“Assessing the use of loyalty schemes in the student nightclub industry”

Aman Kumra

Amankumra.com

hello@amankumra.com

Contents Page

1. Introduction …………………………………………………… 5

2. Literature Review ……………………………………………... 13

-2.1 - Relationship marketing

-2.2 - Loyalty

-2.3 - Types of loyalty

-2.4 - Loyalty models

-2.5 - Antecedents of loyalty:

• Communication

• Conflict handling

• Trust

• Commitment

• Repetition

• Duration

• Community

• Demographics

• Product offering

• Importance

• Price

• Employee

-2.6 - Loyalty scheme examples

-2.7 - Why loyalty schemes

-2.8 - Achieving loyalty

-2.9 - Types of Loyalty schemes

-2.10 - Loyalty scheme strategy

-2.11 - Loyalty scheme design

-2.12 - Data exchange theory

-2.13 - Equity theory

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-2.14 - Rewards

-2.15 - Loyalty scheme trends

-2.16 - Data

-2.17- Loyalty scheme skepticism

3. Methodology ………………………………………………….. 82

4. Methods ……………………………………………………….. 92

-4.1 - Design

-4.2 - Interview preparation

-4.3 - Question types

-4.4 - Validity

-4.5 - Reliability

-4.6 - Pilot Interview

-4.7 - Interview setting

-4.8 - Interview analysis

-4.9 - Questionnare design

-4.10 - Sample selection

-4.11 – Data

5. Results Analysis ……………………………………………… 103

- 5.1 – Qualitative findings

- 5.2 – Internet Survey Analysis

- 5.3 – Conclusion of analysis

6. Recommendation………………………………………………. 127

7. Action Points ………………………………………………….. 133

8. Limitations …………………………………………………….. 135

9. References …………………………………………………….. 136

10. Appendix .. ……………………………………………………. 156

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Appendix 10.1

Appendix 10.2

Appendix 10.3

Appendix 10.4

Appendix 10.5

Appendix 10.6

Appendix 10.7

Appendix 10.8

Appendix 10.9

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1. Introduction

Research suggests the nightclub industry has under-performed with a gradual decline evident

over the last six years due to factors such as competition, over-supply, price-cutting and lack

of investment. Subsequently acquisitions, financial difficulties and refurbishments have also

resulted in the closure of venues for significant periods1.

The UK nightclub industry, valued at £1.6 billion in 20031 has increased to £1.825 billion by

20051, but since then started to decline at a slow rate, with admissions accounting for only

£179 million of the total value of the industry, a mere 10%. The decline is apparent due to the

smoking ban from July 1st 2007, the introduction of late-night alcohol sales in pubs and

supermarkets, the requirement of increased security/requirement for nightclub entrance

(therefore acting as a deterrent) and finally the average age in the UK increasing to 40. With

social trend changes of pre drinking at home, out of centre bars/pubs and the credit crunch

2008, cracks in the industry have begun to show.

The UK had an estimated 2000 clubs operating in 2006 (Appendix 10.1), with the largest 9

companies owning 11.2% of them, consisting of 220 venues collectively.

Although due to the economic downturn CanDu entertainment and Summit Clubs went into

administration from March 2008, accounting for 36 venues nationwide, most of which are

well-recognized brand venue names.

The nightclub industry is broken up into three major types of clubs:

1. Small independent clubs: Less than 500 capacity, owned and managed by a private

company, part of a chain of venues and part of a holding company or just a single unit.

2. Independent super clubs: Over 1000 capacity, owned and managed by a private

company. This can be part of a chain of venues usually part of a holding company or just a

single unit.

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3. Record label owned super clubs: Over 1000 capacity, owned and managed by the

recorded labels themselves. Tends to have fewer locations than major leisure companies but

specializes in the dance music. E.g. Pacha, Studio 54, The Hacienda club. These clubs

generate high profit levels through the sales of the music rather than within the venue itself.

Although with today’s music download and pirate music industry taking off, profits have

seen a dramatic fall.

It is the second type of club this research will be focusing upon – the independent super club,

based within a city population greater than 2 million and over 50’000 students in full or part-

time education. This will allow for a large enough sampling frame, while still targeted and

specific. Potential major cities of research originally included Manchester, Liverpool, Leeds,

Nottingham, Sheffield, Birmingham and Newcastle, however as time and accessibility were a

limitation, the sample frame was narrowed to Liverpool. The time frame furthermore narrows

the search as a majority of students only reside in the city of study during term time,

consisting of 32 weeks out of 52. The 32 weeks are split into 3 terms of 12, 12 and 10 weeks,

with each semester seeing a activity peak at the start, followed by a trough towards the end,

due to assignments and exams. Each semester first of all sees a reduction in social outings as

student loans drop for each term, secondly the requirement for socializing drops after the 1st

semester and finally exams occur at the start of term 2 and throughout the 3rd term.

Although even with these peaks and troughs, an average student income of £8333 in 2004/51

(22% of which is paid work) with most drinks prices less than £1.50, it has been stated that

£50 tends to be the limit for 42% of hardcore/regular and sporadic clubbers, with some 16%

of hardcore/regular clubbers will spend around £100 on a night out1.Venues are still looking

for new student themed nights in order to fill an otherwise empty venue. Although no figures

are available for an average student spend per night.

Despite the downturn in sales, some clubs have led the way by increasing revenue

through creating a new Unique selling point (USP). Clubs have transformed to all round

leisure experiences increasing the hedonistic and experiential feel of venues. For

example, combining a digital cinema in a café setting, dance club, bar and social club

under one roof as the State Club in Gainsborough, Lincolnshire has recently achieved

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with great success2.

This is one way in which clubs can increase repeat visits, as research indicates only 2.7% of

adults (from 25,000 surveyed) consider themselves heavy nightclub users i.e. frequent

nightclubs more than once a week (Appendix 10.2). Venues are inclined to cater for student

events on a mid week basis (Monday to Thursday) due to a lack of trade from the weekend

groups. Through greatly reduced drink prices and late opening hours they intent to attract a

clientele, which would previously remain, untouched and therefore generate large amounts of

revenue.

Venues generally outsource the promotion of mid-week events to external events companies

due to the scale of the required network, distribution and PR in order to ensure a successful

event. These event companies tend to be ran/managed by university students allowing greater

access to the target market. The general rule being the door charge is retained by the events

company and the bar revenue is retained by the club (anon).

Both students and venues, are easily contacted and persuaded to participate in the study.

Venues will gain some mutually beneficial information upon the publication of the

dissertation title and students with very little money, although large amount of spare time will

be easily persuaded with very little incentive required. Due to the researchers own

connections/network of club proprietors as well as a large student based network, subjects are

not foreseen to be a problem.

The nightclub industry strives to encourage repeat trade through mutually beneficial

relationships. For example new customers require greater time and investment, older and

repeating customers are likely to remain loyal, as research demonstrates, and attracting a new

customer is 3-5 times more costly than retaining an existing customer (Orr, 1995;O’Brien and

Jones, 1995; Fierman, 1994;). Customer loyalty cost advantages are generated by reduced

service costs, increased spending (purchasing), lowered price sensitivity, and elevated word-

of mouth referrals (Reichheld and Sasser, 1990).

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In modern society, it may be suggested that customer needs and tastes are ever changing, thus

as trends and fashion continually undergo daily transformations, so do clubs. Locations, staff,

music policy, drinks prices, celebrity endorsements, late night license times, external

promoters and live performance all contribute to the success levels of venues and the extent

to which it is fashionable at that particular time. Clubbers are more likely to be interested in

music, fashion, technology and attracting the opposite sex1.

The chief nightclub competitors include CandDu entertainment, Luminar leisure and Novus

leisure Ltd, who all operate loyalty schemes, however the effectiveness of their schemes can

be scrutinized as they do not push for sign up and overall benefits are both minimal and

limited.

Customer interaction with venue is often short lived, thus, encouraging customer sign up to

loyalty schemes poses potential difficulties and several challenges. Practical considerations

such as entrance queue time, paying time and leaving the club means the consumer may not

desire to be made to wait any longer, thus trying to encourage involvment within the a loyalty

scheme may merely be seen as a time consuming nuisance.

Successful loyalty schemes within the nightclub industry have been illustrated in particular

by BlueBox leisure through the trial of 1000 membership cards within a group of lap dancing

venues. Despite the trials being small-scale, usage of the card was high; on average 4 - 6%

per week, to speculate this could due to the lucrative offering valued higher by the customer.

