Customer loyalty in retail. Case study of Marks and Spencer

Table of Contents

Executive summary

1. Introduction
1.1 Background of research
1.2 Rationale of research
1.3 Statement of problem
1.4 Research Questions
1.5 Objectives of the research
1.6 Aim of the research
1.7 Structure of the study

2. Literature review
2.1 Introduction to the chapter
2.2 Definition of customer loyalty
2.3 Definition of behavioural and attitudinal loyalty
2.4 Customer satisfaction
2.5 Program loyalty
2.6 Service Quality
2.7 Corporate Social Responsibility (CSR)
2.8 Summary of the chapter

3. Research Methodology
3.1 Introduction to the chapter
3.2 Research philosophies
3.3 Research approach
3.4 Research design
3.5 Research methods
3.6 Data Collection Method
3.7 Research Instruments
3.8 Sampling
3.9 Data Analysis
3.11 Reliability
3.12 Ethical considerations
3.13 Limitation of the research

4. Data analysis and Findings
4.1. Introduction to the chapter
4.2 Research question one: What is the role of service quality in customer’s loyalty in Marks and Spencer in London?
4.3 Research question two: How significant does customer satisfaction influence the customers loyalty in M& S in London
4.4 Research question three: What impact has corporate social responsibility on customer loyalty in Marks and Spencer London?
4.5 Research question four: To what extent do the loyalty programmes influence the customer’s loyalty in Marks& Spencer in London?
4.6 Summary of the chapter

5. Recommendations and conclusion
5.1 Recommendations
5.2 Conclusion

References

Appendix

Executive summary

The phenomenon of loyalty has met with great deal of interest from researchers in recent years. Customer loyalty indicates sense of belonging or identification with the service or products of the organization. These feelings affect customer behavior directly and lead to repurchase goods and recommend them to others. In general, customer loyalty constitutes a complex issue to analyze since it contains many dimensions. This study will examine factors such as customer satisfaction, corporate social responsibility, service quality and loyalty programs that have crucial impact on customer loyalty. The research will focus in particular on customer’s loyalty in Marks and Spencer in London.

The study employs questionnaire design using quantitative data research methods with simple random sampling. The gathered information comes from the secondary and primary sources that embrace survey that was conducted in five stores in London. Due to analysis and findings, the study concludes that in spite of Marks and Spencer’s endeavour in enhancing loyalty among customers, there are still some aspects that have to be improved. On the basis of the findings, the recommendations have been identified with purpose of enhancing customer loyalty in Marks and Spencer.

Chapter 1

1. Introduction

1.1 Background of research

Nowadays, when the level of competition is very high in the retail sector, it is important to gain new customers but more important is to retain the regular ones, therefore the customers’ loyalty play key role in this subject. In the global market, when the customers are tempted by lower prices from new introduced retailers, it is crucial to incorporate innovations by well- known companies which enable the shoppers to tie knot with one brand. The customer satisfaction has an essential impact on the loyalty. If the customer has high level of satisfaction not only he returns to the store, but also he will recommend the specific retailer to other people, so the store will gain the new group of clientele. The heritage, quality, past events from the store’s life, good advertisement campaign and involvement in charity’s work shape image of the brand and have critical influence on the loyalty. Introduction of the loyalty program by the firm offers many advantages, therefore people come back, because they like to be appreciated and rewarded. Also, the customer service constitutes an important factor that influences loyalty. Therefore, the retailer selects only well-qualified and trained staff among the people who apply for the job as a customer assistant. Factors like quick adaptation of the change and motivation of the employees have crucial impact on the interactions with customers. When the staff is highly motivated, has a specific knowledge about the products and is helpful at the same time, it affects the whole customer experience. At the times of high competition, the customer service constitutes critical factor in enhancing loyalty among customers.

The concept of the customer loyalty appeared for the first time in the mid-1980. Then, many companies spent millions for development of strategies in order to build their relationships with the customers (Kevin et al 2003).

Generally, the customer loyalty is an intention of repurchasing and repatrionizing consistently the goods and services from the specific firm (Abbasinarinabad et al 2012).

According to Musriha (2012) in the business context, the customer loyalty is an engagement held by a customer to do a business with a particular firm which causes the repetitive purchasing or subscribing the goods or services in the future and recommendations to friends, family, associates etc.

According to Abbasinarinabad et al. (2012) loyalty results from psychological process, which involves the judgement of different choices according to differerent criterion. Moreover, loyalty is a deeply commitment to buy goods and services consistent on regular basis and keep continuing in the future from the same organization despite competition’s marketing action or environmental effects.

