capital would be tied up in this kind of undertaking. But with time and proper feedback they have realized that this investment has been paid off time and time again. There is a great saving when Stadium uses the information shared by their members when doing direct mail or other marketing activities.
22
Chapter 5
Results and Analysis
5
Results and Analysis
?????????????????????????????????????????????????? Under this heading we are examining the models and concepts introduced in the theoretical framework. We will analyze the difference in loyalty between customers that are members in Stadium’s customer club and customers who are not. We also investigate whether the customer club is an efficient tool for creating customer loyalty. ?????????????????????????????????????????????????? In this section we present our results from the questionnaire handed out to Stadiums’ customers. To be able to analyze and see the results of the questioners we used the statistical program SPSS, Statistical Package for the Social Sciences. Chi-square tests were performed to see if our results were valid and significant to use in our research. Chi-square was also used to rule out that sex and age had any affect on customer loyalty. The test was valid although it showed that the difference in loyalty between the sexes and the age groups was not big enough to be significant. We therefore concluded that age and sex does not affect loyalty. The other tests conducted where valid and showed that the differences between members and non-members where significant to draw conclusions from.
5.1
Sex and Age
The pie chart illustrates a relatively equal distribution of female and male respondents with 53.9 percent female and 46.1 percent male.
Male 46%
Female 54%
Figure 5-1 Sex
The chart below shows a moderately equal spread over Stadium’s target group; people between the ages 16-49.
23
Chapter 5
Results and Analysis
51-60 61< 5% 2% 41-50 17%
Customer loyalty is a company's ability to retain satisfied customers. Maintaining customer loyalty is one of the toughest challenges for any marketing department in a business enterprise, since the wants of a customer are modified at much faster rate than their needs.
JÖNKÖPING INTERNATIONAL BUSINESS SCHOOL
JÖNKÖPING UNIVERSITY
Is C u s t o me r C lu b a U se fu l To o l in C reati n g C u sto mer L o y alty?
- A Case Study of Stadium
Bachelor Thesis within Marketing Authors: Genfors, Martina Gustafsson, Camilla Liljeblad, Erica Tutor: Jenkins, Anna Sasinovskaya, Olga Jönköping January 2007
INTERNATIONELLA HANDELSHÖGSKOLAN
HÖGSKOLAN I JÖNKÖPING
Är kundklubben ett användbart v e r k t y g f ö r a t t s k a pa kundlojalitet?
- En fallstudie av Stadium
Filosofie kandidatuppsats inom Marketing Författare: Genfors, Martina Gustafsson, Camilla Liljeblad, Erica Handledare: Jenkins, Anna Sasinovskaya, Olga Jönköping: January 2007
Acknowledgements
The authors would like to thank their supervisors, Anna Jenkins and Olga Sasinovskaya for their help and assistance during the process of writing this thesis.
We would also like to thank Johan Swärdh, the Manager of Stadium Card, for giving us the opportunity to get a greater knowledge about Stadium.
Martina Genfors
Camilla Gustafsson
Erica Liljeblad
Bachelor’s Thesis in Marketing
Title: Author: Tutor: Date: Subject terms: Is Customer Club a Useful Tool in Creating Customer Loyalty – A C ase Study of Stadium Martina Genfors, Camilla Gustafsson, Erica Liljeblad Anna Jenkins, Olga Sasinovskaya 20072007-0101-22 Customer Loyalty, Loyalty, Customer Club, C lub, Stadium, Stadium Card, Relationship Marketing
Abstract
Introduction: Creating a relationship between the customer and the organization has come to be of great importance during the last decade. Companies are realizing that loyal customers are coming back and are not only increasing sales through repeat purchase, but is also decreasing the cost of obtaining new customers which exceeds by far the cost of retaining old ones. One tool used by companies to keep customers loyal is loyalty programmes, one example being customer clubs. As other loyalty activities the customer clubs main objective is to build long-term relationships with the customers. Purpose: During the recent years the numbers of customer clubs has increased dramatically and something that was looked upon as unique and a “new” approach to gain customer loyalty is today found everywhere, in every industry. With the notion that customer clubs are today more of a standard feature than something exclusive, led us to the purpose of this thesis, to draw conclusions on if Stadium’s customer club, the Stadium Card, is a useful tool in creating customer loyalty. Method: By conducting a survey among Stadium’s customers our focal point was quantitative, but we also wanted to interview the manager of Stadium’s club card, which would give us some depth and perspective of loyalty and customer clubs, a qualitative study. Conclusion: To answer our purpose we can conclude that there is clear evidence that Stadium builds a stronger relationship with members with Stadium Card than with nonmembers. With our limited research we can not draw any conclusion on whether Stadium’s customer club actually generates customer loyalty. We can see that customers that are holders of Stadium Card are more loyal but we can not see if Stadium Card is the true cause behind this. Do members become more loyal after joining the customer club or do they join the customer club because they are loyal? Even if it is uncertain if Stadium’s customer club creates loyalty there are strong evidence that the club keeps loyal customers loyal.
i
Kandidatuppsats inom in om Marknadsföring
Titel: Författare: Handledare: Datum: Ämnesord Är kundklubben ett användbart verktyg för att skapa kundlojali kundlojalitet – En fallstudie av Stadium Martina Genfors, Camilla Gustafsson, Erica Liljeblad Anna Jenkins, Olga Sasinovskaya 20072007-0101-22 Customer Loyalty, Loyalty, Customer Club, C lub, Stadium, Stadium Card, Relationship Marketing
Sammanfattning
Introduktion: Intresset för att skapa en relation mellan kunder och företag har ökat avsevärt under det senaste tio åren. Företag har insett att lojala kunder återkommer och att de inte bara ökar försäljningen men genom återkommande köp också minskar kostnaderna för att finna nya kunder, vilket markant överstiger kostnaden att behålla redan existerande kunder. Ett verktyg som företag använder för att hålla deras kunder lojala är lojalitetsprogram, exempelvis kundklubbar. Som andra lojalitetsskapande verktyg är kundklubbens huvuduppgift är att skapa långsiktiga relationer med sina kunder. Syfte: Under de senaste åren har antalet kundklubbar ökat dramatiskt och något som ansågs vara unikt och ett nytt tillvägagångssätt att skapa kundlojalitet finns idag inom alla industrier. Med vetskapen om att kundklubbar idag är mer av en standard än något unikt leder oss in på vårat syfte, att kunna dra en slutsats om Stadiums kundklubb, Stadium Card, är ett användbart verktyg i att skapa kundlojalitet. Metod: Fokusen på denna studie var kvantitativ då vi genomförde en undersökning bland Stadiums kunder. Vi intervjuade även den ansvarige för Stadiums kundklubb, vilket gav oss djupare kunskap och breddare perspektiv om lojalitet och kundklubbar. Slutsats: Vår slutsats är att det finns starka bevis för att Stadiums kundklubb skapar starkare relationer med sina medlemmar än med ickemedlemmar. Med vår begränsade studie kan vi inte dra en slutsats om huruvida Stadiums kundklubb verkligen genererar kundlojalitet. Vi kan utläsa att medlemmar i Stadium Card är mer lojala, men vi kan inte avgöra om Stadium Card är den sanna orsaken bakom detta. Blir medlemmar mer lojala efter deras medlemskap eller blir lojala kunder medlemmar? Även om just detta är oklart så finns det starka bevis för att Stadium Card håller lojala kunder lojala.