Rewarding loyalty is also very common within the travel industry, specifically airlines

and hotels (Kim et al. 2004). Loyalty scheme success has also been demostrated in the

retail and supermarkets industries (Byrom, 2001; Rowley, 2007). Although supermarkets

tend to dominate the thought of loyalty schemes, there has been noted failure with

schemes within Asda, Sainsburies and Co-Op (Byrom, 2001). Jardine (2000) stated that

‘recent research has shown that loyalty cards are a misnomer – they simply do not make

customers more loyal’. This has also been supported by the view from Dowling and

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Uncles (1997), regarding the effectiveness of frequency user programs. Finally a study by

Baloglu (2002), showed that only 1/3rd of loyalty scheme members of a casino, where

actually truly loyal.

Existing studies available on loyalty schemes are mainly those focused within the

supermarket chain industry, however research illustrates that with the majority of products

being fast moving, consumer goods and customers gain loyalty to certain brands/product

within the store rather than the store itself (Byrom, 2001).

The research question then arises from the debate between Tesco's existing success with

their club card and the existing success of a trial loyalty card with Bluebox leisure, versus

opposing views that club cards are not successful in gaining commitment (Uncles et al.

2003) and that immediate monetary gratification is the major influence on whether to

sign up to such schemes (Jang and Mattila, 2005).

Similar leisure based experiences such as hotels, gyms and theme parks have undertaken

loyalty schemes with mixed success. Close related industries such as hotels have shown that

loyalty schemes do in-fact work. Based upon a simple service proposition, the hotel industry

has accepted and used loyalty schemes in order to leverage influence within customers very

successfully. For example, the Hilton group, offer a scheme called the Hilton Honors by

which customer retain points and airline miles which can be redeemed for benefits such as

late check out, express check-in, access to a guest manager (assists in unique special

requests), free newspaper, experience rewards and free stay for spouses. A VIP level service

is also available for high repeat purchase guests, with benefits including free internet access,

free room upgrade, extra points per purchase and extra value package deals in luxury

locations.If similar application of such schemes were to become available within the

nightclub industry, it would alter the ways in which customer relationship marketing would

be applied.

The average admission price in 2006 was £10.251, the target audience is between 18-24

and in part or full time education, which accounts for 1/3rd of all 18-24 years olds1. It has

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been stated that spontaneity, pursuit of a challenge, novelty and change are key

determining factors in the decision-making process1. The key determinants of nightclub

loyalty will be the key focus of this study and will therefore gain insight into not only the

decision making process but also into lucrative new potential avenues of marketing.

This study will focus upon venues which primarily offer dancing, where drinks are available,

with late licenses past 1am, alongside there being an entrance fee applicable and potential

capacities of over 500 people.

Little information is available regarding the nightclub industry in relation to customer

retention and previous loyalty scheme trials, however, this gap in the literature poses the

potential for scope within this particular sphere, thus could prove extremely beneficial to

nightclub proprietors and event promotional companies.

The scope of this study is to investigate the use of loyalty schemes from both a consumer

and business perspectives in order to give a holistic view.

Nightclub management will gain a perspective of what influences consumers into their

venues, allow venues to alter its product offerings in order to match consumer wants and also

gain some unique ideas into ways of which to implement, manage and market loyalty

schemes. Promotional companies will also gain the same information, with possible

implementation ideas/strategies for multiple venues spread over various nights.

It is these potential ideas and strategies that is the purpose of this research. The unique

outcome will be:

• Guidelines which can be easily understood and implemented by management

• Unique marketing ideas

• Unique insight into venues retaining customer value to venue rather than with external

promotional companies

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• Future uses and benefits

• The use of new technology to encourage loyalty

• True consumer understanding

• Never before researched information

• Large scale research allowing greater depth of knowledge

• Cost free information to companies

• Efficiently carried out and well presented information

Customer wants are generally over-looked in this industry, with offerings generally including

1 low priced free drink or small discounts upon entry. Most offerings originate from lowest

possible cost options rather than looking at consumer views. This study will allow a true

understanding of what is required in order to encourage repeat business to 1 particular club or

across of range of venues and night. Therefore empowering consumers in communicating

with venues, in order to gain a greater perceived benefit, specifically addressing the key

factors which appear the most luring and appealing to customers in order to utilize the

scheme and investigate the fundamental needs of the venues.

The major areas into which we aim to investigate are:

Elements that encourage sign up to loyalty schemes

• Would peer usage encourage sign up?

• What factors would encourage sign up to loyalty schemes?

• What limiting factors would there be for sign-up and usage of loyalty schemes?

• What methods of sign up would be best?

Expectations of rewards to loyalty schemes

• What benefits would be required in order to use the scheme?

• What expectation are there currently to other related schemes?

Nightclub perspective

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• What are the advantages and disadvantages of a loyalty scheme to a nightclub or

customer?

• Is it financially worthwhile running loyalty schemes?

• Do loyalty schemes increase the loyalty to a nightclub / brand?

• Do loyalty schemes increase spend per customer, also integrating product line

extension as a means of increased revenue?

• What limiting factors would clubs face?

• What benefits would clubs be willing to offer?

• What previous experiences have clubs had with schemes and what are there

current opinions?

• Do loyalty schemes increase loyalty of peers/surrounding people?

Focus groups, in-depth interviews and internet-based questionnaires will be the major

source of information. The two very distinct groups of subjects (club marketing staff and

students) are accessible and easily managed, therefore allowing speed and quality of

results to be maximised.

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2. Literature Review

The major area this research proposal aims to investigate is loyalty schemes. As early as

1892, customer loyalty has had major business significance, with noted statements such

as:

Profit in business comes from repeat customers, customers that boast about your

product and service, and that bring friends with them. (Lowstein 1995, p9)

Evolution from the 1960's view of simple transactional based marketing, has led to the

view that customers must be seen as long-term assets, and therefore relationship

marketing strategies must be undertaken. This long term, cost effective route is a

complete contrast to previous passive marketing techniques (McIlroy and Barnett, 2000).

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Many factors alter the consumer decision-making process including price, location and

convenience (McIlroy and Barnett, 2000). Cost is generally considered to be one of the

major factors that influences customer choice, although recommendations and a close

relationship all play a big part too (McIlroy and Barnett, 2000). Especially in the

nightclub industry where the majority of customers are brought in through external

promoters with strong links and networks within the community of people they wish to

frequent the club. It is becoming more important for venues to retain their relationships

with customers on a one-to-one basis, rather than relying on external links. Even when

busy and profits are seemingly high, venues need to start establishing their relationships,

in order to benefit in the future.

2.1 Relationship marketing

Original views of relationship marketing stem back as far as 1983, when Berry (1983),

viewed relationship marketing as a strategy to attract, maintain and enhance customer

relationships. Supported by the more current and highly recognized view of Gronroos

(1994),stating the aim of relationship marketing is to establish, maintain, and enhance

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relationships with customers and other partners at a profit, so that the objectives of the

parties involved are met.

The objectives of each stakeholder varies as the firm’s aim is to gain insight into

consumers, target a specific customer, generating greater value proposition differentials

and therefore more precise market segmentation information than currently exists

(McIlroy and Barnett, 2000). Customers on the other are aiming to do the exact opposite

and not fall into the segmentation trap like many businesses. Customers themselves

segment, as no one business meets all of their needs or is always making them the best

offer (Rowley, 2007).

In general it is believed that if customers perceive that a provider is making an

investment in them, they in turn made a similar investment in the provider, and those

investments led to loyalty (morris et al. 2006), although the type of resources invested

determines the nature of the relationship (Rowley, 2007). Morris et al. (2006) suggested

that this equitable investment from both parties led to an implied contract, in this case,

between the hotel and its guests. The creation of this mutual reward system (Rapp and

Collins, 1990) and unspoken contract is what all firms are striving to achieve.

Relationship marketing investigates the relationship between customer loyalty and

satisfaction, profitability and customer retention (McIlroy and Barnett, 2000),

encapsulating a long term approach to marketing (Berry, 1983), in order to gain a share

of the customer, not a share of the market (Peppers and Roger, 1994).

Blomqvist et al. (1993) proposed the following key characteristics of relationship

marketing: every customer is considered an individual person or unit; activities of the

firm are predominantly directed towards existing customers; implementation is based

on interactions and dialogues; and the firm is trying to achieve profitability through

the decrease of customer turnover and the strengthening of customer relationships.

2.2 Loyalty

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Loyalty has had many different definitions:

loy·al·ty mar·ket·ing

n. phrase. The business process of identifying, maintaining and increasing

the yield from best customers through interactive, value-added relationships

"...loyalty occurs when the customer feels so strongly that you can best meet his

or her relevant needs that your competition is virtually excluded from the

consideration set and the customer buys almost exclusively from you - referring to

you as their [venue]...."

(Shoemaker and Lewis, 1999, p349).

Jacoby and Kyner (1973), described loyalty as the biased (i.e. non-random), behavioral

response (i.e. purchase), expressed over time, by some decision making unit, with respect

to one or more alternative brands out of a set of such brands and is a function of

psychological (i.e. decision making, evaluation) processes.