Moreover, Kevin et al (2003) agreed that the customer loyalty is an essential and key factor of the success of the business.

Marks and Spencer is one of the main British multinational retailers which specializes in selling of luxury food products, clothing and home products. The company was established in 1884 by Michael Marks and Thomas Spencer. The presence of the firm apart from the UK is observed in many countries of Europe, Middle East and Asia. In the mid-2000, the business launched online services which enable customers to order products via website. The store is ethical and environmental friendly by promoting Fairtrade products, sustainable fishing and utilizes only environmentally friendly textile dyes. In 2011, the company launched initiative called “Plan A” in order to grow environmental sustainability of the enterprise. One of the initiatives of the plan was in 2011 the campaign “Forever Fish “, from which funds were dedicated to protect the marine wildlife in the UK. The enterprise is listed on the London Stock Exchange and is a component of the FTSE 100 Index (M&S, 2014).

1.2 Rationale of research

Marks and Spencer undertook specific strategies to fight for new customers and retain the loyal ones. At times of the introduction of more and more foreign brands on the UK’s retail market such as Aldi or Lidl that tempt customers with low price, it is difficult to retain individuals. What differentiates Marks and Spencer from other supermarkets is high quality goods which customers cannot find in the other markets. Marks and Spencer took strategy which is called Plan A. The aim of the plan according to Mick Berry (M&S Report 2014) is to stay consistent and relevant that means to deliver exceptional products and services based on the sustainable use of resources. The plan is engaging the customers in range of activities which benefit the communities. The company is expected to spend over 200 million pounds within 5 years for this business plan. The loyalty cards can be also the strategic movement of the retailer in order to retain loyal customers. Through collecting points called ‘’sparks’’, the customer is able to receive discounts on specific products. The introduction of the loyalty scheme by Marc Bolland, chief executive of M&S follows billions of pounds spent on the redesign of the store, products and website and supply chain logistics as a respond for the decades of the underinvestment (Smithers, 2015). Patrick Bousquet-Chavanne, executive director of marketing agrees that the idea of loyalty cards is an opportunity for store managers to reconnect with their local customers (Smithers, 2015). However, according to Mccarthy (Smithers 2015), the loyalty scheme can be too complicated for the customers and the retailers go nowadays in opposite direction; however she further admits that Marks and Spencer has different profile than other markets such as Tesco or Morrisons and can be successful to engage local shopper to be part of it. Loyalty cards and collecting sparks enable to do shopping with 10% discount on selected items (M&S Report 2014).

In addition, the customer service plays crucial role. The Marks and Spencer installed devices around the shop floor that enable to find the location of specific products and to check the availability of specific sizes. However, for the older people that constitute 50 percent of the clientele, it is difficult to use those electronically devices, hence they need customer assistants who will be professional and well trained. Marks and Spencer invest great deal of funds every year to give a professional training to its staff in terms of knowledge of the products and how to interact with the customers. The motto ‘’customer is always first’’ constitutes an essence of the Marks and Spencer’s philosophy. The store produces high quality items and ensures high standard of the customer experience believing that those factors ensure loyalty among their customers (M&S Report 2014).

1.3 Statement of problem

The main characteristic of the UK’s retail industry is fierced competition in pricing and other terms between the leading retailers such as M&S, Tesco and Sainsbury and difficulties of market entry.

According to Burt et al (2009) the factors, which had impact after financial crisis on the consumers buying behaviour are: job uncertainty, lower income and declining savings. Due to future financial uncertainty or decline in the income, the consumer stopped excessively spending as they used to and concentrated mostly on purchasing the most important things.

The cost of recession costs the British retailers about 23 bilion pounds since the recession has started.(Thomas, 2013). According to Chiswick (2013), the times will continue to be tough both for consumers and retailers due to recent recession. He argues further that it will be difficult to secure new customers, therefore the retailers have to focus first of all on the loyal shoppers. Moreover, the customers data has to be utilized intelligently to meet the consumer’s needs and drive loyalty and satisfaction.

According to Saunders (Thomas 2013), costumers are more sensitive over the prices of the products and think more carefully about what and why they’re buying. Therefore, the retailers have work harder to find out what a potential customer wants. However, in fact it is complicated process because of today’s fragmented and multichannel nature of shopping.