ii
Table of Contents
Table of Contents
1 Introduction .......................................................................... 1
1.1 1.2 1.3 1.4 1.5 2.1 2.2 2.3 2.4 2.5 2.6 Background ................................................................................... 1 Why Stadium for our Case Study? ................................................ 2 Problem Statement........................................................................ 2 Purpose......................................................................................... 2 Research Questions...................................................................... 2 Customer Value............................................................................. 3 Relationship Marketing.................................................................. 3 Customer Loyalty .......................................................................... 4 2.3.1 Four Types of Loyalty ......................................................... 4 2.3.2 Economic Value Creation with Customer Loyalty ............... 7 Measuring Loyalty ......................................................................... 8 Loyalty Programs .......................................................................... 9 2.5.1 History of Loyalty Programs................................................ 9 2.5.2 Benefits and Goals of Loyalty Programs............................. 9 What is a Customer Club? .......................................................... 10 2.6.1 Different Types of Customer Clubs – Open and Limited......................................................................................... 10 2.6.2 Types of Rewards in Customer Clubs .............................. 11 2.6.3 Target Groups for Customer Clubs................................... 11 2.6.4 Recent Frequent Monetary Analysis................................. 12 Research Approach..................................................................... 13 Case Study.................................................................................. 13 Validity and Reliability ................................................................. 14 The Interview with Johan Swärdh, Manager of Stadium Card..... 14 Selection of Respondents ........................................................... 15 The Questionnaire....................................................................... 15 3.6.1 Question One to Seven .................................................... 15 3.6.2 Question Seven to Eight ................................................... 17 3.6.3 Question Eleven to Eighteen ............................................ 18 3.6.4 Question Nineteen ............................................................ 18 3.6.5 Question Twenty............................................................... 18 The Past and Present of Stadium................................................ 19 Stadium’s Marketing Approach.................................................... 19 Stadium Card .............................................................................. 20 4.3.1 Bonus System................................................................... 21 4.3.2 The Purpose of Stadium Card .......................................... 21 Sex and Age................................................................................ 23 Time and Frequency ................................................................... 24 Member vs. Non-member............................................................ 26
2 Theoretical Framework ........................................................ 3
3 Method ................................................................................ 13
3.1 3.2 3.3 3.4 3.5 3.6
4 Empirical Framework - Stadium ........................................ 19
4.1 4.2 4.3
5 Results and Analysis.......................................................... 23
5.1 5.2 5.3
iii
Table of Contents
5.4 5.5 5.6 5.7 5.8 5.9 5.10 6.1
Preferred Communication Channel ............................................. 27 Recommendation ........................................................................ 27 Influenced by Membership .......................................................... 29 Important Criteria......................................................................... 30 What Would Change Buying Behavior ........................................ 31 Four Types of Loyalty.................................................................. 34 The Brand Emotional Loyalty Pyramid ........................................ 35 Contribution to Stadium............................................................... 38
6 Conclusion.......................................................................... 37 7 Future Studies .................................................................... 39 References ............................................................................... 40
iv
Table of Contents
Figures
Figure 1-1 Figure 2-1 Figure 5-1 Figure 5-2 Disposition of the Thesis ............................................................vi The Brand Emotional Loyalty Pyramid ....................................... 6 Sex ........................................................................................... 23 Age........................................................................................... 24
Appendix
Appendix 1, The Questionnaire in Swedish ................................................... a Appendix 2, The Questionnaire in English ..................................................... d Appendix 3, Questions for Johan Swärdh, Manager of Stadium Card, in Swedish............................................................................................. g Appendix 4, Questions for Johan Swärdh, Manager of Stadium Card, in Swedish...............................................................................................i
Tables
Table 5-1 For how long have you been shopping at Stadium? .................... 24 Table 5-2 How often do you shop at Stadium? ............................................ 25 Table 5-3 Do you have Stadium Card? ........................................................ 26 Table 5-4 Do you have a club card at Stadium, if no, why not? ................... 26 Table 5-5 When receiving offers/membership information, which communication channel would you prefer? .............................................................. 27 Table 5-6 I recommend Stadium Card/Card with Account to my friends and relatives ........................................................................................... 27 Table 5-7 I recommend Stadium to my friends and relatives ....................... 28 Table 5-8 I shop more often at Stadium since I joined Stadium’s customer club? ........................................................................................................ 29 Table 5-9 I believe that I do the majority of my purchasing of sporting goods at Stadium? ......................................................................................... 29 Table 5-10 Important Criteria ....................................................................... 30 Table 5-11 Would you stop purchasing at Stadium if you experienced better service in another sporting goods store?......................................... 31 Table 5-12 Would you stop purchasing at Stadium if you could get a better price for the same product in another sporting goods store? ................... 31 Table 5-13 Would you stop purchasing at Stadium if another sporting goods store moved closer to you? ............................................................. 32 Table 5-14 Would you stop purchasing at Stadium if you discovered that another sporting goods store had better presented premises? ....... 32 Table 5-15 Would you stop purchasing at Stadium if you noted that the quality of the products were better in another sporting goods store?.......... 33 Table 5-16 Would you stop purchasing at Stadium if you observed that another sporting goods store had equal or better brands? ........................... 33 Table 5-17 Would you stop purchasing at Stadium if you discovered that another sporting goods store had better offers/discounts?.............. 34 Table 5-18 Would you stop purchasing at Stadium if you noted that another sporting goods store had a wider range of products?...................... 34
v
Disposition
The disposition shows the different chapters and will guide the reader through the thesis.
Introduction
Chapter 1: The Introduction introduces our focus for this thesis and narrows it down to the research questions which are followed by the problem statement and purpose. Chapter 2: Theoretical Framework illustrates the importance of creating a relationship with ones customers, and we discuss how customer clubs is one way to achieve that. Chapter 3: The Method describes how we conducted our empirical study.
Theoretical Framework
Method
Empirical Framework
Chapter 4: The Empirical Framework is based on the material we have collected through our choice of method for our study. Chapter 5: The Results & Analysis is examining the empirical results and shows how it can be connected to the theoretical framework. Chapter 6: The Conclusion is where we look at our results and reflect on our research.
Results & Analysis
Conclusion
Future Studies
Chapter 7: Future Studies in related areas within the subjects are discussed.
Figure 1-1 Disposition of the Thesis
vi
Chapter 1
Introduction
1
Introduction
?????????????????????????????????????????????????? This chapter will introduce the topic of this thesis and narrow it down to the problem statement which is followed by the purpose and the research questions that will be focused on in this thesis. ??????????????????????????????????????????????????
1.1
Background
Today’s development of competition in the business environment, has forced the companies to analyze and revise every action and activity they take on to gain competitive advantage. Two common methods to compete in the market place have been with price and quality. However, as studies show, these both are easy to imitate by competitors and are therefore losing their dominance in creating sustainable competitive advantages. Instead it has come to be of great importance to focus more on ones customers and to create loyalty towards the company. By creating a relationship between the organization and the customer, the company is creating something unique and special, which is hard to duplicate by competitors. (Abt Associates Inc., 2006) Loyalty becomes evident when choices are made and actions are taken by customers. Many confuse high satisfaction with high loyalty, but that is not necessarily true according to Griffin (2001). She argues that loyalty is demonstrated by the actions of the customer; customers can be very satisfied and still not be loyal. As a company, one would like its customers to do something, to take action. It could be signing up for a newsletter, visit the company’s website or make a purchase. When they have done it once, one would like them to continue this behaviour. Companies ought to try to create a “loyal” customer who engages in profitable behaviour. (Griffin, 2001) Loyal customers that are coming back to the companies are not only increasing sales through repeat purchase, it should also be remembered that the cost of obtaining new customers exceeds by far the cost of retaining old ones (Duchessi, 2002). Therefore, if the companies can create high degree of customer loyalty the overall profitability will increase. With this common knowledge, more and more companies are taken upon themselves activities with the mission to enhance customer loyalty. This is done for example by launching customer clubs or offering company related activities to interested customers. Since the introduction of customer clubs they have increased rapidly. It has come to the point that every other company offers some kind of loyalty program to their customers. It is no longer something distinctive for a company, but more as a standard feature that customers expect them to have. The customer club originates from Germany since organizations had to find a way to avoid the restrictions put on the possibility of giving discounts to special customer groups, a reduction in price has to apply for all customers. However, it was allowed to give a discount based on performance, for example on purchase basis. The inability to give discounts but the need for creating customer loyalty led to the creation of customer clubs. (Butscher, 1998) Butscher (1998) defines customer clubs as a marketing activity initiated by an organization in order to increase loyalty and relationships to customers by offering benefits regularly. The concept of the customer clubs in combination with today’s technology enables the
1
Chapter 1
Introduction
company to meet customer’s needs and expectations with a one-to-one marketing approach.
1.2
Why Stadium for our Case Study?