“ … a deeply held commitment to rebuy or repatronize a preferred product or

service consistently in the future, causing repetitive same brand or same brand-set

purchasing, despite situational influences and marketing efforts”

(McMullan and Gilmore, 2008)

Brand loyalty is generally considered the ultimate desirable marketing-based outcome

from strategic marketing activities (Chaudhuri, 1999; Gwinner et al., 1998; Kumar, 1999;

Mittal and Lassar, 1998; Reichfeld and Schefter, 2000; Strauss and Friege, 1999).

Loyalty itself is a feature of people, rather than something inherent in brands (Uncles et

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al. 2003) and therefore brand loyalty is considered an intangible asset (Wernerfelt, 1991,

p229). It is achieved by customers ability to receive what they want, when they want it

(just in time), a perfect delivery each and every time with the desired levels of service

that appeal to the customer (Morris et al. 1999).

The costs of retaining customers drop through a reduction in service costs, increased

spending (purchasing), lowered price sensitivity, and elevated word-of mouth referrals

(Reichheld and Sasser, 1990; Jang and Mattila, 2005), which has been demonstrated by

supermarkets' most loyal customers, who are reportedly 1000 times more profitable than

its least loyal (The loyalty Guide, 2008).

High contact services lend themselves to the development, over time, of social bonds

between provider and client (Patterson, 2007). From the customer perspective, loyalty at

an emotional level reflects a feeling that no other organization could match the

complexity of their needs more precisely (Hoffman and Lowitt, 2008), with the most

common techniques currently being: fair treatment, value addition to core service and

high levels of customisation (McIlroy and Barnett, 2000).

There are many anticedants to loyalty with major papers including Dick and Basu (1994),

stating cognition, affect and behavioural intention as the 3 linear steps to loyalty; Oliver

(1999, p34) who focuses the research on situational loyalty with characteristics such as

commitment, preference and consistency; Ndubisi (2007), who focuses on 4 key virtues -

trust, commitment, conflict handling and communication; Taylor et al. (2004), who

suggests major factors are satisfaction, value, resistance to change, brand affect, trust, and

brand equity on perceptions of customer loyalty and finally Clark (1997) who suggested

6 points to achieving this:

• Anticipating and fulfilling customer needs and wants better than competitors

• Providing real customer experiences

• Providing real emotional experience

• Experiences as distinct market offerings

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• Experiences as interactions

• Experiences as engaging memories

It is the overall aim of a company to ensure that the adequate level of stimulation is met,

in order for individuals not to try and increase the stimulation level by seeking new or

novel experiences/challenges (Patterson, 2007). The optimum stimulation level is a

property that characterizes an individual in terms of their general response to

environmental stimuli (Raju, 1980, p. 272).

2.3 Types of loyalty

Rowley (2005), outlined 4 types:

Type of loyalty Attitude Repeat patronagePositive High HighLatent High LowSpurious Low HighNone Low Low

Within positive loyalty, there are 4 subsections, described in table below:

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Table 1: Rowley (2005)

Positive loyalty describes an overall positive view, whereas, inertial loyalty has a neutral

loyalty, consistent behavior and no affinity for the brand (even if they do not switch)

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Table 2: Rowley, 2005

Captive:

Characterized by customers with little choice in product or service selection, or low

switching opportunities/high switching costs e.g. public sector business’, previous

transport, telecommunications, mortgages, low frequency purchases such as cars or

service with few occasions of interactions. The brand experience by customer is neutral

and can be easily poached by competitor (Rowley, 2005).

Contented:

Characterized by continued involvement although customers do not subscribe to

additional services or expand their expenditure. Each purchase is judged on individual

merits while little word of mouth support is provided. From a firms perspective brand

extension is hard and customers are not very profitable due to high portfolio of products/

low brand engagement. In order to gain loyalty firms must increase purchases in order to

strengthen relationships, with possible recovery services needed, in order to demonstrate

loyalty to customer (Rowley, 2005).

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Convenience seekers:

Characterized by frequent re-purchases, for usually low involvement and routine

purchases. Convenience dominates the decision-making process, providing high

availability and strong reputation, showing that distribution methods are crucial e.g.

supermarkets competition dominating over convenient locations through familiarity,

brand and trust in service and in subconscious. Convenience is a significant factor in

switching as customers may switch even when they are satisfied with their current service

provider (Rowley, 2005).

Committed:

Characterized by high repeat purchases and positive word of mouth, customers create a

positive ambience in the service sector which is very important in service settings where

customer-to-customer interaction is high as value is added to the brand (Rowley, 2005).

This is especially relevant to the nightclub industry where customers are considered a

major part of the service setting and experience.

Customers have a high resistance to other brands, with high switching costs and a high

risk associated with switching. These customers are more susceptible to marketing

communications and may even pass on embedded marketing message to other customers

or potential new ones, which is a great support for viral marketing efforts. They are as

enthusiastic to continue the relationship, as much as the venue, as the benefits are

mutually received by both parties. However in the long run the expectations of benefits

are much higher, and high expected consistency (especially when offered to new

customers) e.g. mobile phone deals (Rowley, 2005).

2.4 Loyalty Models

Goodwin and Gremler (1996) stated that a strong relationship increases perceptions of

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quality, customer satisfaction and loyalty to service firms, symbolised through frequency

and continuous contact with the service provider over extended time periods. Although

the perceptions of the relationship is important from a consumer view point, the

involvement levels alter the nature of the relationship (Dagger and Ward, 2007).

There have been many models and theories suggested for the antecedents for a

relationship and strength of the loyalty pertained.

Uncles et al. (2003) derived 3 models:

1. Loyalty as primarily an attitude that sometimes leads to a relationship with the brand

2. Loyalty mainly expressed in term of relative behavior (i.e. the pattern of past

purchases)

3. Buying moderated by the individual's characteristics, circumstances, and/or the

purchase situation

1. attitude driven behavior: requires a constantly favorable set of beliefs towards a brand,

which is easy to measure (Uncles et al. 2003). This is supported in the industry due to

easy of strategy and implementation, and it is also less susceptible to negative

information (Ahluwalia et al. 1999). This type of loyalty is key in franchises such as

pizza hut and federal express (Gremler and Brown, 1999) where revenue streams are

steady and predictable.

Customers create a relationship with brands, even to the extent to which a partnership is

created. This varying level depends on the proximity of the buying group’s requirements,

meeting the value proposition, or association with the brand identity. For example the

right club on the right night, with the right people. Also shown by Harley Davidson bikes

(Uncles et al. 2003).

Uncles et al. (2003) found that this was not applicable to low risk, frequent purchases,

impulse buying, variety seeking customers or important/risky decisions. Although

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revenue does not equal profit, and a high repeat purchase brand is not always required

within certain sectors e.g. premium/members only bars do not need a brand that appeals

to the masses.

2. purchase patterns/behavior: is based on past purchases and not a direct commitment to

a brand. Most customers are polygamous i.e. loyal to a portfolio of brands in a product

category, neither promiscuous or monogamous (Uncles et al. 2003).

Stochastic modeling techniques are used to map patterns of buying through entire

markets and it was shown that trial and error purchases occur until a satisfactory brand is

chosen. Then repeat purchase of a particular brand occurs due to high search costs (time

and money) but not due to high commitment (Uncles et al. 2003). If that particular brand

is out of stock then a functionally similar brand from the portfolio will chosen (East,

1997).

This theory is however widely argued as it does not take into consideration relationships

or bonds created (Uncles et al. 2003). Although Oliver (1999) stated that satisfaction and

behavior are still not enough to predict true loyalty. It can therefore be assumed that

further dimensions are required when predicting loyalty.

3. Characteristics, circumstances and situation:

A strong attitude towards a brand is only a weak predictor of repeat purchase potential

and other factors play a part, including circumstances such as budget and time,

characteristics such as variety, habit, need to conform, risk tolerance, and situational

factors such as product availability, promotions/deals, usage occasion (Uncles et al.

2003). These views have been contradicted by Oliver (1999) who considered situation

and characteristics to play only a minor part.

The differentiation in models 1 and 2 was support by Taylor et al. (2004) who also found

that there are 2 types of loyalty - behavioral and attitudinal, with antecedents summarized

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in the diagram below.

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Diagram 1: Taylor et al. (2004)

Whereas, Dick and Basu (1994) combined the two categories and suggested that loyalty

is determined by the strength of the relationship between relative attitude and repeat

patronage, and that it has both attitudinal and behavioral elements. Gomez et al. (2006)

found that affective loyalty (attitude, satisfaction, trust and commitment in his case)

required a previous positive attitude to consider a repetitive behavior as true loyalty. With

virtually no empirical research discussing in greater depth the strength and sense of this

relationship between attitude and loyalty, conclusions are hard to come by.

