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Different kinds of Customer Loyalty Program in
the UK and their effectiveness
Manju Negi
Computing Department, Bournemouth University University
Fern Barrow, Poole , United Kingdom
s5125495@bournemout.ac.uk
Abstract— The goal of this study is to obtain a deep
understanding of different types of customer loyalty programs in
the Uk and their effectiveness. This study was conducted to the
British market and its customers. This study discusses different
types of loyalty programs, such as, point based system, tier
system reward, charges an upfront-fee for VIP benefits and
non-monetary programs. The study investigates further the
effectiveness of these programs and the variables which decide
which success of one loyalty program over another.
Keywords—Loyalty Program, Types of Loyalty Programs,
Monetary Rewards, Loyalty Program Effectiveness, Customer
Retention.
I. INTRODUCTION
A customer loyalty program, by definition, is an
effort to build a marketing strategy that first
recognises and then rewards customers who engage
or purchase with a brand on a regular basis. A
company may roll out perks or points, and build a
multiple tier/level system to incentivise its
customers. As the customers buy more, they
graduate to higher levels of loyalty. These benefits
and specific incentives often work wonderfully and
result in the buyers becoming more regular
customers or in the ideal scenario— a brand
promoter. Benefits may involve rewards, free
merchandise, coupons, or some kind of insider
perks like VIP treatment or early access to new
products.
Marketing and customer success teams are
always concerned on how to create better customer
experiences. The research has shown that brands
that put their customers first and deal with them
with empathy increases their chances of gaining
their trust and keeping their business successful.
Then, why do so many companies still struggle to
form strong relationships with their customers that
drive revenue and retention?
II. CUSTOMER LOYALTY PROGRAMS IN UK
YouGov (an international market research and
data analytics firm), together with Mando-Connect
(a partnerships and rewards agency) have carried
out one of the largest ever studies into what the
people of the United Kingdom think of brand
loyalty. Around 275,000 poll respondents were
asked what they actually want from loyalty
programmes, who interacts the most, and the impact
that loyalty programme has on brands. The study
finds out that:
●Around 77% of UK adults are either members
of at least one loyalty programme.
●Around 72% think customer loyalty
programmes are an efficient way for
businesses and brands to reward their
customers.
●Around 59% think all companies should offer
a customer loyalty programme.
This suggests that the UK people are far bigger
fans of loyalty than most brands think. There are
more interesting facts highlighted by this study,
demonstrating that there is no one-size fits all
solution to getting loyalty right. It shows:
●Women (84%) are far more likely to be
members of customer loyalty programmes
than men (70%);
●People over age 55 (around 83%) are far
more likely to be members of programmes
than people aged 18-24 (61%). Alse,
membership levels also decrease with age.
Charlie Hills (Head of Strategy and Managing
Director at Mando-Connect) said: “The study
clearly shows that the customer loyalty industry in
the United Kingdom has a great opportunity to
attract, engage, delight, and retain their customers.
The British people have considerably high
engagement levels with loyalty programmes and
strong desire for better programmes from the
businesses and brands that they admire and shop
with.”
Loyalty programs can prove to be a valuable asset
in the marketing efforts of both large and small
businesses and can increase the lifetime value of
customers significantly. However, developing and
managing an effective loyalty program could
become a challenging undertaking. Thus it is
important to understand the factors that dictate the
performance of the customer loyalty programs.
According to Laura Shannon, an overwhelming
majority of UK adults are members of one or more
loyalty schemes, whether it is with a supermarket,
coffee chain or credit card provider. However,
marketing firm Bond Brand Loyalty says, “As more
consumers participate in brand loyalty programs,
more of those loyalty points are going unclaimed. It
is estimated that about £4.5 billion worth of loyalty
points are lying dormant across three major
schemes in the UK– Tesco Clubcard, Nectar and
Boots Advantage.
III. TYPES OF CUSTOMER LOYALTY PROGRAMS
Brands reward the loyalty of their preferred
customers either by price discounts or enhanced
services. Loyalty memberships or programs are
actually structured marketing efforts that encourage
and reward loyal buying-behavior which is hugely
beneficial to the brands. In retailing marketing, it
includes: point’s card, rewards card, loyalty card,
club card or advantage card which deems the card
holder as a loyalty program member.
A. Monetary Rewards
Monetary rewards are the incentives given to the
members of the loyalty program in the form of
money. It can be cash back, monetary discounts
on the shopping or cash prizes. The motivation
of customers is the major aspect that helps the
businesses to grow. It is most suitable for
businesses that encourage young short-term
customers.
B. Points system
It is one of the most common types of loyalty
programs. More frequent customers earn more
points, which can be transformed into different
kinds of reward: gifts, discounts, or special
customer treatment.
C. Tier System
It offers tiny rewards as a prime offering as part
of the program, and frequent customers are
encouraged by raising the value of the rewards as
they climb up the loyalty ladder. The main
difference between tiered and points systems is
extracting short-term versus long-term value from
the loyalty program..