We decided that we wanted to include a company in our thesis, to be able to get a better and deeper understanding of loyalty and customer clubs. Stadium is a sporting goods company that has been around since 1974 (Stadium, 2006). We decided on Stadium because of its long history and with their long presence in the market they would be able to offer us great knowledge about their field and how they handle customers and their loyalty. Stadium introduced their customer club, Stadium Card, in 1996 (J. Swärdh, personal communication, 2006-11-23), which makes them one of the long runners using this tool to enhance customer loyalty. When considering all this knowledge and their success in implementing their loyalty program we found this company very interesting for our thesis.
1.3
Problem Statement
During the recent years the numbers of customer clubs has increased dramatically and something that was looked upon as unique and a “new” approach to gain customer loyalty is today found everywhere, in every industry. With the notion that customer clubs are today more of a standard feature than something exclusive, we believe that it would be of great interest to study if it is still a useful tool to enhance customer loyalty? Something that is of great importance to Stadium is the knowledge of how the customers actually perceive these customer clubs; are customers really more loyal to Stadium if they own a Stadium Card? These questions have lead to the purpose stated below.
1.4
Purpose
The purpose of this thesis is to draw conclusions on if Stadium’s customer club, the Stadium Card, is a useful tool in creating customer loyalty.
1.5
Research Questions
Which criteria do Stadium’s customers consider to be important when making a purchase of sporting goods products? Are members of Stadium Card satisfied with their membership? Are Stadium’s customer club members more loyal than non-members?
.
2
Chapter 2
Theoretical Framework
2
Theoretical Framework
?????????????????????????????????????????????????? This chapter will present relevant theories that are needed to examine the research questions. We will start by discussing different aspects of customer value, and then introduce the concept of customer relationship marketing. We will continue with our focal point on customer loyalty and narrow it down to loyalty program which finally results in customer clubs. ??????????????????????????????????????????????????
2.1
Customer Value
Duchessi (2002) argues that to be successful in today’s business world all companies must create value, if not only the impression of value, for their customers. That is, according to Duchessi (2002), the key to success. Duchessi (2002) reports that it costs five times more to acquire a new customer compared to retaining an existing loyal customer, that does regularly purchases. This is due to the fact that companies often invest large amount of money in advertising, promotion, sales calls, and channel development to get an initial trial purchase. Every time a company looses a customer to their competitor the company looses its initial investment and incurs a substantial cost to replace him or her. (Duchessi, 2002) A study by the Technical Assistant Research Program (TARP) found that only four percent of unsatisfied customers complained to the company and the other, 96 percent, do not complain, they just go somewhere else. Another interesting fact from TARP´s study is that only nine percent of the unsatisfied customers came back, 91 percent left forever. The study also found the alarming finding that dissatisfied customers tell eight to ten people about their unsatisfied experience. This put the importance of keeping ones customer pleased in perspective.
2.2
Relationship Marketing
During the past several decades, companies have mainly done their marketing through the form of mass marketing. Through great investments in mass-media advertisement they reached huge amounts of potential customers. However, in the twenty-first century marketers have more and more moved away from this approach and into the field of relationship marketing. Improvements in information technology are also speeding up the movement towards segmented marketing and enable the marketers to develop marketing programs designed to build closer relationships with customers and easier ways of communicating with more tailored messages. Companies are not giving up on mass-media advertising, but are finding new ways to reach both current and potential customers. (Kotler, Wong, Saunders & Armstrong, 2005) The concept of relationship marketing has been widely discussed by many authors, which has resulted in many different definitions, both broad and narrow. A broad definition is given by Morgan and Hunt (1994); they argue that “relationship marketing refers to all marketing activities directed toward establishing, developing, and maintaining successful relationships”. However, this definition has been criticized for being too broad and including too many variables, such as supplier partnerships and internal partnerships, therefore including variables outside of the domain of marketing (Peterson, 1995). In the writings of relationship marketing there is an agreement on the importance of customer retention. Varva (1992) considers relationship marketing only as a tool of customer retention, a way
3
Chapter 2
Theoretical Framework
for companies to keep their customers loyal, repeat purchasing behavior as well as a way for the company to stay in touch with customers after the sale is made. The information technology that exists today has made it possible to focus on individual or one-to-one marketing with customers, and building long term relationships. The core idea with all definitions of relationship marketing is the focus on cooperation and relationship between the firm and its customer. Such cooperative relations should be long-term oriented and of mutual gain rather than single transactions in the short-term. (Dwyer, 1987; Ganesan, 1994)
2.3
Customer Loyalty
There are many different terms when it comes to customer loyalty; Relationship Marketing (RM), Defensive Marketing (DM), Customer Relationship Management (CRM), retention marketing and “one-to-one marketing” are just few to mention (Söderlund, 2001). The focus on customer loyalty has increased drastically during the recent years. Companies have realized that price and quality are competitive advantages that can easily be copied, and have searched after other ways to reach success. Creating customer loyalty has become one way to reach advantages in the competitive market place that are current today. But what is customer loyalty? Loyalty becomes evident when choices are made and actions taken by the customers. Many companies argue that high satisfaction equals loyalty, but Griffin (2001) argues that this is not true; there are no studies that show a clear positive correlation between the customer satisfaction and customer buying behavior. She believes that the lack of relation between the two may be partly due to the difficulty of accurately and reliably measuring customer satisfaction (Griffin, 2001). Novo (2004) argues that customer loyalty is the tendency of a customer to choose one business or product over another for a particular need. Söderlund (2001) defines it as the individual consistent relationship over time to a specific object. And Kunal (1994) describes customer loyalty as the strength of the relationship between an individual’s relative attitude and repeat patronage. We believe that there is no clear cut definition of customer loyalty; however we think there are some key words: • • • 2.3.1 Preference Consistent relationship over time Frequency Four Types of Loyalty
According to the LaPointe (2006) and studies done by Marketing Advisor Update (2006) there are four key types of loyalty, each with its own benefits, risks, and measurement approach. These are Contractual loyalty, Transactional loyalty, Functional loyalty and Emotional loyalty.
4
Chapter 2 2.3.1.1 Contractual Loyalty
Theoretical Framework
Contractual loyalty is something that is most common in business-to-business situations (LaPointe, 2006). LaPointe argues that it comes about when a customer purchase from a company through a formal agreement. It often occurs that the customer receives a volumepricing discount and the customer often represents a lot of revenue and repeat business for the company. Contractual loyalty also applies to consumer situations such as subscriptions for newspapers and telephone services. (LaPointe, 2006) According to LaPointe, when looked upon strictly on the present value of the contract contractual loyalty can be very profitable. But it is often less lucrative as contracts come up for renegotiation and competitors see these times as great opportunities to use aggressive marketing tactics to steal ones customers. To some degree contractual loyalty can bring about dissatisfaction from the customers point of view. They may feel trapped in a business arrangement that they do not feel happy with. (LaPointe, 2006)
2.3.1.2 Transactional Loyalty
Transactional loyalty is when repeat purchasing without any contractual obligations occurs (LaPointe, 2006). Loyalty is, according to Marketing Advisor Update (2006), based on customer’s perception of value one offer for that particular transaction. This perception can be based on factors such as price, value, and convenience. The customer does not feel any loyalty to the company and will, if offered better price, switch without hesitation. (LaPointe, 2006) Transactional loyalty is easy to stimulate with promotions or rewards programs. When trying to gain this kind of loyalty it is important to keep in mind the cost versus what the loyalty will entail for the company. (LaPointe, 2006) If the reward to the customer exceeds more than the actual business that the customer would bring if becoming a loyal customer, there is no point for the company to target that specific customer. Here LaPointe (2006) argues that it is important to be very calculated when selecting potential loyal customers. Transactional loyalty can be achieved solely due to customer’s perception of the switching cost associated with moving their business elsewhere. With insurance services, consumers may perceive a hassle in switching insurance company for marginally superior value propositions. (LaPointe, 2006)
2.3.1.3 Functional Loyalty
When creating functional loyalty it is important to get ones customer to perceive the tangibles attributes of ones products to be superior, thus preferable than ones competitors’ products. This is often the first step to differentiate, to offer something unique and special that no other supplier has to offer. LaPointe (2006) claims that if one succeeds with creating this kind of loyalty one can be sure to gain more market shares and higher revenues.