Many other models have been suggested including Ball et al. (2004), symbolizing the

factors affecting loyalty (Diagram 2). This model was further revised by Ball et al.

(2006), who's conceptual model suggested satisfaction, through perceived value (of

loyalty schemes), increases loyalty (Diagram 3).

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Diagram 2: Ball et al. 2004

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Diagram 3: Ball et al. 2006

In this revised model, empirical data shows that personalization is an anticedant of trust,

satisfaction and loyalty, adding physiological comfort and increases the physiological

barriers to switching. Ndubisi (2007) also supported these finding through the 4 stage

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model (Diagram 4) with results indicating that 585 bank questionnaires, showed positive

correlation between the 4 pillars and loyalty.

Diagram 4: Ndubisi, 2007

One final model by Ward and Dagger (2007) displayed the antecedents to relationships

through diagram 5, which seems to hold similar characteristics to the antecedents of

loyalty.

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Diagram 5: Ward and Dagger, 2007

Chaudhuri and Holbrook (2001) proposed a model of brand loyalty suggesting that

behavioral loyalty tends to lead to greater market share, while attitudinal loyalty leads to

higher relative brand pricing. Also supported by many authors who found that loyalty

schemes tend to provoke behavioral loyalty or calculative commitment, rather than

affective loyalty (Bolton et al. 2000; Dowling and Uncles, 1997; Mattila, 2001; McIlroy

and Barnett, 2000; Whyte, 2004). This is not acceptable as ultimate customer loyalty

should be considered a function of perceived product superiority, personal fortitude,

social bonding, and synergistic effects (Oliver, 1999b, p34).

2.5 Antecedants of loyalty

Communication

This refers to the ability to provide timely and trustworthy information (3) with

interactive dialogue occurring during pre-selling, selling, consuming and post-consuming

stages (Anderson and Narus, 1990).

The overall aim is to move the brand into an acceptable brand category, which may not

tie in with values, but just make it easier to remember (Uncles et al. 2003), such as:

• Securing repeat purchase

• Reinforcing a purchase already made

• Increasing loyalty

• Encouraging recommendations (forwarding)

• Providing information - reduce cognitive dissonance

• Information on market

• Create community of customers

(Merisavo and Raulas, 2004)

25

The benefits of strong communication include:

• Active brand communication helps to build and strengthen brand loyalty

• Marginal costs compared to print mail

• Targeted and personalized communication

• Communication with existing customers, who want to hear from us, as sign up is

usually voluntary.

(Merisavo and Raulas, 2004)

During the early stages of development, communication is focused on building

awareness, develop consumer preference (by promoting value, performance and other

features) to convince interested buyers and encourage them to make the purchase

decision (Ndubisi and Chan, 2005). Organizations aim to move towards communicating

ever complex and intangible messages as part of brand management strategies (Davis,

2000; Goodchild and Callow, 2001). The final stage of securing brand loyalty with

regular communication leads to the creation of dialogue (Merisavo and Raulas, 2004).

The most popular form of internet communication is in the form of newsletters, providing

sales offers or new product offerings. This has proved successful providing customers see

a gain from the relationship (Merisavo and Raulas, 2004). Email communication tends to

concentrate on dynamic content, win-back campaigns tools and methods making online

advertising more measurable and effective (Rowley, 2005), allowing for a low key

transmission of information and opportunity to create strong image with a low cost of

production i.e. just newsletter design and database maintenance. However response rates

have been shown to be low (Merisavo and Raulas, 2004).

Rowley (2005) states each channel of communication comes with a unique set of

challenges: as a rule, consumers don't like junk mail, or 'spam' (unsolicited commercial e-

mail), or unsolicited sales telephone calls. They complain about their mobile phone being

26

invaded by irrelevant advertising messages, and they do not want companies "muscling

in" on their private social networks without permission. They do not want to run up

bandwidth bills for receiving unwanted videos by e-mail, and they do not want their PC's

instant messenger software popping up unwelcome adverts from companies they've never

heard of or dealt with. There have been many concerns and issues associated with email

communication. Jang and Mattila (2005) study showed the main concerns as:

• Expecting lots of promotional emails

• Difficulty in redeeming rewards

• Don’t like to carry the reward card

Merisavo and Raulas (2004), supported these concerns as they found the main concerns

to be intrusion, privacy and security of data, possibly due to low cost of email, therefore

SPAM emails were created.

Some companies have taken the view of wanting customer to regard them better,

therefore not always sending a sales email, instead just a thoughtful caring note

reinforcing the strength of the relationship (Merisavo and Raulas, 2004). A friendly,

helpful and engaging tone is key here, not just shouting out offers "talk, don’t shout".

This leads to the maintenance of goodwill and interest to customers (Merisavo and

Raulas, 2004). Although this all depends on prior satisfaction, magnitude of customer's

investment in relationship and alternatives available (Rusbult et al. 1998).

Conflict handling

Dwyer et al. (1987) defined conflict handling as a supplier’s ability to avoid potential

conflicts, solve manifest conflicts before they create problems, and discuss solutions

openly when problems arise. This theory is based upon encouraging customers to

complain, therefore increasing loyalty (Duffy, 2005).

Satisfaction was defined by Gomez et al. (2006) as an affective condition resulting from

27

a global assessment of all aspects comprised in the relationship in which the consumer

takes part. A show of satisfaction is an indicator of customer buying intentions. Bolton et

al. (2000), found that loyalty schemes raised customer satisfaction and reduce

dissatisfaction when problems occur. Ndubisi and Chan (2005) supported this finding by

stating the relationship between conflict handling and loyalty was demonstrated through

trust and perceived quality of relationship.

Negative emotions can hinder the success of loyalty schemes through increases in the

frustration construct, which is a highly negative emotion that occurs when a potentially

rewarding act or sequence of behavior is blocked (Colman, 2001, p. 291). It decreases the

willingness to engage in repeat purchases and word-of-mouth recommendations (Stauss

et al. 2005). Frustration also occurs blocking or preventing a potentially rewarding or

satisfying act or sequence of behavior (Colman, 2001, p. 291). Frustration arises from a

concept from psychoanalysis in the Freudian tradition - unpleasant inner conditions. This

may arise when the customer does not receive the promised reward or if the indicated

benefit proves worthless to him (Stauss et al. 2005). This could also lead to aggression, as

a potential consequence of frustration (Dollard et al. 1939).

Mattsson et al. (2004) investigate the influence of anger, sadness and fear of

complainants on loyalty. These contributions show that specific and highly negative

emotions from customer experiences may represent an alternative or special case of

dissatisfaction and possess a stronger predictive power with respect to the negative

loyalty effect (Stauss et al. 2005).

Worst cases scenario in these cases is that 'terrorists' take advantage of every opportunity

to express their dissatisfaction within their social environment and thus can have a

particularly damaging effect on business (Stauss et al. 2005).

Stauss, 2004 found 5 aspects of differentiation, between satisfaction and loyalty.

(1) The satisfaction construct regards both positive and negative expectation

28

disconfirmations (satisfaction/dissatisfaction). In contrast to this, frustration is

exclusively the result of a negative expectation discrepancy.

(2) Dissatisfaction may refer to the whole spectrum of unaccomplished

expectations. But frustration only refers to the negative consumer events in

which the expected goal or reward is not reached.

(3) Frustration is defined as a strongly negative emotion. In this respect there is a

difference to dissatisfaction, where the arousal can also be weak.

(4) Dissatisfaction may appear ex post, without the customers being aware of their

expectations before the consumption. In contrast, frustration postulates ex ante

an explicit goal, i.e. the customers have a definite idea about the aspired

situation or the expected rewards.

(5) A necessary precondition of frustration – but not of dissatisfaction – is that the

customers assume that they will reach the aspired goal because of their

previous experiences or explicit promises by the company(Stauss et al. 2005).

Frustration incidents directly related to the loyalty program include: difficulty of access

(qualification barrier), impossibility of claiming the reward (inaccessibility), low value of

the reward (worthlessness) and being required to invest additional material and mental

costs in order to enjoy the benefits (redemption costs) (Stauss et al. 2005). As well as

favorable treatment of other customers, which could lead to feelings of discrimination.

For example customers may feel the company can wrongly focus its priorities on the

loyalty program. This could then lead to intensification of efforts, protest behavior

(intense frustration) or avoidance behavior.

29

QuickTimeª and aTIFF (LZW) decompressor

are needed to see this picture.

Diagram 6: Stauss et al. 2005

In this case, the most problematic situation arises when the participants choose avoidance

behavior without providing feedback, especially when related to loyalty schemes only.