D. Charge an Upfront Fee for VIP Benefits
One-time charge(or Annual payment) customers
can collect points by their purchases. This system is
clearly more suitable to businesses that rely on
repeat, frequent purchases.
E. Non-Monetary Programs around Your Customer's Values:
Customers are provided with value in other ways
than dollars or discount rewards. Depending on the
industry and the customer’s values, there may be
more value in non-monetary rewards.
IV. TYPES OF LOYALTY PROGRAMS USERS IN THE UK
We would categorise four types of customers
based on their attitudes towards loyalty programs.
1) Never: Customers who are never affected by any
loyalty programs and their incentives in any way.
2) Light: Customers who are having some reward
program memberships and being influenced in some way by
their rewards, but not considerably.
3) Heavy: Customers who are highly influenced by
loyalty programs and their incentives.
4) Extreme: These are the consumers who are obsessed
or highly addicted to loyalty programs.
V. BENEFITS OF LOYALTY PROGRAMS
The Center for Retail Management at
Northwestern University suggests that between
12% to 15% of the customers are actually loyal to
one brand/retailer. However, this small portion of
loyal customers help generate between 55% - 70%
of the company revenue. Some of the food
businesses find that between 65%-95% of their
sales are generated through the members of loyalty
programs. Around 53% of food businesses offer
some kind of loyalty program. Three out of four
(around 75%) of the loyalty programs members use
their loyalty cards once weekly and 885 of them
used, at least, once in a month.
For business loyalty programs are profitable
because:
●The costs are less than serving loyal
customers.
●Loyal customers actually spend more time
and money on the company.
●Loyal customers promote the brand and pass
on positive recommendations to their friends
and family.
●Loyalty programs feed the brand with a
wealth of valuable customer information.
While brands can analyse different
customers' purchases, and check whether
certain deals/coupons are more effective
over others or not.
●Retaining old customers is considerably
easier and less expensive than acquiring
new ones.
●Loyal customers purchase more with their
brand, with a big-margin of supplemental
services and products.
VI. METHODOLOGY
A. Research Objectives
The goal of this study is to obtain a deep
understanding of different types of customer loyalty
programs in the Uk and their effectiveness. In order
to reach this objective, the research will address the
following sub-objectives:
●What are the top 3 Loyalty programs in the
UK?
●Identifying the contributing factors to the
performance of the customer loyalty
programs
●Identifying the impact of loyalty programs
on customer retention
●Identifying customer behaviors and patterns
with the use of data analysis
●Presenting a recommendation
for brands/companies which can be used as
a guideline while building their customer
loyalty program for better performance.
B. Importance of the study
The importance of the study through:
●Evaluating a few popular loyalty programs
in the UK and their effectiveness.
●Providing considerable empirical evidence
to clarify the role of loyalty programs and
factors that contribute to their performance.
●Representing a concise focused scientific
addition in the realm of studying customer
loyalty programs.
This kind of research is healthy for the field and
helps us find valuable recommendations for the
organisations.
C. Proposed Research Model
To achieve the objective of the study, a survey
methodology was thought to be highly effective to
gather valuable data points from the general public
to get the most accurate view of the picture.
1) Instruments : Questionnaire (survey): The
questionnaire was built in the English language to
collect data from the targeted sample. The
questionnaire consists of three parts; the first part is
about demographic factors. The second part is about
the type of loyalty card that the customer has. The
third part is about the attitude of the participant about
each statement regarding different types of loyalty
programs.
Fig. 1 Survey of Loyalty Program
In total (110) questionnaires were distributed
randomly to British customers, were reached by the
author, and were contacted through friends, relatives,
students and local malls. The instrument relies on a
five –points Likert Scale, representing a range from
1- strongly disagree to 5- strongly agree, in order to
measure the effectiveness of each loyalty program.
Fig. 2 Likert Scale surveys style
D. Research Approach
This research is fully quantitative in nature
because it depends on the collected survey data.
There will be statistics generated and some
generalization will be made based on the result
found. A survey questionnaire was created in order
to study customer loyalty programs in the UK.
E. Population and Sampling
Bailey suggests that the correct sample size is
dependent on the actual population and the nature
of the study. There are various methods to
determine appropriate sample size, for this study
convenience sampling method has been used to
select the samples. In total (110) questionnaires
were distributed online through google forms
randomly to British customers who could be
reached by the researcher. There were 86 responses
captured. The response rate was 75.45%
F. Description of the Study Sample
The results are shown in Table (1) that most of
the respondents to the study were females with
(53.48%%), Age category were predominantly
18-24 years old with 51.16%, majority of them
were students (61.62%). Most of them were within
the group of masters degree 50%, 70.93% of them
singles and living in family size of 0-3 people
75.58%
Table. 1 Distribution of the survey study sample by Demographics.
Table(2) shows that the Monetary Rewards is
amongst the most popular types of loyalty program
used by the respondents of the study with 60.47%.
Followed by Point Collection 25.58% and then Tier
System Rewards 17.45%, Charge up Upfront Fee
for VIP Benefit 9.30% and Non-Monetary Rewards
5.82%
Table. 2 Distribution of the survey study sample by different types of loyalty
programs.