2.3.1.4 Emotional Loyalty
With this kind of loyalty LaPointe (2006) argues that it is all about creating that special relationship with ones customer. When it comes to emotional loyalty the customer develops preferences for products or services based on their appeal to the individual’s values, ego, sensibilities, or other intangibles attributes (LaPointe, 2006). It is more about the feeling the customer get when entering ones store than anything else.
5
Chapter 2
Theoretical Framework
LaPointe (2006) argues that emotional loyalty is the main goal for many marketers, being that it is most often sought and least often attained (LaPointe, 2006). One of the major advantages with emotional loyalty is that it has the ability to withstand challenge when it comes to the economic or the service relationship (LaPointe, 2006). If a company has succeeded in creating this kind of loyalty, the customer is often more forgiving if the company at some point does not live up to the expected standard and is despite of this still interested in maintaining the relationship. Another advantage with emotional loyalty is that it is often associated with price premiums in powerful brands that have no other significant difference. (LaPointe, 2006) One of the biggest advertising firms in the world, OgilvyOne, has created a way of measuring emotional loyalty. They have introduced the Ogilvy Loyalty Index (OLI) which draws its data from an on-going consumer research project. The study is based on over 250 000 interviews, covering more than 70 categories of products and services in 27 countries. The study is looking at buyers’ feelings and purchase behaviour for more than ten thousands global and local brands. For every brand that is covered by the study, OLI can create an Emotional Loyalty Pyramid, which classifies all categories buyers based on the strength of their relationship with the brand. (Ogilvy, 2006)
Bonding Advantage Relevance & Performance Presence No Presence
Figure 2-1 The Brand Emotional Loyalty Pyramid
The Brand Emotional Loyalty Pyramid is the key model of the OLI. The pyramid has five levels; No Presence, Presence, Relevance & Performance, Advantage and Bonding. For a customer to move from one level to another they must satisfy all the requirements for each step before they can climb to the next. (Ogilvy, 2006) At the bottom there is No Presence. The first determination is whether the category buyer can possible have any emotional loyalty at all. If they do not have any they are placed in this level. If they have heard anything about the brand, are aware of it or tried it the customer is qualified for the next level, the level of Presence. Here is where the emotional loyalty is starting to show. But in order to have a strong relationship with the brand, customers need to feel that the brand is relevant to his or her need and budgets, and that it performs adequately. If that would be the case, the customer is moved to the next level, the Relevance and Performance level. (Ogilvy, 2006)
6
Chapter 2
Theoretical Framework
To be able to move to the next level, the Advantage level, customers must feel that a brand has something that gives them some extra value that no other brand has to offer. That could be an advantage based on something rational or emotional. The customer that reaches this level is showing strong feelings about the brand and genuinely like it. (Ogilvy, 2006) To reach the top of the pyramid, the level of Bonding, the customer has to have truly strong feelings for the brand. They must believe that the brand has something unique and special to offer, something that is hard to find in any other brand. Simple put, the customer not only like the brand, they love it. (Ogilvy, 2006) 2.3.2 Economic Value Creation with Customer Loyalty
According to LaPointe (2006) the promise of customer loyalty implies potential economic value creation with some combination of five dimensions; At the beginning of the relationship many companies invest excessively in customer acquisition. According to LaPointe (2006) the plan is by retaining customers and captures a share of their spending year after year that this will pay off this initial investment many times over. Second, loyal customers may be inclined to buy more volume of ones products and services and thereby generate an enhanced return over the life of the relationship. (LaPointe, 2006) The third dimension according to LaPointe (2006) it that loyalty can be a strategy for reducing ongoing expense. The cost of losing ones customer and replacing them is a huge cost for each and every company. By creating loyalty the company can improve profitability considerably. Every company is well aware of the fact that competition is brutal. Most of them are also aware that customers can be very disloyal, doing business with their competitors and the fact that it costs more to acquire a customer than it does to retain one (Hill & Alexander, 1996). Studies shows that loyal customer tend to be less price sensitive. They are often having more willingness to pay more for the privilege of doing business with the specific company. Less price sensitivity means, what every company is looking for, larger margins. (LaPointe, 2006) According to LaPointe (2006) the final dimension entails that a loyal customer equals a happy customer and a happy customer means referrals. Loyal customers often become unpaid ambassadors to the company (LaPointe, 2006). When a customer has experienced something that was very much to their liking they are not shy to talk about it. They tell their friends and family all about their experience. According to Lago, Moscoso and Menchero (2006) word-of-mouth result from customers’ perception that the value received from one organization is greater than what another company can offer. This higher value is what distinguishes re-purchase, one of the keywords of customer loyalty. Word-of-mouth not only gets the customer to behave more loyal it also attracts new customer, and that really saves real money in reduced customer acquisition costs (LaPointe, 2005).
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2.4
Measuring Loyalty
The key when measuring loyalty is having a very clear picture of the economic value one is trying to create. When the goal is to create a specific behavior one needs to have a game plan how to reach this goal, as with any other marketing activity. Earlier studies suggest that to successfully measure loyalty one need to have a clear definition of the term which is applied to the desired outcome (LaPointe, 2006). Reichheld (1996) claims that every industry and organization will have its own unique situation to consider in trading off current profits against loyal customer and the secured future profits that comes with them. Each industry will probably have their own way of defining loyalty. According to LaPointe (2006) several marketers measure loyalty by commitment. They monitor the correlation between customers’ actual purchase behavior and another variable that they believe is important to the specific organization, for example interactions with customer service channels or responses to price increases or discounts (LaPointe, 2006). The commitment actions, taken by the customer between purchase events, are generally good indicators of the customers’ likeliness to repurchase or purchase complementary products or services. This is the bases of the bundling model, which LaPointe (2006) argues is getting to become more and more common in the retail industry. Phone companies as well as cable companies are general the ones that are taking this model close to heart. Each kind of loyalty, the Contractual, the Transactional, The Functional and The Emotional, has their own ways to be measured according to LaPointe (2006). Since contractually loyal customers are purchasing under some sort of agreement, the agreement and its status need to be measured. One can for example measure the share of market under the contract, incidence of contract expansion into new product lines or business units or why not by measuring the frequency of customer referrals. (LaPointe, 2006) To calculate the speed of change in segment mobility or the time between transactions are two different example of how to measure the transactional loyal customers (LaPointe, 2006). According to LaPointe (2006) to measure how customer perceives the tangibles attributes of ones products is tricky, but there are ways. The key is to keep an eye on the basis of the functional preferences. Top-of-mind awareness on main functional dimensions and price elasticity are two ways to go about measuring the functionally loyal buyers. (LaPointe, 2006) When it comes to measure emotional loyalty there are many different approaches, argues LaPointe (2006). A simple approach is to conduct an attitudinal survey with questions like; “prefer over other brands” or “a brand I can trust”. One could also measure it by looking at price insensitivity, problem tolerance and resistance to competitive offers. (LaPointe, 2006) What LaPointe (2006) believes to be the bottom line when it comes to measuring loyalty is that the goal of the process is to forecast changes in customer profitability. Loyalty is a leading indicator of future buying behavior and thereby profitability. As mention before, loyalty is not about satisfaction. As Griffin (2001) concludes many confuse high satisfaction with high loyalty. Customers can be very satisfied and still not be loyal (Griffin, 2001). According to Griffin (2001) the key for a successful process is to measure more, do it faster and to connect ones measurements to the economic outcomes of the organization.