If correct feedback is obtained through, upon complaints correct responsiveness and

approachability can lead to follow up loyalty and therefore modifies behavior. Tests have

shown that it made customers more loyal, and so increased purchase behavior (Divett et

al. 2003).Even in some cases no matter how well expectations are met, even if the

consumer is completely satisfied, defection is inevitable if they believe they can get better

value, convenience or quality elsewhere (McIlroy and Barnett, 2000), therefore

satisfaction does not equal loyalty

It is possible therefore to have satisfaction without loyalty, but hard to have loyalty

without satisfaction (Shoemaker and Lewis, 1999) e.g. happy but may not return next

time. Also satisfaction does not allows lead to retention, and visa versa (Oliver, 1999;

Anderson and Mittal, 2000).

Trust

Parasuraman et al. (1985), believed trust was a key factor in relationship building with

factors such as personal data being protected and safe supporting this .Macintosh and

30

Lockshin (1997) supported with the statement: trust allows a relationship to be built.

Although with bogus email marketing efforts and recent identity theft cases, with a string

of data losses by information brokerages, consumers are in a heightened level of caution

(Duffy, 2005).

Commitment

A high level of commitment appears when there is a rational bond (net profit) and an

affective bond (emotional link) in the relationship. Wilson (1995) observed that

commitment was the most common dependent variable used in buyer-seller relationship

studies, as well as Moorman et al. (1992) who defined commitment as an enduring desire

to maintain a valued relationship. Commitment can be classified as a condition to true

loyalty (Oliver, 1999), and therefore holds huge importance. Supported by Gomez et al.

(2006), they show a greater behavioral loyalty to a retailer and less behavioral loyalty to

competitors. Key characteristics include higher levels of positive attitude, satisfaction,

trust and commitment than non-participants.

Since, commitment is higher among individuals who believe that they receive more value

from a relationship, highly committed customers should be willing to reciprocate effort

on behalf of a firm due to past benefits received (Mowday et al, 1982).

Since the foundations of loyalty schemes are based upon trust and confidence it is a key

requirement to open up and engage with customers (Duffy, 2005).

Repetition

Oliver (1999) suggested that frequency and depth plays a small part in loyalty suggesting

mass repetitions are irrelative. However it is more to do with situational/opportunity

arises e.g. annual/seasonal sales (McMullan and Gilmore, 2008).

Barnes (1997) showed that increased personal contact results in increased relationship

31

strength, with each visit testing a firms ability to keep their promises (Bitner, 1995) of

quality, trust and commitment (Ward and Dagger, 2007). Through multiple encounters

relationships are developed, maintained and enhanced (Gronroos, 1990).

Duration

Dwyer (1987) showed that relationship strength moves along a continuum over time -

from awareness, to commitment and finally to bonding. Therefore strong relationships

grow incrementally over time (Bass et al. 1998). Smith (1998) supports this point by

stating duration is a driver of relationship commitment and in agreement Bolton (1998),

stated that long term repeat purchase would lead to high levels of cumulative satisfaction.

However habitual buying patterns does not always lead to loyalty (Ward and Dagger,

2007).

These study's results showed incidences where usage levels were low still lead to overall

high levels of satisfaction, which goes against the main body of literature. This only has a

major significance if the customer is likely to receive the same service from the same

provider (Ward and Dagger, 2007).

Community

A sense of community refers to a system of social support, through a firms’

communication leading to a reduction in customer uncertainty; enhances self-esteem; or

creates a sense of social connection to others (Patterson, 2007). Communities create

structured social relationships among brand users e.g. Harley Davidson, allowing the

transfer of support from organization to members (Rosenbaum et al. 2005). Firms that

promote social interaction between members show enhanced loyalty (Arnould and

Price,2000; Oliver, 1999; McAlexander et al. 2002). This can be due to the feeling of

belonging, belief that members matter to each other and to group, faith in needs will be

met by community (McMillan and Chavis, 1986). This is more commonplace in

luxury/high involvement brands (Rosenbaum et al. 2005).

32

There are many benefits to community systems:

Membership

This shows that consumers are willing to invested part of themselves in a group and they

are entitled to be apart of the group, however more maximum effect consumers must

strive for membership in order to generate a sensation when they join. This therefore

makes the membership a valuable asset. For example in high-end cars, consumers must

buy the car, before they are able to join the club and members are therefore considered

elite (Rosenbaum et al. 2005).

Loyalty schemes that permit customers to join without incurring fees or minimum

purchase requirements may be unable to generate feeling of membership among members

(Rosenbaum et al. 2005).

Influence:

Members must feel empowered, and a sense that the group has influence over them. In

some instances members are given the opportunity to communicate with senior

management e.g. car design at members events (Muniz and O'Guinn, 2001)

Integration/need fulfillment:

Members must be rewarded for group participation and the 2 rewards most coveted are

status and self competency e.g. skills from others (McMillian and Chavis, 1986).

Shared emotional connection

For an emotional connection to occur, the organization’s identity and history must fit

into each members sense of self-identity. This can be enhanced by displaying catalogues

33

and products in public views to enhance images (Rosenbaum et al. 2005).

Rosenbaum et al. (2005), showed there was a stronger communal sense between

communal or non-communal loyalty schemes members. Also, non-communal schemes

do not display passionate loyalty, although they do display satisfaction, they do not feel

they need to spread negative word of mouth and integrate firm into daily life (brand

portfolio).

Demographics

There has been many conflicting views as to whether consumer demographics are

correlated with brand loyal behavior (Snyder, 1991; Gameau and Sharp, 1995;

Lymberopolous et al., 2004) Although not much research has been conducted previously,

as this study showed that age, sex, and characteristics had no effect on relationship

strength (Ward and Dagger, 2007).

This has been disputed by Ndubisi (2005), who found women tended to be more loyal

than men. This is due to the psychological disposition of females indicating they may be

more brand loyal, especially in (social) service settings than their male counterparts.

Females place higher value on long term relationships and are more ‘feeling’ orientated

and therefore make decisions based on social values by taking into account the impact

their decision will have on others (Patterson, 2007).

Uncles and Ehrenberg (1990) found there was no difference in brand loyalty between

younger or older consumers in FMCG goods, while Wood (2004), found that 18-24 year

olds held higher levels of loyalty because older people are more conservative and less

willing to try new brands. Consumers’ values have changed, with the “older” generation

being more likely to exhibit loyal behavior than the younger generation; and a changing

nature of social relationships that define social status within a society, power

relationships within social groups and the roles people are expected to play at various life

stages (Moschis, 1994; Patterson, 2007).

34

Product offering

Natural loyalty-building characteristics are the key foundation of great products, great

service and a comfortable, welcoming environment that makes consumers feel good

(Duffy, 2005). It is expected that stronger relationships develop in high involvement

products or extended service encounters, as the scenario leads to more intimate

relationship based activity rather than role based activity (Ward and Dagger, 2007)

This study showed that 26.7% of subjects showed no relationship strength with cinemas

(representative of the hospitality industry). The study also showed that overall the cinema

came out weakest in terms of relationship strength suggesting that it is hard for individual

clubs to compete in such a fluctuating market. Certain industries are not always

conductive to relationship building, therefore leading to a misapplication of resources

(Ward and Dagger, 2007).

An important offering within the ‘servicescapes’ are ones that facilitate social

interactions between customers and staff , but equally important, between customers

themselves. For example many people refer to Starbucks shops as third home. Although

an extended engagement may have a negative effect on operational efficiency (Patterson,

2007).

Starbucks has built a great brand that has built natural relationships with customers that

ultimately create long-term loyalty (Duffy, 2005). This is not always possible for other

business such as hotels where firms are not restricted to the degree of customisation they

are able to offer to each customer. This is due to the requirement to keep unit costs lower.

Standardization also makes it easier for staff to maintain service standards as there is less

chance of service failure (Hoffman and Lowitt, 2008).

Importance

35

If the customer perceives the importance of a relationship to be high then they are more

likely to develop stronger relationship (Ward et al. 1997), with key factors including

bonding, empathy, reciprocity, trust, friendship, recognition, thoughtfulness,

understanding, time to listen, commitment, loyalty, shared values and the most important

factor (with highest influence) which is friendliness and consideration (Ward and

Dagger, 2007)

Although each industry has varying factors of importance, research will allow the

creation of customer profiles through segmentation, and thus allow the creation of

strategy based upon relationship development propensity (Ward and Dagger, 2007).

Price

Providing there is no level of dissatisfaction, loyalty, time, cost, money, lack of

alternatives and switching costs all stop consumers switching to competitive brands

(Oliver, 1999). Although when price is equal then service attributes become a key player.

It is at this stage where appropriate rewards should be handed out and it is also at this

stage where consumers feel more forgiving to faults (McMullan and Gilmore, 2008).