During the recession, apart from “the state of pocket”, the consumer were also affected by “the state of mind’’ factor. The consumers were bombarded with news on TV about negative impacts of financial crisis, which in consequence discourage shoppers from spending money. According to Ayling (Guardian April, 2011), because of the excessive publications in media about the impacts of recession, the sales started continuously dropping especially in luxury retailers. Therefore many costumers switched from stores such as Waitrose or M&S, which provide with luxurious goods to value stores such as Tesco or Sainsburys. According to Bailtout (2008), in fact some stores lost part of their shares during financial crisis, the other retailers noted better performance due to increase in sales.

1.4 Research Questions

1. What is the role of service quality in customer’s loyalty in Marks and Spencer in London?
2. How significant does customer satisfaction influence the customers loyalty in M& S in London.
3. What impact has corporate social responsibility on customer loyalty in Marks and Spencer London?
4. To what extent do the loyalty programmes influence the customer’s loyalty in Marks& Spencer?

1.5 Objectives of the research

1. To examine literature review on emerging and re- emerging aspects influencing on customers’ loyalty in the retail sector.
2. To investigate how significant the loyalty programmes and service quality impact the loyalty of Marks and Spencer’s customers in London.
3. To analyze the role of customer satisfaction and corporate social responsibility in the loyalty of customers in Marks and Spencer.
4. To recommend the solutions that enable Marks and Spencer to overcome aspects that hinder their efficacy to increase customer loyalty.

1.6 Aim of the research

To investigate the key factors that impact on customers’ loyalty in Marks and Spencer in London.

1.7 Structure of the study

The research has been composed to provide with critical examination of material related to the factors affecting customers’ loyalty in Marks and Spencer. The research contains five sections that are presented as figure 1.1 below.

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Figure 1.1 Structure of the research

Source:author(2016)

1. Chapter 1: Introduction

In the introduction of the study, there is an indication of background and rationale of the research together with statement of the problem. Furthermore, this section underlines the questions, objectives and aim of the study.

2. Chapter Two: Literature review

The part outlines review of publications on emerging and re-emerging aspects, which condition customer loyalty in the retail sector. It incorporates the definition, types of loyalty and highlights the factors such as service quality, corporate social reponsibility, loyalty programs and customer satisfaction which influence the customers’ loyalty.

3. Chapter Three: Methodology

This section undertakes the methodology of the study, in which the research onion will be adduced to outline the stages of the research. Firstly, the research philosophies, approach and design will be highlighted. Secondly, research instruments and methods, sampling and data analysis will be underlined. Finally, the study will emphasize the validity, reliablity, ethical consideration and limitation of the study.

4. Chapter Four: Data analysis and findings

In this part of the study, the data will be interpreted and examined in association with questions and objectives of the study. Morover, the chapter will discuss the findings of the research.

5. Chapter Five: Conclusion and recommendations

This section presents summary of the whole research, deliver conclusion and draws recommendations.

Chapter 2

2. Literature review

2.1 Introduction to the chapter

Various journals, books and online sources have been investigated to critically review the aspects affecting customers’ loyalty in the retail sector. The pertinent publications will be applied in the following order: definition of loyalty, types of loyalty and factors impacting on customer’s loyalty such as customer satisfaction, loyalty programmes, service quality and corporate social responsibility.

2.2 Definition of customer loyalty

To determine customer loyalty is a challenging endeavour due to its relation to customer repeat purchase patterns (Wijaya 2005), therefore the definite boundaries are blurred until now, on the customer loyalty supporting precursors (Leong et al 2012).

According to Ivanauskiene & Auruskevieien (2009), there is no accepted definition or general description of loyalty and still a lot of research argues about what defines customer loyalty and its key drivers.

Khan et al (2015) pointed out that the customer loyalty is linked to the consumer’ commitment to the brand.

Yo et al (2005) refers customer loyalty to the expectation for continuous relationship between a costumer and a particular organization. According to Thompson’s survey “Customer think” (2007), 68 percent of respondents related customer loyalty to the repetitive purchasing attitude; 59 percent of respondents defined loyalty as a referral that costumer makes to friends, colleagues etc, while 56 percent of questioned admitted that loyalty constitutes customer’ emotional commitment.

Hossain et al (2011) argue that the customer loyalty ought to be specified in two aspects. The primary approach describes loyalty as a collection of different feelings inducing individual’s overall affection towards particular products or services, reinforcing way for purchase intention. Another view determines loyalty as behaviour. In other words, behavioral loyalty relies on repeat purchase of the goods or services from the same firm.

Yang &Peterson (2004) advocate that the customer loyalty has character of repeat patronage that constitutes the proportion of times a customer purchases the same product or service in a particular group compared to the total amount of orders in that group.