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Theoretical Framework
2.5
Loyalty Programs
With the increased competitiveness in the market place that has taken place during the recent years the use of loyalty programs has increased substantially. Sharp and Sharp (1997) describe loyalty programs as something that provide customers with loyalty incentives such as points redeemable for prizes. They argue that highly defensive activities, such as loyalty programs, are differentiated from other marketing efforts by their emphasis on increasing repeat purchase loyalty rather than purely on gaining market share (Sharp & Sharp, 1997). Björk (2000) defines loyalty programs as a program that aims to create and maintain customers, a program that should integrate the entire organization. Loyalty programs can be based on many different activities which together shall contribute to an increased customer loyalty. One of these activities is customer clubs. (Björk, 2000) 2.5.1 History of Loyalty Programs
The customer club originates from Germany since organizations had to find a way to avoid the restrictions put on the possibility of giving discounts to special customer groups, a reduction in price has to apply for all customers. The inability to give discounts but the need for creating customer loyalty led to the creation of customer clubs. (Butscher, 1998) In 1981 American Airlines introduced their Frequent Flyer Program and was thereby the first organization to introduce this kind of big scale loyalty program that we are familiar with today to their customers. Close thereafter other airlines followed suit and today these kinds of loyalty programs are found in almost every industry, from the retail to the hotel sector. (Butscher, 1998) This came about with the acknowledgement that marketing had not paid sufficient attention to customer retention (Kotler et al., 2005). 2.5.2 Benefits and Goals of Loyalty Programs
As with the concept of relationship marketing, loyalty programs has many definitions but as can be understood there are many common attributes among them. Each year companies all over the world loose some of their customers to their competitors. Identifying this pattern and recognize its severe impact it has on the companies competitiveness and profitability, the organizations must realize that they need to move away from the long accepted market share strategy to a more long term business approach: building customer loyalty. (Griffin, 2001) Loyalty programs operate differently from other marketing efforts such as advertising campaigns and sales promotions, where short-term increase in sales is the main goal (Kotler et al., 2005). Loyalty programs put their emphasis on building a repeat-purchase relation with the customer and encouraging loyal behaviour towards the company (Kotler et al., 2005). The goals of a loyalty programs obviously differ in different companies, however common outcomes is to be expected from a loyalty program are (Kotler et al., 2005); • • • Increase repeat-purchase rates Decrease in switching to other brands Increase usage frequency
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Theoretical Framework
According to Butscher (1998) the main goal of a loyalty program is to increase profit, revenue and market share. Other important goals are customer retention, attract new customers, getting information about the customer, and creating a communication channel between the customer and the company (Butscher, 1998). Griffin (2001) states that increased loyalty can bring cost savings to a company in five areas; • • • • • Having loyal customers a company does not need to spend capital on customer acquisitions, which then reduces the marketing costs. Economy of scale gives lower transaction costs, such as contract negotiation and order processing. With fewer customers leaving the company, the organization will experience reduced customer turnover expenses. More satisfied customers lead to more positive word-of-mouth, which studies shows is the most influential aspect in the purchase decision process. Better knowledge about ones customer leads to reduced failure costs
Björk (2000) has also come to some conclusion regarding benefits of loyalty programs; increased market shares, greater retention levels, better opportunities to understand ones customer, reduced marketing expenses, higher entry barriers and more secured future incomes. The outcome of a loyalty program, as with any other marketing campaign, has to be evaluated and compared with the goals. (Butscher, 1998) By comparing the results for members and non-members the effect of the loyalty programs can be isolated.
2.6
What is a Customer Club?
One type of loyalty programs is the customer club. As other loyalty activities customer clubs main objective is to build long-term relationships with the customers. Marketing efforts are focused on holding on to existing customers for repeat-purchases instead of attracting new customers. (Sharp & Sharp 1997) According to Butscher (1998) the definition of a customer club is a marketing activity initiated by an organization in order to increase loyalty and relationships to customers by offering benefits regularly. One of the factors behind the implementations of customer clubs is the “80/20 Rule”. The rule states that only a small percentage of customers make up for most of the company’s sales. Typically 80 per cent of the revenues come from 20 per cent of the customers. It is therefore beneficial for the organization to target their marketing towards these customers. (Dowling & Uncles, 1997) 2.6.1 Different Types of Customer Clubs – Open and Limited
There are two types of customer clubs; the open and the limited club. The open club is as the name implies open for everyone, no cost and no entry conditions. The simplicity of becoming a member often leads to many members but seldom are all of them of benefit for the organization. Here the company needs to calculate if it is worth to have an open club considering the costs to send brochures and information to stay in touch with their members, even though the customer may not be a profitable customer (Butscher, 1998). Limited clubs are the opposite of open clubs; customers have to pay to become a member and of-
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Theoretical Framework
ten have to fill out a more complicated application (Butscher, 1998). In this way there will only be a few members who will be truly interested in the club. 2.6.2 Types of Rewards in Customer Clubs
Research about when and how customer clubs is effective have shown that the reward system is of great importance (Butscher, 1998). In order to attract customers to the organization’s customer club the rewards must exceed the costs of joining the club. The prospective customer must feel it is worth giving out their personal information and in some cases to pay the fee for a membership in order to get the club benefits. Butscher (1998) states that there are three key fundamentals to consider when it comes to choosing which customer club benefits the organization wants to offer. The first is value, the benefits must be of such a high value that it is desirable and makes the membership attractive. The second fundamental is called perceived value; the customer must feel that the benefits satisfy them. The last fundamental is that the organization should choose the benefits from the customer’s perspective not their own in order to make the benefits sufficient. (Butscher, 1998) The goal with the customer club rewards should be to offer long-term unique benefits for the customer club members. In order to achieve this it is important that the organization listen to their members and learn what type of benefits they would prefer. Neglecting of examining the customers wishes and instead offers benefits the organization feels is sufficient would most likely not lead to success. (Butscher, 1998) According to Butscher (1998), there are two kinds of rewards in customer clubs; financial rewards, such as discounts, and emotional rewards such as recognition from the company. He also states that everybody loves hard cash but that it is the emotional reward that gives the extra value. The negative aspect of hard benefits it that they are easy to copy; they often have a similar approach in all organizations and are therefore not especially unique. Consequently a customer that joins a club in order to receive discounts will leave the club for a competitor if they offer bigger discounts. (Butscher, 1998) The benefits that are intangible, emotional, and harder to copy and therefore become more unique are called soft benefits. Soft benefits can be clarified as special treatment and recognition that the customers are looking for. The soft benefits are often those that have the largest positive impact on loyalty, they are not easily imitated which makes it hard for the customers to find these benefits in another organization. 2.6.3 Target Groups for Customer Clubs
According to Butscher (1998) the target group for an organization’s customer club should be the customers that they want to build a relationship with or to improve the one already existing with the current customers. One question the organization should be asking is if they should be focusing their customer club on existing customers or potential. Answering this question two different schools of thought can be considered. The first school is of the opinion that current customers already have a relationship with the organization and are therefore loyal even without the club’s benefits. Since the existing customers already are loyal the main focus should be on the potential customers in order to try to increase their purchasing volume. The second school is of the opposite opinion; they believe that the focus should be on the current customers since they are the most important for the organizations revenue and profit. (Butscher, 1998) Considering the “80/20 Rule”, losing one of these important customers
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Theoretical Framework
has a huge impact on revenue therefore these important customers should be the focus, the target group of the customer club. (Dowling & Uncles, 1997) Novo (2004) agrees with the second school of thought, that the customers that spend the most, the “rocket fuel customers” should be the target group. According to Novo (2004) these customers have both high existing value and high possible value, due to the fact that they at present are the customers that spend the most they are likely to spend more than others also in the future. Considering that the “rocket fuel customers” are the ones that most likely will generate 80 percent of the profit in the future the organization would like to see trough that these customers are happy and gets special attention. Dividing customers into three elements; best, average and worst customers Sheth and Parvatiyar (2000) goes as far as saying that the worst customers should be fired since they are not profitable and never will be. They believe that the efforts should instead be focused on putting the average customers in the right direction and bond even more with the best customers (Sheth & Parvatiyar, 2000). 2.6.4 Recent Frequent Monetary Analysis
The Recent Frequent Monetary (RFM) analysis is based on three behavioral attributes among customers; Recency of purchase, Frequency of purchase, and Monetary value of purchase (SIAM, 2006). By using statistics from the company’s customers database such as the date of last purchase, how often the customer purchases and for how much the purchase is, a company can segment its customers in order to select which group to prospect (Multichannel Merchant, 2005). The RFM analysis is one of the earliest techniques of segmentation and has been used for over 50 years by direct marketers to target customers segments, saving costs and improving profits (SIAM, 2006). The analysis is based on the following three observations (SIAM, 2006) that have been made across multiple industries; 1. Customers who made a recent purchase are more likely to purchase again compared with customers who has not purchased in a long time. Customers who have purchased recently are also more likely to respond better to messages. 2. Frequent buyers are more likely to purchase again than infrequent buyers. 3. Customers who are big spenders often respond better to messages then low spenders do. Grouping customers by RFM a company can concentrate on market the top segment. The company can also use this information to identify among which customer they have the biggest success and evaluate why this is. (Multichannel Merchant, 2005) One downside to the RFM analysis is that it is very limited, a company can for example not be sure how the customer spends the rest of his/her money. (J. Swärdh, personal communication, 2006-11-23)
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Chapter 3
Method
3
Method
?????????????????????????????????????????????????? In this chapter we will describe our methods that we found best suited for this thesis. We will describe our choice of case study, the selection of respondents and finally a thorough description of our questionnaire. ??????????????????????????????????????????????????