Lower levels of loyalty are more susceptible to price/promotions orientated and shoppers

who are more concerned about prices are less loyal, with high-income groups being more

loyal than low-income groups (East et al., 1995). McMullan and Gilmore (2008) found

that in a postal survey price was a major factor, with consumers comparing prices and

bargain hunting. In the same study, focus groups’ results found that reliability, speed of

service, technology, comfort were also major factors within high loyalty and each level of

loyalty demonstrated differencing factors and therefore a different strategy would need to

be applied.

Rowley (2005) identified 3 price perceptions in consumers:

• Pay high prices for some products, but low for others

36

• Pay low prices all year round, with no bargains

• Choose to pay lots at one retailer, but low at another

Which led to 3 types of spenders:

• Time poor - money poor people - who are cheap all time

• Time poor - money rich - who are ideal spenders

• Hi-low pricing - who are cherry pickers. Access pricing strategy is best used for

these consumers.

Employee

The only way a company can build a loyal customer base is by building committed

relationships with the employees responsible for serving those customers"3. This led to a

term coined loyal leaders (The Loyalty Guide, 2008).These are the influencers for

consumer sign up to loyalty schemes and must be maximized by ensuring relationships

are strengthened and high interpersonal relationships between employees and customer

leads to greater word of mouth behavior (Gremler et al. 2001). Although the general job

market trend is that people change jobs easier, facilitated by job recruitment firms. (The

Loyalty Guide, 2008; Ward and Dagger, 2007).

The days when management could expect undying loyalty simply because they have

employed someone have gone forever. And it has vital importance that now systems are

to be put in place, in order to manage and maintain the relationships, especially as these

employees are the worst paid and most under-appreciated (The Loyalty Guide, 2008).

2.6 Loyalty Scheme examples

Loyalty schemes originate as early as 1986 with S&H green stamps. By 1960's they were

3 www.bain.com - Frederick Reichheld, a Bain & Company [Accessed August 1st 2008]

37

the largest purchaser of consumer goods in world (Lacey and Sneath, 2006). The

commercialisation of these schemes began in the 1980's with frequent flier programs first

widespread attempts to get consumers to consolidate their buying behavior with a single

brand in a given category(Duffy, 2005).

Nowadays loyalty schemes have become widespread, even to the point of saturation

(Duffy, 2005), with successful examples including private label credit cards with value

added benefits, airline frequent flyer miles(Ferguson and Hlavinka, 2007), subway club

card which led to 50% more spend per head in US with club card-$7.85 v’s $5.25(Jang

and Mattila, 2005) and supermarket-based loyalty schemes which led to a 10-20%

increase in sales(Clark, 1997).

Passingham (1998), showed that there is currently multiple card ownership status for

each person(Byrom, 2001), AC Nielsen surveys supported this view to the extent that

97% of canadians participate in a minimum of 1 scheme (AC Nielsen, 2005), in the US a

total of 973 million people participate in loyalty schemes through 2000, then 1.3 billion

in 2006-4 times of the US population symbolising that an average household belongs to 4

schemes, even though there is only a 4.7% active participation rate(Ferguson and

Hlavinka, 2007).Rosenbaum et al. (2005) found that defection rates within highly loyal

customers, can be as high as 90%. In the USA, on average only a quarter of members

redeems their promotional currency (Loyalty marketing: boring or booming?: How to

turn customers’ antipathy around (2006).

Loyalty schemes are now considered a new form of new currency such as frequency flier

miles and diner’s club rewards (Dreze and Nunes, 2004). Used daily, provide a means for

customers to gain benefits of monetary value. It is now even possible to pay for

goods/services in this new style of currency i.e. points (Clark, 1997).

The loyalty scheme concept is based upon the materialisation of relationship marketing,

with an overall goal to increase fidelity to a particular brand (O’Malley,1999). In order

for a company to effectively implement such a scheme, they have to learn continuously

38

about their customers’ needs and expectations which are ever changing and often

unpredictable (McIlroy and Barnett, 2000). From such studies, it is then possible to offer

the customer enhanced value and therefore start to build a relationship (Morris et al.

1999).

Bolton et al. (2000) showed a positive relationship between loyalty schemes and

customer loyalty, wheras other literature rejected this hypothesis (Liebermann ,1999;

Divett et al. 2003; McIlroy and Barnett, 2000; Smith et al. 2003).

The ideal case for such scheme is to encourage customers to provide loyalty to the

company/brand, high levels of satisfaction, stay and be supportive of the company

(McIlroy and Barnett, 2000).

Discussions of customer retention seems to be dominated by loyalty programs and

customer discounts (McIlroy and Barnett, 2000), however research shows what really

drives repurchase is high quality customer service and well managed, strategically

delivered formal and informal communication (Vavra and Pruden, 1998, p 50).

When the first loyalty cards hit the market, uptake was huge and rewards for marketers

were high (Loyalty marketing: boring or booming?: How to turn customers’ antipathy

around (2006). This has led to the loyalty scheme market having decades of double-digit

growth but now there has been a slow down (Capizzi and Ferguson, 2005). Although

since 2000, there has been an economic upturn leading to software and marketing guru's

push for usage, an internet boom, and growing profits (Ferguson and Hlavinka, 2007).

Since airlines spend tens of thousands of dollar making rewards greater than industries

where spend is only a few hundred, it is not possible to apply the same frequent flier

program logistics (Duffy, 2005).

2.7 Why loyalty schemes

Customers are hard to win but easy to lose (The Loyalty Guide, 2008) and as previously

39

mentioned is it five times cheaper to retain a customer rather than acquire a new one. The

Pareto rule states that 80% of income is derived from just 20% of customers (anon).

Although these figures maybe slightly different for the nightclub industry, the philosophy

remains the same. The seemingly few ‘big spenders’ certainly in clubs where VIP rooms

are available, represent a high percentage of income. These customers are the key focus

for loyalty schemes.

This theory is supported by Reichheld and Sasser, in Lovelock (1992, p251) stating that it

is possible to boost profits by 100%, by retaining just 5% more of their customer, but the

big problem is these small percentage of customers seem to be the most promiscuous

customers (Dowling and Uncles, 1997).

Dowling and Uncles (1997) summarized the key benefits of loyalty schemes as:

1. Keep existing customer base therefore maintaining sales and profits.

2. Increase sales to existing customers,

3. Increase cross selling of other products/services within the company

With additional reasons including:

• Increase spend per customer,

• Repurchase more often

• Customer acquisition

• Customer retention

• Supplementing a marketing database

• Increase basket size

• Increase single brand loyalty

• Decrease price sensitivity

• Induce resistance to competition

• Reduce desire to consider alternatives

• Encourage word of mouth and endorsement

40

• Increase number of products bought

• Usage

• Product extension

• Increase purchase

• Expansion of relationship within the product range

• Repeat patronage

• Attract a larger pool of customers

• Create a stable customer base which is a core asset

• Furthering cross selling, creating database, aiding trade relationships, assisting

brand PR and establishing alliances.

• Increase share of wallet rather than market share of customer, through product

line extension/brand extension e.g. easy hotels, virgin etc.

(Clark, 1997; McIlroy and Barnett, 2000; Ndubisi, 2007; Peppers and Roger, 1997;

Selin,1987; Uncles et al. 2003)

Capizzi and Furguson (2005) stated that an overall scheme must have financial due

diligence and return-on-investment (ROI). Analysis which can be achieved by a reduction

in establishment costs(advertising and promotion), enrollment costs (IT hardware,

database creation and maintenance, servicing costs, management costs ), editorial and

production costs of loyalty magazines, direct costs of rewards and opportunity costs of

other marketing activities (Uncles et al. 2003) overall leading to greater profitability.

Duffy (1998, p441) found loyalty schemes "create a reluctance to defect", through a

feeling of affection for and attachment to the organization (Buchanan, 1974), supported

by Uncles et al. (2003), who also suggested loyalty schemes act as a defense against

further competition through creating a bond. Once a customer has found a service that he

or she enjoys and continues to use, results indicate there is less concern with seeking

alternatives and reduced responses to advertising or competitive threats (Newman and

Werbel, 1973; Sambandam and Lord, 1995).

41

Behaviorally-loyal customers act as information channels and advertising mediums,

informally linking networks of friends, relatives and other potential customers to the

organization (Shoemaker and Lewis, 1999). This is achieved through word of mouth with

benefits including a reduced requirement of advertising spend. McIlroy and Barnett

(2000), found that a satisfied customer could tell up to 10 people if satisfied.

Loyalty programs present a relatively inexpensive means by which an organization can

collect information about its customers (Hamilton and Howcroft, 1995) although benefits

are not always felt first by customer and instead by venues who gains insights (Rowley,

2005).