According to Wijaya (2015), the customer loyalty is the probability of customers return and his willingness to perform partner-shipping activities for the business.

Basarir et al. (2013) compare the term of customer loyalty to the physical and emotional commitment of customers towards an organization in return for meeting their expectations.

Akbar and Parvez (2009) refer customer loyalty to the mind set of purchasers who display favourable attitude towards specific firm; are committed to rebuy products from the same business and recommend them to others.

According to Bose ad Rao (2011), the customer shows loyalty, if he patronizes regularly a particular product or service, which he/ she likes and trusts.

Cheng et al. (2011) define customer loyalty as a deeply commitment, which relies on rebuying and repatronizing specific goods consistently in the future, thereby inducing repetitive same brand purchasing.

2.3 Definition of behavioural and attitudinal loyalty

Antonios (2011) advocates that customer loyalty embraces many dimensions, however generally it constitutes a complex matter and its conceptualization is determined by attitudinal and behavioural aspects. On the one hand, the behavioural approach relies on characteristics related to the recurrence of purchase behaviour; the frequency of purchase and number of offered brand switching. On the other hand, the attitudinal approach is based on the preferences and attitudes of a customer or brand character and in turn allows greater understanding of loyal behaviour.

Jumaev et al (2012) argue that loyalty can be described as a behavioural component (purchase or repurchase frequency) or in attitudinal terms. Behavioural loyalty relates to customer activities and embraces the past purchases measurement of the same brand that can constitute the base for measuring future purchase possibilities. While, the attitudinal concept relies on the psychological affection of customer for the same brand, which involves the measurement of purchaser’s attitude. Hence, both behavioural and attitudinal approaches are significant in order to understand long-term relationship between customer and brand, pricipally when forecasting customer future favouritism.

Roy et al. (2009) highlight that the customer loyalty constitutes relationship between behaviour and attitude. He postulates further that attitudinal loyalty is viewed as a three components structure, which grows in three phases: cognitive, affective and co-native. This determines loyalty as a sequential process and indicates that a customer become loyal first in cognitive manner, later in affective sense and still later in co-native sense.

Yang and Peterson (2004) describe attitudinal loyalty as a desire to extend a relationship with a particular service provider, while the behavioural loyalty is seen as a repeat patronage that is a comparison of number of times a customer purchase the same product from the particular category to the total amount of orders made by the same purchaser in that category.

According to Clottey (2015), behavioural loyalty is consisted of criteria such as word of mouth referrals, share-of-wallet or repeat purchase, while the attitudinal approach includes criteria such as commitment, trust and emotional devotion. Author highlights also that attitudinal is more effective type of loyalty than the behavioural one, because it expresses emotional commitment; individual feels strong sense of belonging to particular brand. He adds further that if the customer is linked to attitudinal approach, it’s more likely that he/she remains loyal.

According to Shih-I (2011) and Wahab et al (2011) behavioural approach describes consequences of actions (result of loyalty) such as: volume or frequency of purchase, debt, interactions, complaints, returns, repetitive purchasing, longevity, customer retention. While the attitudinal approach constitutes formative behaviours such as commitment, which is seen as willingness to recommend and intent to rebuy. Shih-I (2011) points out further that behavioural approach ensures the transformation of loyalty into actual purchase behaviour, while the attitudinal approach does not guarantee that the customer purchase a product himself; he will help through the word of mouth to create positive image of an organization in the same time increasing significantly the behavioural loyalty. The satisfaction has direct impact on the behavioural loyalty. Hence, the behavioural loyalty occurs because of attitudinal loyalty.

2.4 Customer satisfaction

According to Bradford (2009), the customer satisfaction refers to the emotional and cognitive assessment of the customer experience related to the product or service. His paradigm demonstrates that customer satisfaction is the evaluation that the characteristics of product and service reach the level of performance that stimulates a pleasant feeling. The consequence of comparing expectations with the actual perception may cause positive confirmation in case of exceeding the expectations. However, if the perception will be below expectations of a customer, it can cause a negative disconfirmation. In this context, the customer can accomplish satisfaction or dissatisfaction (Vogel et al. 2008).

Kotler and Keller (2009) also viewed the customer satisfaction from the perspective of comparison between perceived performance and customer expectations. According to the authors, the customer satisfaction determines the feeling of comfort; however it can cause also frustration in some point. This depends whether the product or service meet expectations of customer or operates worse than they expected.

Wangenheim et al. (2007) identifies customer satisfaction as a result of pre purchase expectation and the post purchase perceived performance that are expected to have a positive effect.