3.1
Research Approach
The goal of our study was to be as objective as possible. We have concentrated our study to few variables represented by a great amount of individuals. With that in mind we decided that quantitative study was the best option for us. Using the quantitative technique one avoid personal interpretations, which can in some cases have a great impact on the result. Avoiding these, one can be more objective in ones research. But we did not want to exclude one over the other, being that qualitative method has its pros as well. Qualitative research aims to give insights into perception, motivation and attitudes and aspires to answer questions like, what?, why? and how? (Winter, 1992) The choice between the two methods depends on what result one aim to achieve; if it is to gain a wider knowledge about a topic the quantitative method is preferable. However, if the purpose of the study is to gain a deeper understanding of the subject the qualitative method is best to use. (Winter, 1992) We decided to have our main focus on the quantitative method, but also to include the qualitative method. By conducting a survey among Stadium’s customers our focal point was quantitative, but we also wanted to interview the manager of Stadium’s club card, which would give us some depth and perspective of loyalty and customer clubs. To get information about Stadium’s main competitor, Intersport, we had a phone conversation, on December 7th 2006, with the Manager of Intersport’s customer club, Pernilla Nimmermark.
3.2
Case Study
According to Yin (1994), case study is one of the ways of doing social science research. Yin (1994) states that case studies are the preferred strategy when questions with “how” or “why” is used, but since we wanted to be able to get a better and deeper understanding of loyalty and customer clubs we believed that a case study was the right approach to use even though we did not use the recommended questions. Gillham (2000) defines case study as, “a unit of human activity embedded in the real world; which can only be studied or understood in context; which exists in the here and now; that merges in with its context so that precise boundaries are difficult to draw”. According to Gillham (2000) a case can entail an individual, a group, an institution or a community, such as an industry. But it can also involve multiple cases, making a study of number of units, product groups or different institutions. Which one is used depends on ones research question or questions. It is all about collecting evidence, evidence which is in the case setting, and which has to be collected in the best possible way to answer the research questions. Gillham (2000) states that the key characteristic of case study research is to use multiple sources of evidence, one kind or source of evidence is likely not sufficient on its own.
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Method
Another important key factor when conducting a case study, according to Gillham (2000), is not to start the research with a specific theory in mind. It is after collecting all data and understanding the context that one will know which theory or theories that would work or be most useful (Gillham, 2000). We followed Gillham’s recommendation in the sense that we conducted a survey where we had 102 respondents. We also had an in-depth interview with the man responsible for Stadium’s customer club, Johan Swärdh. We collected our secondary data from different course literature, web pages, sources from three libraries and a number of databases. We also started our study with a clear set of minds. When not considering a specific theory we believe that we would come to the best conclusions.
3.3
Validity and Reliability
Validity can be explained as the degree of how accurately the chosen research method assesses the factor it is supposed to measure (Holme & Solvang, 1997). We conducted both qualitative, an interview, and quantitative, a questionnaire, research in our study. Conducting a face-to-face interview the interviewer has the advantage of being able to discuss the answers and questions to delimit errors and misinterpretations and increase the validity (Holme & Solvang, 1997). To be able to get accurate and relevant information we conducted the interview with a respondent with great knowledge about Stadium’s customer club. Using this reliable source increased the validity. To delimit errors even more we formulated the questions and conducted the interview in Swedish, the misinterpretations should be diminished. The questionnaire was also formulated in Swedish and by that the risk of misinterpretations decreased. When handing out the questionnaire we tried to distinguish ourselves from the Stadium staff so that the respondents would not feel a hesitation to answer truthfully. The degree, to which a result can be repeated next time it is measured, is called reliability. To increase the reliability in our interview we chose to have two interviewers conducting the interview, both taking notes to be able to catch all the information. After the interview the notes where discussed and compared to get the right picture of the information, to increase the reliability. Although Merriam (1994) claims that it is hard to reach high reliability when conducting research involving people, people is always changing and may therefore have a different opinion next time asked. The reliability in our questionnaire was increased due to the fact that we visited Stadium at different times. This should lead to a steadiness in our results. Since our respondents where picked now and then instead of everyone at the same time we would probably get the same results if we asked new respondents today.
3.4
The Interview with Johan Swärdh, Manager of Stadium Card
We chose to have a personal interview with Johan Swärdh who has been the Manager of Stadium Card for the last seven years. Our first contact with Swärdh was made by a phone call where he asked us to send an email explaining further about our topic of the thesis. This was made the same day, November 15th 2006. We later received an answer where he happily agreed on our request for an in-depth interview. As a courtesy we emailed Swärdh our interview questions in advance, to give Swärdh an opportunity to prepare him. The interview took place at Stadium’s head office, or service office as Stadium likes to call it, in
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Method
Norrköping on Thursday the 23rd of November 2006. It was a pleasant meeting where we had a great discussion and the information we received was very useful. As we were leaving, Swärdh welcomed further questions if any would come up later on.
3.5
Selection of Respondents
When choosing a sample for a study there are two different techniques, according to Riley, Wood, Clark, Wilkie and Szivas (2000), probability and non-probability sampling. When each element in the population is randomly selected, probability sampling is used. Nonprobability is the technique where the chance of selection for each element in a population is unknown and extreme cases even zero. (Riley et al., 2000) A sample can never be an ideal reflection of a population but somewhat representative although it is more cost efficient and plausible to gather a sample than a whole population (Chisnall, 1991). When examining the efficiency of Stadiums customer club we wanted to compare Stadium’s different customers in order to see if it was a difference between the customers that was a member and those who where not. We therefore decided to visit the Stadium store at A6, a shopping mall in Jönköping, and ask customers to fill out our questionnaire, not just members but also non-members. In order to get a diverse customer base we visited Stadium at different times, trying not to exclude customers that prefer to shop at specific times. Using nametags with our and the schools name we aimed at differentiate us as much as possible from the Stadium staff.
3.6
The Questionnaire
The primary function of the questions we used was to examine if the loyalty to Stadium differed between the customers that where members of Stadiums customer club compared with the customers that are not. Reading earlier studies concerning loyalty gave us some ideas which aspects, excluding the customer club, that could be relevant when it comes to loyalty to a specific retailer. The questionnaire that was handed out consisted of nineteen main questions and eight sub questions. We tried to make the language as easily understandable as possibly so the questions should be difficult to interpret in another way than intended (Ejlertsson, 1996). Before we handed out the questioners to Stadiums customers we did a pilot study to examine if our questions really answered what we wanted to know. We noticed that the respondents did not always understand the question and answered in an unintended way, we therefore changed some of the questions to more easily understandable. The questionnaire can be found in the appendix one and two. 3.6.1 Question One to Seven
When discussing how the layout of the questionnaire should be we concluded that we wanted to start out with the more easy questions in order to make the respondents feel more willing to complete the questionnaire. A nominal scale was used for the first seven questions, making the questions easy to answer since there was only one “right” answer; the respondent can not belong to both sexes or be both 23 and 46. The alternatives must be excluding, to only be the right answer for some classes in society (Christensen, Andersson, Carlsson & Haglund, 1998).