This was demonstrated by Tesco who are able to target the right financial services

products to the right customers at the right price. The Clubcard database gives a fantastic

list of people to go after and a sophisticated understanding of these customers (Rowley,

2007)

There is a strong requirement for upper management to support such schemes, with

correct systems and process in place, otherwise the decision making process becomes

slower especially as the scale of organizations become larger, organizations become more

remote from the principal decision makers (customers). For example smaller hotels may

know their customers in-side out, unlike larger scale hotels organizations (A structural

analysis of hotel sector loyalty programmes international. Journal of hospitality

management (2000) pp. 54-60).

2.8 Achieving loyalty

In order to achieve loyalty firms must learn continuously about their customers needs and

expectation which are ever changing , and identify key long term customers(McIlroy and

Barnett, 2000) “Happy customers are loyal customers; in order to keep them happy it is

necessary to know their needs and desires (Clark, 1997).

42

Choosing the most profitable customers and accurately targeting them and nurturing

them, while virtually deselecting the least profitable customers, is one way of vastly

improving bottom-line profits. It is therefore key to enhance value offering to these key

customers allowing firms to attract the most profitable customers. (Clark, 1997; McIlroy

and Barnett, 2000). Another way was to achieve loyalty is to convert convenience-based

loyalty into commitment, looked into by O'Malley (1998).

Both ways work well providing the value proposition is attractive enough (Loyalty

marketing: boring or booming? How to turn customers’ antipathy around (2006). This

only exist when the customer feels they are receiving better value than they would obtain

from another supplier (McIlroy and Barnett, 2000) i.e. via higher rewards allowing

greater access to brand and more variety (Uncles et al. 2003). Although, Kopalle and

Neslin (2003) found that customer benefits are not based on financial incentives and it is

"all about how you make them feel" rather than discount strategy / pricing schemes

(Fournier, 2002) I.e. receiving non-monetary benefits such as sense of exclusive

membership and enhanced status. Intangible benefits such as enhanced status and self

competency work best, but not for low involvement or repeat purchase goods

(Rosenbaum et al. 2005).

Loyalty programs have been reported as short-term price promotion, that only generates

monetary bursts in sales, although managers often believe that loyalty can be bought by

this type of inducement (McIlroy and Barnett, 2000). Supported by Hoffman and Lowitt

(2008) who found that firms can not just buy loyalty through reward programs, and must

create an attitudinal change. It is important to integrate such systems into business and

processes associated with CRM (Cuthbertson and Laine, 2004).

It is empirical that the marketer must first spend time and money generating program

awareness. The value proposition must then convince the customer to raise a hand and

opt in to the program. The marketer must distribute enrollment materials, build a loyalty

database to house customer information, and finally expend more time and money

crafting offers that encourage participation, redemption and loyalty (Ferguson and

43

Hlavinka, 2007). That said, the principles are quite simple: know your customers, reward

them for behaving in the way that you want, and don't reward them for behaving in any

other way (The Loyalty Guide, 2008).

The Loyalty Guide (2008), found that the qualities needed for success are:

• Rapid market penetration

• Delivery of attractive rewards

• Being the first in the market

• Building communication channels

2.9 Types of Loyalty schemes

There are 3 main types of loyalty schemes (The Loyalty Guide, 2008):

1. True coalition loyalty schemes: Independent of partners, these redeem currency

through operators, data is obtained through operator partners that do not have access to

others data, although operator can market to other partners on behalf of a partner e.g.

petrol station opening in new area, send info to local supermarkets.

2. Single operator loyalty scheme

3. Single operator plus partners: redeemed currency in various other stores

The trick with such coalition programs is to be the first to market, to offer real value and

not to overlook the weight of amalgamated everyday spend. Such companies are now

seeing the benefits of sharing set-up, processing and redemption spend of loyalty-

schemes by partnering with firms who offer complementary products (Loyalty marketing:

boring or booming?: How to turn customers’ antipathy around (2006).

Requirements for coalition loyalty scheme to work include:

• Greater interest in the programme

44

• Members have fewer cards to carry

• Members earn points more quickly

• A greater variety of rewards

• Concentrated, coherent promotions

• Time saved in development

• Lower costs of development

• Database run by professionals

• Sector exclusivity

• Coalition marketing campaigns

• Higher penetration rates

• Real cost benefits of coalition

(The Loyalty Guide, 2008)

International examples of successful coalition schemes include:

Nectar (UK)

Air Miles (all territories)

Payback (Germany)

S&H Greenpoints (USA)

Aeroplan (Canada)

GoldPoints Plus (Global)

eBucks (South Africa)

Fly Buys (New Zealand)

FlyBuys (Australia)

Malina (Russia)

Advantage Card (Australia)

BonusLink (Malaysia)

Buy and Fly! (UK)

SelektPoints (Middle East)

45

Pulse (Australia)

i-Mint (India)

Magna Rewards (Caribbean)

OKCashbag (South Korea)

Premium Club (Poland)

R&R (Kenya

(The Loyalty Guide, 2008)

2.10 Loyalty scheme strategy

The current trend is to focus on one group of society and bring together a band of

services and products that most suit them within a loyalty scheme (Loyalty marketing:

boring or booming?: How to turn customers’ antipathy around (2006).

Accenture research stated 3 loyalty strategies:

1. Align loyalty strategy with what matters most to target customers.

2. Recognize that price only buys volume but service earns continued loyalty.

3. Use your loyalty strategy as both a defensive and an offensive weapon.

(2000) A structural analysis of hotel sector loyalty programmes international. Journal of

hospitality management. pp. 54-60)

Sirohi et al. (1998) supports this view by stating that it may be necessary to differentiate

between strategies that attract new customers and those that retain existing customers

(Rowley, 2000). The service industry consists of multiple service encounters, which must

be transformed from a mere collection of discrete episodes into a relationship (Bove and

Johnson, 2002). Therefore it is the merchants responsibility to find ways to serve each

customer more effectively, more easily, and more satisfyingly (The Loyalty Guide,

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2008). This was summarized by the following statement, referring to the retail industry:

“Retail loyalty is about achieving a little extra goodwill, a slight margin of preference, an

incremental shift in buying behaviors” (p. 9)( Rowley, 2007)

As well as Duffy (2005) who stated that the aim of loyalty schemes were to make the

customer “think twice” before making the choice of one brand or the other

Rather than offering a simplistic discount or rebate program, a real loyalty program offers

the customer any number of incentives to allow the program operator to collect accurate

and useful data about their lifestyle, purchase choices, motivations, interests,

circumstances, and in many cases household and immediate family (The Loyalty Guide,

2008). Although, Loyalty programs with a strong economic focus and distinct customer-

value differentiation would only appear to be appropriate when there is a high percentage

of transactional customers, for whom the search is an acceptably priced solution, not an

emotional connection with the provider, for the primary focus (Stauss et al. 2005).

If a consumer actively feels positive emotions in association with a brand then they are

more likely to develop loyalty to it. Experience must add to their day in a positive way,

otherwise they will feel resentful being marketed to (Experiential Marketing, 2008). The

rediscovery of excellent service can even act as a differentiator (The Loyalty Guide,

2008), for example in luxury retail, leading to a 'rebirth in passion'.

Loyalty programs are not just quick fixes that can simply be bolted on and produce

measurable results immediately (The Loyalty Guide, 2008). The problem in this

marketplace is that most clubs offer discounts in the simple hope that it attract customers,

leading to repeat visits.

The key to discovering the true value of loyalty schemes is within the measurement of

customers lifetime value or potential value, over a lifetime. An increase in value over

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time, through more than a profit based analysis, ensures an efficient scheme. (The

Loyalty Guide, 2008).

Marketing to customers can also be difficult. The Loyalty Guide (2008) suggested the

practice of best customer marketing (BCM) is better than marketing to a general crowd.

The idea is to spend the majority of the marketing budget directly on customers who

bring in greater profit in order to increase spend per best customer or identify potential

best spend customers (who are under-spending), increase value to them, and thus increase

their spend.

However, it is important to first identify 5 key bands of customers (via spend, profit,

attractiveness) then aim to move the lower 4 bands to the top, therefore producing more

profitable shopping habits (The Loyalty Guide, 2008). Although a competing view was

suggested by Uncles et al. (2003), where it was proposed that customers moved along a

continuum, from customer brand buying(CBB) to customer brand acceptance(CBA) to

customer brand commitment (CBC), with multiple brands, placed along the continuum

within each product category (Diagram 7).

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Diagram 7: Uncles et al. 2003

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In order for loyalty schemes to be effective, brands must have the overall aim to grow the

size of the brand in order to make it acceptable to a large number of people (model 3 to

model 1, from diagram 7) through point of purchase, distribution to name a few. (Uncles

et al. 2003).

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Diagram 8: Uncles et al. 2003

Niche brands must aim to increase spend there position, leading to higher level of CBC's

in order to achieve super loyal brands where high commitment and repeat purchase exist-

high CBC and high market share (Uncles et al. 2003).