Recent studies (Sharma et al. 2007) present customer satisfaction as an emotional reaction, however they are not precise to define what type of reaction is a satisfaction, what could be related to the words of Wangenheim et al. (2007), who named customer satisfaction as an post purchase evaluation.

Customer satisfaction can be determined as the level to which customers are pleased with the use of goods that are delivered to them by an organization. To accomplish the degree of satisfaction firms must take the needs and wants of customers into consideration and provide them with superb goods and services. Any business has a possibility to move on the upper level of advantage by achieving satisfaction among customers in intensive competition on the market. Moreover, customer satisfaction indicates a feeling of a post purchase and use of good, which met the earlier assumptions. The assumed perceptions can be a result of the word of mouth from friends, family members or promotion activities of a particular firm. According to Grewal (2009), the satisfaction comes from the experience of customers after utilizing the product through which the overall satisfaction can be estimated. Homburg (2005) emphasizes that the loyalty is affected by satisfaction, because through the satisfaction degree it is possible to predict the consumer's behavior and purchase intentions towards particular product or brand.

According to Walsch et al. (2008), the customer satisfaction constitues overall measurement on consuming experience and is also associated with the product and service evaluations in terms of customer experience.

Brown (2009) determines customer satisfaction as a multidimensional measurement which involves service and product quality and scenario, personal, price factor. According to Chen (2011), satisfaction can be viewed as a transaction- specific satisfaction, whereas Faullant (2008) considers satisfaction as post-consumption or cumulative phenomenon.

Leonidou et al (2013) distinguish customer satisfaction on the basis of five dimensions such as service efficiency; overall performance of the firm; price of products; the closeness to the ideal enterprise and attendant's behaviour. Moreover, the customer satisfaction is considered as an influencing repurchase intention and attitude, which enables to achieve future revenues and profits by the firm. Gee at al (2008) believe that the customers, who are satisfied, will spread positive word of mouth communications to other customers, what will be beneficial for an organization. In contrast, Munteanu et al (2010) suggest that customers may not deliver positive word-of-mouth communications, because an organization may not deliver what a custumer was expected. According to Rust et al. (2010), customer satisfaction is a significant component of customer loyalty and success of an enterprise. The studies (Faullant 2008) have shown positive evidence on direct relationship between satisfaction and loyalty of repeat purchase, profit, cross- buying behaviour and less price sensitive.

2.5 Program loyalty

The empirical studies of Noordhoff et al. (2004) found that not all members of loyalty programs are actually card loyal. Bridson (2008) noted that some of the loyalty card subscribers utilize more than one loyalty scheme; other members do not utilize the cards at all and majority of customers do not know the mechanism of rewards in the loyalty program. Nevertheless, the loyalty towards program is viewed as a positive attitude, which is manifested in the members’ willingness to utilize the same program overtime and recommend it to others (Omar et al. 2010).

In addition, the loyalty programs are identified as a cardholder’s initiative to carry on and retain relationship with loyalty program escorted by willingness of cardholder to make additional endeavours. According to Smith et al. (2009), customers, who take part and utilize the loyalty program, develop feeling of belongingness and ownership towards the business. It was emphasized that committed members show tendency to have positive attitude towards loyalty program rather than the store. Nonetheless, it has been widely recorded that the store, which provides their customers with loyalty program is more likely to benefit from store or brand loyalty (Noordhoff et al., 2004). The research conducted on causal relationship between loyalty program and customer loyalty revealed that programs affect customer loyalty (Sunny Hu et al. 2010). Therefore, the empirical evidence suggests to examine and understand linkage between cardholder’s loyalty to the program and loyalty to the particular retailer.

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Source: Omar et al (2014)

2.5.1 Program Benefits

According to Mimouni-Chaabane and Volle (2009), program benefits are associated with perceived value, customers assigned to their experience with the program- that is, what the program can provide and do for members.

Basically, majority of loyalty programs will grant benefits that are determined by the volume of sales which they produce and these advantages may be composed of monetary and non-monetary incentives such as bonuses, rebates and services.

It has been recommended that a synergy approach of hard and soft benefits constitutes optimal method to enhance retail card revenue and minimize customer attrition (Nunes and Dreze, 2006).

Therefore, program benefits are identified as a collaboration of hard and soft benefits, which are provided to the program members. Hard benefits are consisted of monetary components such as coupons, discounts or rebates, whereas soft benefits are not composed of monetary items in general (Mulhern and Duffy, 2004). They constitute exclusive member benefits, which go beyond financial field such as insurance coverage, sales invitations or sales invitations.

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