Fig. 2 Bar chart showing popularity of different types of loyalty programs
VII. STATISTICAL ANALYSIS
To make sure the quality of the data is great and it
is suitable for using multiple regression analysis
and other statistical analysis required to test the
hypothesis, some pre-test analysis has been
undertaken.
A. Pearson Correlation Matrix
As shown in Figure (3), there is a positive
significant correlation at (ɑ = 0.01) between the
study’s variables, however, there is no perfect
correlation between any of them, while the highest
value of pearson correlation was (0.739) which is
between Monetary and Point Based system.
Fig. 3 Pearson Correlation Matrix between different types of customer loyalty
programs ( Monetary Rewards, Point system, Tier System Reward, Charge an
Upfront Fee for VIP Benefits, Non- monetary programs,)
B. Variance Inflation Factor (VIF)
This test has been taken to ensure that there is no
strong correlation (Multicollinearity) between the
data collected. The result shown in table (3)
represents that Variance Inflation Factor (VIF) for
each loyalty program was less than 10 which means
there is no correlation issue in the data collected.
Table 3 : Variance Inflation Factor (VIF) between different types of customer
loyalty programs ( Monetary Rewards, Point system, Tier System Reward,
Charge an Upfront Fee for VIP Benefits, Non- monetary programs)
C. Reliability and Validity Assessment
Table (4) shows which To measures the internal
consistency for the whole mode, Cronbach
coefficient alpha values was estimated at 0.0.85, for
the point system 0.82, for the point system 0.73,
Tier system reward 0.76, charge an up-front fee for
VIP benefits 0.81, and for non-monetary programs
0.70. All the programs are acceptable.
Table 4: Cronbach’s Coefficient Values (ɑ)
D. Correlation Analysis- Relationship between Loyalty
Programs and Customer Retention
Here Table (5) shows that there are strong
positive relationships between Monetary Rewards
(r=0.712), Point Collection (r= 0.656), Tier System
Reward (r= 0.629), Charge an Upfront Fee for VIP
Benefits (r= 0.597). Non-monetary programs (r=
0.501), and the customer retention.
Table 5: Pearson Correlation between loyalty programs and customer
retention
E. Popular Loyalty Programs
From the data collected, Figure (4) shows that
Tesco Clubcard (n= 33), Nectar Card (n= 25) and
Starbucks Card (n= 17) are most popular amongst
some of the biggest Loyalty programs in the UK.
Fig. 4: Bar chart of popular brands that run loyalty programs in the UK
F. Trend Analysis
1) Age Group: It can be seen that Monetary Rewards is
more popular amongst the younger customers
(18-24). Point Collection and Tier System Reward
are more favorable by the (35-40) age group
customers.
Fig. 5: Age Group vs Loyalty Program
2) Shopping Frequency: : It is quite interesting to see
that people who shops less frequently likes short term
benefits such as, Monetary rewards whereas
customers who shops more frequently would opt for
long term programs (Tier System Rewards, Point
collection)
Fig. 6 Shopping Frequency Pie chart
Fig. 7 Shopping Frequency vs Loyalty Program
VIII. CONCLUSION
According to the findings of this research all the
loyalty programs are important and useful for
building and maintaining a successful customer
relationship. The survey has found that Tesco
Clubcard, Sainsbury’s Nectar Card and Starbucks
Card are the top three popular loyalty programs in
the UK. Also, from the data analysis (Multiple
regression analysis) it is found that customer
retention has benefited from all kinds of customer
loyalty programs ( Monetary Rewards, Point
system, Tier System Reward, Charge an Upfront
Fee for VIP Benefits, Non- monetary programs.
The major effect was for Monetary Rewards
followed by Tier System rewards followed by point
collection, and then charge Up-front fee for VIP
benefits and the weakest for Non-monetary
programs.
IX. RECOMMENDATIONS
Brands owners and marketers need to innovate
customer loyalty programs that echo customer’s
shopping attitude and their modern lifestyle. This
would increase their chances of keeping their
customers happy and loyal to the business and
create a customer for life.
To achieve this goal the author recommend the
following:
1. Businesses must try to keep their loyalty
program as diverse as possible due to their
clear impact on customer engagement.
Especially the monetary rewards program.
2. Businesses need to evaluate their targeted
customer market and focus more on what
their customers would want in the first
place. As it found my research. Tier System
Reward is more famous amongst the age
group of 25-40 whereas young customers in
the age group of 18-24 would like more of
Monetary rewards.
3. Due to the extensive use of smartphones
these days, having an app or ability to
collect/redeem rewards over the mobile
device is more welcomed by the modern
customer base.
4. Customers who shop 3 or more times in a
month are more likely to opt for Point
collection and charge Up-front fee for VIP
benefits, programs. People with less
shopping frequency tend to go for short term
monetary rewards.
5. Diversification of the loyalty programs to
attract more customers from different
demographics can also be an effective
approach.
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