15
Chapter 3 3.6.1.1 Question One
Method
We here asked for the respondents’ age, since there are studies showing that age affect loyalty (Holmberg, 2004). Some studies show that elderly are more loyal than younger people, one of the reasons being that elderly have found the products and services they prefer throughout years of testing and now they are not interested in trying something else (Holmberg, 2004) . Other studies show that elderly people are less loyal than younger people because they have the time to go to different stores and compare prices to be able to find the lowest one (Holmberg, 2004). We wanted to examine if we can find a difference in loyalty between the different ages.
3.6.1.2 Question two
In this question we asked the respondents about their sex. An earlier research was done to find loyalty among the fitness center Friskis och Svettis’ members. Their conclusion was that among the members, females seem to be more loyal than males (Engblom, Ingemyr & Nordström, 2006). This conclusion is in conflict with the theory that Garton (1995) presents where he states that even though there may be a small difference between the sexes it is so small that it has a negligible impact. With these two theories contradicting each other we felt it was important to include this questions, as with age, to see which theory was accurate in our case.
3.6.1.3 Question Three
In question three we asked for how long customers have been shopping at Stadium. One way organizations can take into consideration when measuring their customer’s loyalty is looking on how long they have been customers of the company (Elinder, 1993). Although, we feel that that measurement is not efficient without taking other variables into consideration. A young person can be loyal even tough they have not been customers for a considerable amount of time, hence it is still interesting to know how long our respondents have been customers in their preferred retail outlet as combined with other variables it may show loyalty. We wanted to use direct timeframes to get more precise answers for an easier analysis. If we know more exact information about the respondent we can draw more precise conclusions (Christensen et al., 1998). Giving more concrete timeframes will also reduce the likelihood that the respondents will interpret the answers in their own way and answer in an unintended way. To diminish any misinterpretations it is very important to construct the question to be clear and direct, and by using how long and how often it is hard to interpret in another way than intended (Ejlertsson, 1996).
3.6.1.4 Question Four
In question four we asked Stadiums customer how often they buy products at stadium, the frequency. According to Elinder (1993) the more frequent a customer visit the retail outlet the more loyal the customer tends to be. Elinder (1993) claims that frequency is the most important and accurate measure when it comes to loyalty. Even though a customer spends a considerable amount of money in a retail store a customer that spends less money but comes in more often are considered more loyal and therefore more important to the retailer (Elinder, 1993). Given that frequency is seen as such an important loyalty measure, it is even one of our key words when defining loyalty, we wanted to ask our respondents their frequency in their preferred store in order to possibly identify some loyalty tendencies.
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Chapter 3 3.6.1.5 Question Five
Method
In this question we asked the respondents if they have a membership card at Stadium or not. It is an important question for our study, without knowing if the customers have a card or not we can not compare them to each other. This is the factor we want to investigate to find out if there is a difference between the two when it comes to loyalty. The question is made as an open ended question to make it possible for the customer to answer why he or she does not want to be a member of Stadium Card. We felt it could be interesting to learn why a customer may not be interested in price cuts and special offers. This question made it possible to divide the members from the non-members and give the non-members the possibility to skip a pair of questions that only regards the members.
3.6.1.6 Question Six
We here asked which kind of Stadium Card the members have since Stadium has two different customer club cards: Stadium Card, which you collect bonus with and Stadium Card with Account that gives you the possibility of paying with your card. To apply for a customer club card with the credit function you have to give out more information than you have to for than ordinary club card, we therefore felt it was interesting to investigate if there was a difference between the two. 3.6.2 Question Seven to Eight
These questions are now designed in a likable scale (Christensen et al, 1998). We used this kind of scale to easy understand to which degree Stadium's customers agree with our assertions about the Stadium Card and their behavior being members of the Stadium Club. Using this sort of scale also makes it possible for us to calculate the average. In the scale, one stands for not recommending the club at all and seven meant that the member strongly recommends the club. “No opinion” is represented by zero in the tables.
3.6.2.1 Question Seven
In this question we asked the respondents that had answered the question if they were members of the customer club at Stadium, if they recommend Stadium Card or Stadium Card with Account to their people in their surroundings. To recommend the customer club you are a member of to your friends and family is often viewed as a signal of loyalty (Hill & Alexander, 2000). We therefore felt it was an important question when studying if the customers are loyal.
3.6.2.2 Question Eight
Here we asked the members if they felt that they spent more money at Stadium after they became members. One could conclude that if so, they would be a step closer to being loyal.
3.6.2.3 Question Nine
In this question we asked the respondents with a membership in Stadium Club about how they prefer to be contacted by Stadium to be able to compare how Stadium actually stay in contact with their customer. We chose to go back to the nominal scale again in order to get the respondents attention, if all the questions look the same it is a risk that the respondent just answers without reading the question thoroughly. We still wanted to use the nominal scale in order to make the questions easy to answer. Combining the answers with both
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Method
closed and open alternatives was a way for us to steer the respondents answer but in the same time if we have missed one important possible answer give them a chance to tell us with the open answer (Christensen et al., 1998).
3.6.2.4 Question Ten
In question ten we asked the respondents if they felt that they do the majority of their sporting goods purchases at Stadium. The proportion of the sum a customer spends within a category, as in our case is sporting products, may be a measure of loyalty. If the customer purchases for a large amount of money in Stadium it is easy to make the assumption that the customer is loyal. Although you have to keep in mind that that amount may only be 20 percent of the total spending on sporting products, the remaining 80 percent may be spend at the competitor (Hill & Alexander, 2000). Stadium has competitors in the same market and when asking the customers if they buy the majority of their sporting goods at Stadium we will notice if the customers favor Stadium over its competitors. 3.6.3 Question Eleven to Eighteen
In these questions we asked the customers why they chose to buy their sporting goods products at Stadium and which aspects they found to be the factors that make them chose Stadium before competitors. 3.6.4 Question Nineteen
Here we asked all our respondents if they recommend Stadium. As earlier stated, recommendation of an organization is often viewed as a sign of loyalty (Hill & Alexander, 2000). We wanted to compare if members recommended Stadium to a greater extent than nonmembers. 3.6.5 Question Twenty
In this question we asked the respondents if they would consider leaving Stadium for a company that performed better on one of the criteria listed in this question. In question twelve to nineteen we learned what most respondents thought were the most and least important variables when deciding on purchasing their sporting goods at stadium. When we now asked if they would leave their current store if they receive e.g. better service, price or a customer club membership elsewhere we will probably divide the customers that are loyal from the disloyal.
18
Chapter 4
Empirical Framework
4
Empirical Framework - Stadium
????????????????????????????????????????????????? The purpose of this chapter is to give the readers an overview of the company Stadium, its customer card, Stadium Card, and also the benefits that exist today within the company. This information will later be used in the analysis. To this chapter we have collected information from the homepage of Stadium and an interview with Johan Swärdh, the Manager of Stadium’s customer club, (personal communication 200611-23). We also had a phone conversation with Pernilla Nimmermark, the Manager of Intersport’s customer club, (personal communication, 2006-12-07). ??????????????????????????????????????????????????
4.1
The Past and Present of Stadium
The concept of Stadium started 33 years ago, in 1974, when Ulf Eklöf took over a small sporting goods store in Norrköping. At that time the revenue was only one million SEK. Eklöf’s vision was to create a sporting goods store aimed to all people and not only to athletes. Instead of selling products over the counter, the goods were displayed customer friendly where the buyer could feel and try the different products, which was a huge hit. By 1983 the turnover had increased with 39 million SEK. The same year Eklöf’s brother, Bo, joined Ulf the company. They have since then worked together. The aim of reaching everyone has today been modified; Stadium’s target group is today people between the ages 16 to 49. The first Stadium store was opened in 1987 in Stockholm, and since then Stadium has opened additional 99 stores both in Sweden, Denmark and Finland. According to Swärdh Stadium have been looking into expanding to Norway, but because of they not being a member of EU it has been proven to be difficult to ship over products due to the different regulation. They have today a total of 3005 employees and have a turnover of 4 billion SEK. According to Swärdh Intersport is the main competitor to Stadium. Stadium has 85 stores compared to Intersport’s 124, but Stadium still has a larger turnover. Swärdh reported that in the sporting goods industry Stadium has approximately 15 percent of the market shares, as do their major competitor Intersport. All stores are fully-owned by Stadium and are centralized managed from the head-quarter in Norrköping. Since a couple of years ago IKANO (a company owned by Ingvar Kamprad) owns 25percent of the company. Swärdh is looking bright on the future. According to him Stadium has big plans to keep expanding across Sweden and our two neighboring countries. With the help of their partner, IKANO, they are even looking to expand outside the Nordic countries.
