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Bonus cards. The majority of people will have at least one of them in their wallets. But why do people have bonus cards? The reason is that when they shop regularly at a certain store, they can get discounts and other extra benefits and services. Consumers like discounts, because everyone wants to get as much possible at the lowest cost. Therefore bonus cards are very helpful, all you need to do is become a regular customer and you can get a discount. This sounds like friendliness from the store. But is it chiefly an act of friendliness, or is there also some gain for the firm? And if there is, do suppliers use this loyalty rewards only as a means to make consumers more dependent on suppliers? We will discuss this question from the point of view of a consumer.
All firms are profit-maximizing. Without profits they cannot have a sustainable existence. Consequently, all the decisions a firm makes are meant to increase profits (Roberts, 1986). Firms act out of self-interest, as Adam Smith pointed out more than 200 years ago (Smith, 1991). Firms don’t act out of benevolence, but out of self-interest. This also includes giving discounts and loyalty rewards. Firms give discounts, because this attracts new consumers, since they are looking for low prices (Parguel, Pechpeyrou, Sabri-Zaaraoui, & Desmet, 2007). Attracting new customers means higher revenues and higher profits. The following task for a firm is to keep customers. By giving loyalty rewards, people will come back to your store. This also creates a disincentive for consumers to shop elsewhere, because they forgo discounts or extra benefits by doing this. The firms therefore have more revenues and profits because of these loyal customers.
Research has also shown that loyal custo...
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...M., & Backhaus, C. (2012). Consequences of customer loyalty to the loyalty program and to the company. Journal of the Academy of Marketing Science, 40(5), 625-638.
Gremler, D., & Brown, S. (1998). The loyalty ripple effect: appreciating the full value of customers. International Journal of Service Industry Management, 10(3), 271-291.
Parguel, B., Pechpeyrou, P. D., Sabri-Zaaraoui, O., & Desmet, P. (2007). Format effects in volume discounts to customers. Journal of Product & Brand Management, 16(5), 348.
Roberts, J. (1986). A signalling model of predatory pricing. Oxford Economic Papers, 38, 75.
Smith, A. (1991). An inquiry into the nature and causes of the wealth of nations (Vol. I). London: David Campbell Publishers Ltd.
Taylor, G., & Neslin, S. (2005). The current and future sales impact of a retail frequency rewards program. Journal of Retailing, 81(4), 293-305.
Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations, (London: 1776), 190-91, 235-37.
Smith, Adam. 1981 [1776]. An Inquiry Into the Nature and Causes of the Wealth of Nations. Indianapolis, Indiana: Liberty Press.
As a result, the customer will most likely come back to the store they are already familiar with. To this extent, the retailers can also send out gift cards, reward cards to customers rewarding them for loyalty to the store. Some people think it is manipulating people into buying goods, but it is not true. The customer always has to choose whether to buy or not. No one is forcing them to buy anything.
Smith's Influential work, The Wealth of Nations, was written based on the help with the country’s economy who bases it off his book. Smith’s book was mainly written on how inefficient mercantilism was...
Smith, Adam. "CHAPTER XI OF THE RENT OF LAND." An Inquiry into the Nature and Causes of the Wealth of Nations. Oxford: Clarendon, 1976. 161. Print.
Landes, D., 1999. The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor. New York: W. W. Norton & Company, 38-59
...rs since the reward is tangible. Since 80 percent of profit comes from a small percentage of customers, programs should be developed to retain them. Companies will use resources that aren’t available to the entire customer base to ensure they are retaining their most valuable customers and offering incentives to encourage others to move up.
Lamb, C. W., Hair, J. F., McDaniel, C. D., & Wardlow, D. L. (2009). Essentials of marketing (6th ed.). Cincinnati, Ohio: South-Western College Pub..
Net Promoter Score is becoming an increasingly popular tool used by many companies who try to assess customer loyalty. The Net Promoter Score is based from a model developed by Frederick Reichheld in the book, “The Ultimate Question” (Beyond 2). The system helps measure customer loyalty between an organization and a consumer. The Net Promoter score was designed on an 11-point scale from (0 to 10) and it separates the customers into promoters, passives and detractors (beyond 2). Promoters are people who score 9’s and 10’s on the Net Promoter Score scale. The passives are the people who are 7’s and 8’s on the Net Promoter Score scale. The detractors are the people that are from 0 to 6 on the promoter score scale. One of the main goals of the Net Promoter Score scale is to recognize what each of the companies customers are defined as and to try and convert the detractors and passives to Promoters. The promoters are people who feel their lives are being enriched by their relationship with the company. They are very loyal to the company and have multiple purchases with the company. They tell many different people about the company to try and influence others to shop or use the company. They offer good feedback on how to stay successful or even become more successful in the future. The passive customers are people who make few recommendations to others about the company. Bring little energy to the company and are likely to go to a competitor if they offer a great discount on a product. The detractors are customers who feel that their lives are not enriched by shopping or affiliating with that particular business (Freimark 21). The detractors become dissatisfied with the company or experiences they have had with the company. They ta...
Ninety percent of Canadians are enrolled in at least one loyalty program. Market research has shown that loyalty programs are growing to be very popular in today’s market. A loyalty program is a program offered by a company to customers, who make frequent purchases. Loyalty programs are of benefit to both the consumers and the business. The consumers benefit by receiving coupons, special access to sales and new products whereas the company benefits by gaining an abundance of knowledge about the consumers, through their purchasing habits. Loyalty programs have proven to be very successful for several companies such as Target, Starbucks, and Shoppers Drug Mart. The senior management in sales and marketing believe that initiating a loyalty program
Although this view has undergone considerable modification by economists in the light of historical developments since Smith’s time, many sections of The Wealth of Nations notably those relating to the sources of income and the nature of capital, have continued to form the basis of theoretical study of the field of political economy. The Wealth of Nations has also served as a guide to the formulation of governmental economic policies.
Consumers are motivated to spend more when there are incentives presented in the form of discounts and special promotions. Their satisfaction in spending less to buy a desired item indicates how incentives work by influencing an individual’s decision making ability. The fact that the item was on a discount enabled the individual to buy it as the reduction in the price of the item was a strong economic incentive. The concept of incentive is present in everyday life situations as it basically impacts the actions of every individual. Incentives are efficient tools used to manipulate the human behaviour in order to achieve desired outcomes.
Raman, M., Lim, W., & Nair , S. (2012). The Impact of Corporate Social Responsibility on Consumer Loyalty. Kajian Malaysia , 30 (2), 71-93.
In this chapter, literature review will be divided into three parts. The first part is to review the market of Tesco in the UK. The second section is to illustrate the customer loyalty. The third part is to investigate the reasons of customers ranking highly in attitudinal loyalty but not in behavioral.