4.2
Stadium’s Marketing Approach
The overall task for Stadium’s marketing is to cherish and strengthen the brand of Stadium and to attract customers to the stores. The main focus on marketing activities is on print, direct mail and outdoor advertisements, like billboards. Stadium also uses the notion of Customer Relationship Marketing, where they in 1996 introduced their Stadium Card and Stadium Magazine, PR, events and also their webpage. The use of direct mail fluctuates a
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lot, but according to Swärdh the main focus on direct mail is to promote different campaigns and events. The Stadium Magazine is what Swärdh calls the base for their communication and is released four times a year. Included in this magazine is different inserts, which are based on earlier purchases. In Stadium’s database there is up to 25 different variables which decides which insert that should be used, for example woman, man, golf, junior and swimming. Stadium have different campaigns in order to attract new members one example is a Christmas campaign they had in 2006 where Stadium offered customers who became members with Stadium Card with Account no interest on all purchases until the new year. In the autumn of 2005 a new project started at Stadium, their new webpage, which is going to be launched in March 2007. Every product that Stadium has to offer will be displayed on their homepage. Swärdh expressed that the homepage will be seen as a complete contact channel. The homepage will be very much an integrated meeting place where customer can not only purchase their favorite pair of shoes, they will also be able to read information about them and get advice how to best take care of them. On the homepage it will also be possible for club members to choose by which way they would like to be contacted by Stadium. Something that Stadium has put on hold is to offer their customer to be contacted by text message. This is a new approach that some companies has chosen to stay in contact with their customers, but since it is just on trial basis for many companies Stadium has decided to wait and to take part of some feedback that will be generated later. A marketing activity that Stadium has decided not to use is TV commercials. According to Swärdh this decision was made due to the fact that commercial spots on TV is one of the most expensive marketing activity there is and Stadium feels that they get more out of their other approaches. Approximately five percent of Stadium’s turnover is invested in marketing which is then invested in many different marketing channels. Out of these five percent, about 20 percent is devoted to the customer club. This is a large investment, but records show that they are very well invested since it has been proven to give high returns.
4.3
Stadium Card
Stadium Card is an open customer club. This goes in line with Eklöf’s vision, to offer a sporting goods store with a complementary customer club aimed to all people. When Stadium started the customer club in 1996 they had two kinds of cards, Stadium Card, for its member so save bonus points with, and Stadium Staff, which is available for the employees. Four years later Stadium took the decision to develop the Stadium Card to also offer Stadium Card with Account. This is a kind of credit card which enables members to pay later for their purchases. Everyone that has turned 16 and has an address in Sweden, Denmark or Finland can apply to become a member of the Stadium Card, although to be able to apply for Stadium Card with Account, one must have turned 18. Since the establishment of Stadium Card the numbers of members have increased every year. In year 2006 Stadium Card had 765,000 Swedish members, 65,000 Danish members and in Finland there were 63,000 members. According to Swärdh Stadium can interpret that the number of members has increased approximately in the same rate as new stores have opened. To put the number of Stadium’s members in perspective, their major competitor Intersport has today 650,000 members (P. Nimmermark, personal communication, 2006-12-07). Each month Swärdh and his team receive approximately 12,000 applications
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from customers that want to become members of Stadium Club. But Stadium is experiencing a major downfall when it comes to keeping the members, every month around 4,000 members become inactive. A member will receive the “inactive” status when they have not used their membership card in 15 months.
“We are having problems retaining our members.”
(J. Swärdh, personal communication, 2006-11-23)
By recognizing this problem Swärdh feels like half the battle is won; “Now we just have to keep working on it”. Stadium has put some interesting statistics together. According to their sales figures, customer that are not member spend 314 SEK per purchase, member spend 482 SEK per purchase and the members with the credit card function are the big spender, they spend a total of 885 SEK at each purchase. This really gives Stadium an incentive to keep working to get customer to become members. And even more to get members to upgrade their membership to Stadium Card with Account. The customer club is not only of use to increase customer spending, Swärdh can conclude that since the start-up of Stadium Card their expenses have decreased since they now, with the help of their customer database, can target their advertisement better. The customer is no longer exposed to irrelevant direct marketing instead the customers today receive highly customized information. Stadium has also realized that the success of Stadium Card has helped them to plan better assortment for the future. They can now with their advanced customer data base predict to a great accuracy for the time ahead In order to detect loyalty Stadium uses the RFM analysis. This measurement is used to label their customers. A customer having purchased recently, high frequency and are big spenders are classified as most loyal. When it comes to the “80/20 Rule” Swärdh says that it truly applies at Stadium. A big part of Stadium’s revenues come from a small portion of their customer base, some families spend up to 70,000 SEK each year. 4.3.1 Bonus System
The bonus is based on earlier purchases that the member have done during one calendar year (January 1st – December 31st). It is then given out in the following year in March. If a customer were to spend between 2,001 to 4,000 SEK the bonus is two percent of that amount. Between 4,000 to 6,000 SEK the member would receive four percent. And if the member would spend as much as 6,000 SEK or even more they would be rewarded with as much as six percent. 4.3.2 The Purpose of Stadium Card
When we asked Swärdh about why Stadium decided to start their customer club, he explained that the idea behind Stadium Card was to learn more about their customer and to create a better relationship between their customers and the company. Another goal with
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the creation of Stadium Card was to stimulate more purchases and in higher frequency. These goals stand still today. The first couple of years were seen as a design and construction stage where the base for the customer club was built. During this time period Stadium tried to teach its customer what Stadium stood for and what benefits they were able to offer their members. This gave Stadium an opportunity to get some first hand feedback from their customers. Knowing more about ones customers’ makes it easier to target ones marketing activities, and this came to be very true to Stadium. Since the implementation of Stadium Card they have seen that many of their marketing campaigns have become more effective and profitable. Swärdh expressed that the start-up of Stadium Card was not an easy task. Since this was a new approach there was a lot of convincing of the board of directors to go through with this investment. They thought that creating a customer club would be a too great of a cost to take on. The administration around this kind of project means a huge investment and a great amount of capital would be tied up in this kind of undertaking. But with time and proper feedback they have realized that this investment has been paid off time and time again. There is a great saving when Stadium uses the information shared by their members when doing direct mail or other marketing activities.
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Chapter 5
Results and Analysis
5
Results and Analysis
?????????????????????????????????????????????????? Under this heading we are examining the models and concepts introduced in the theoretical framework. We will analyze the difference in loyalty between customers that are members in Stadium’s customer club and customers who are not. We also investigate whether the customer club is an efficient tool for creating customer loyalty. ?????????????????????????????????????????????????? In this section we present our results from the questionnaire handed out to Stadiums’ customers. To be able to analyze and see the results of the questioners we used the statistical program SPSS, Statistical Package for the Social Sciences. Chi-square tests were performed to see if our results were valid and significant to use in our research. Chi-square was also used to rule out that sex and age had any affect on customer loyalty. The test was valid although it showed that the difference in loyalty between the sexes and the age groups was not big enough to be significant. We therefore concluded that age and sex does not affect loyalty. The other tests conducted where valid and showed that the differences between members and non-members where significant to draw conclusions from.
5.1
Sex and Age
The pie chart illustrates a relatively equal distribution of female and male respondents with 53.9 percent female and 46.1 percent male.
Male 46%
Female 54%
Figure 5-1 Sex
The chart below shows a moderately equal spread over Stadium’s target group; people between the ages 16-49.
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51-60 61< 5% 2% 41-50 17%