Transformation from model 1 to 3 occurs through initial and continuing customer

engagement with the scheme, and in turn their willingness to continue to identify with a

brand, organization or outlet (Rowley, 2007).

Stage 1 is placed towards the CBB side of the continuum, characterizing low loyalty.

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Customers look for immediate availability, low prices, promotional offers (e.g. online

airlines) displayed in model 3.

Stage 2 is placed in the middle of the continuum and characterizes model 2 (CBA).

Customers show little reason to develop exclusive loyalty to 1 particular brand. With

little/no brand distinctiveness in today’s market, too many companies are aiming to

become brand focused, which has led to a larger number of companies 'sitting' in this

category. Supported by Ehrenburg et al. (1997) who stated that there are few

functional/perceived differences between brands in customer’s eyes. Ferguson and

Hlavinka (2007) supported this, by stating that a firm must drive engagement as a

precursor to driving incremental revenue, retention and loyalty, through new offers,

partners and rewards.

This continuum does not account for the category selection process, with the first 1 or 2

purchases i.e. CBB, leading to habitual purchase cycle formation or unexpected events

such as new brands, low stock levels etc. This section is useful for brand message

portrayal to both users and non-users, portraying a favorable set of beliefs and used

highly by FMCG's, as it is better to be based on frequent satisfaction than valued based

beliefs (Uncles et al. 2003).

Diagram 9 shows the factors affecting the degree to which brand acceptance occurs.

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Diagram 9: Uncles et al. 2003

Overtime model 1 comes into play, moving to a greater attitudinal view, but still

secondary to functional features (Uncles et al. 2003).

Finally, stage 3 (CBB) displays value, physiological and social value more than function

i.e. nightclubs, luxury goods, life choices (education) an important brand component,

especially for early adopters.

Official Airline Guides (1998) showed that frequent flier program participants displayed

multiple loyalty to airlines and various frequent flier programs, although infrequent flyers

were more loyal, but less profitable, indicating that frequent purchaser do not always

represent loyal customers, supported by Hart (1999) supported this theory and found

customers do not always require relationships with a brand and what is a vital point for

one person may not apply to someone else.

The best way to start a successful scheme is to build on CBA to CBB, therefore allowing

loyalty program to reinforce the value proposition (Uncles et al. 2003).

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In order to move customers from CBB to CBC, Total Customer Experience must be

present. This is a totally positive, engaging, enduring, and socially fulfilling physical and

emotional customer experience across all major levels of one’s consumption chain. The

physical, emotional and value experiences contribute to level of loyalty, typified in

Diagram 10 (Mascarenhas et al. 2006) and the movement demonstrated in diagram 11.

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Diagram 10: Mascarenhas et al. 2006

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Diagram 11: Mascarenhas et al. 2006

A summary of these findings found in Mascarenhas et al. (2006) was:

1 Loyalty is not a one-step process, but a long ascending process consisting of many

sequential steps.

2 Each rung of the ladder is partial or quasi loyalty (e.g. repetitive behavior, brand

interest).

3 Loyalty can move upwards or downwards, depending upon how the customer

experiences the impact of the TCE variables at a given point in time.

4 Loyalty, therefore, is an interactive and interdependent process, a buyer-seller relational

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process generating relational equity.

5 Higher in the ladder, the stronger is customer loyalty.

6 Conversely, lower in the ladder, more vulnerable is customer loyalty.

7 Loyalty is an accumulative process, a step-by-step function.

8 Given the volatility of consumer preferences and lifestyles, an ascending loyalty is a

slower process than a descending one.

2.11 Loyalty scheme design

(2000) A structural analysis of hotel sector loyalty programmes international. Journal of

hospitality management. pp. 54-60) found that firms must address what customers want

as a value addition, while address the fact that they do not want to collect useless

information while acting quickly and effortlessly in order to enhance experience and treat

like individuals.

Oliver (1999) suggested 4 phases of plateau in loyalty development, which must be

overcome in order to achieve maximum loyalty. Attraction (sustainers) and push

(vulnerabilities) forces act at all times, and change at each stage. The first 3 phases have

been tested and substantiated, whereas the 4th phase remains untested (Dick and Dasu,

1994; Oliver 1999)

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Diagram 12: Oliver, 1999

McMullan, (2005) tested the action phase indicating that loyalty is only present when

there is evidence of each of the phases. This knowledge of the situational and mediating

effects allows managers to prioritize issues for action within each category of loyalty

development.

Humby et al. (2003) suggested many consideration when determining the design of

loyalty schemes, as discussed below.

Commitment and championing

Top board level managerial commitment must be achieved, followed by the briefing of

staff on role and importance and finally a proactive internal marketing campaign

(Rowley, 2007).

Integrity

In the case of Tesco, they found that integrity in the work, changed the decision makig

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process, development of product, management of stores, and, most important, the way it

serves its customers. (Rowley, 2007)

Innovation/evolution

A first mover advantage occurs with any new innovation, and evolution is a continuous

process and as seen with everything that happens to Clubcard it is an opportunity to learn,

to refine, to improve and move on (Rowley, 2007).

Multi-dimensional

This is a complex design system aimed to change behavioral and attitudinal loyalty,

through rewarding consumer behavior that the firm seek, resulting in an overall positive

event with impact. This can be used for luxury purchases (travel, holidays etc) or

mundane in store purchases (necessities) (Rowley, 2007).

Brand

Loyalty programs are active expression of the brand’s personality and its values. The

Clubcard is the reminder of Tesco in your wallet or on your key fob, with similar

branding as in-store. This builds visibility, customer interaction, and a strong image

(Rowley, 2007).

Contract/value

A loyalty scheme is more than just a scheme and by joining Tesco’s clubcard, you

become a member of the brand and a long term stakeholder.

“People have an emotional bond to Tesco in that they feel we are on their side.

That we look out for their interests, don’t patronise them or take them for granted...

We deliver on our promises”

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(Humby et al. 2003)

A contract suggests that the firm must support each customer throughout the entire life

stage, for example Tesco's baby club. This is a more rational form of loyalty, and creates

emotional attachment (through empathy with young mum's) through providing

authorative, responsible advice on the baby’s health, diet and development as well as

secondary promotions and discounts (Rowley, 2007). This will therefore lead to an

impact on spend across the board as well as increasing long term value.

Customer assessment and valuation

Banasiewicz (2005) suggested the brand loyalty calculation through:

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The scale runs from 0 - 100 (totally brand loyal in product category) and 70+ is defined

as loyal, otherwise they are classified as a "switcher".

Diagram 13 demonstrates the development process.

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Diagram 13: Banasiewicz, 2005

Enrollment

The enrollment should focus on the highest spenders, not just anyone who walks through

the door. Although firms may risk loosing a larger database which justifies a large budget

and staff (Ferguson and Hlavinka, 2007).

Firms must therefore judge individual goals for the scheme, for example a 2% rise by

20% of high spenders may lead to a higher profit level then a 20% rise by 15% of base

customers (Ferguson and Hlavinka, 2007).

Enrolling the right customers is an efficient use of resources which can be achieved by

invitation only or fee based system, resulting in a higher engagement system (Ferguson

and Hlavinka, 2007).

Participation

Driving active program participation involves communicating only on trigger events or

sophisticated data driven rules, and not on general broadcast strategies. This will result in

building value by building engagement at the early stages of the customer life cycle

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(Ferguson and Hlavinka, 2007).

Another strategy will be to use selective bonusing, which is a bonus based on various

types of loyalty-temporal, spatial, demographic and behavioral. This increases customer

yield and relationship equity (Ferguson and Hlavinka, 2007).

Incentive strategy

Important components when considering incentivisation include the monetary dimension

capturing the economically; valued offer; frequency, which encapsulates the overall

contact mix and the messaging dimension combining the content and

creative aspects of the incentive strategy. These components and measurement techniques

are summarized in diagram 14.

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Diagram 14: Banasiewicz, 2005

Information system design and use

Tescos' data collection is accrued through the magnetic strip on cards linked to EPOS

system, which best judges interactions through store and online. With the various

business arenas (i.e. web and in-store) it is possible to delivers an even more significant

proportion of the customer’s needs, points accumulate more rapidly leading to better

rewards and Tesco’s customer data is further enriched (Rowley, 2007).

Identification of trends become even easier especially as similarities and differences

between online and offline customers, in terms of what they buy, what they do not buy,

how they respond to the service and how they mix channels, becomes apparent (Rowley,

2007).

Innovative segmentation allows firms to identify collective product purchases, also

known as bucket lifestyles. Tesco have identified 267 different shopping habits and each

customer can be identified in one of these (Rowley, 2007).

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2.12 Data exchange theory

The underlying concept of loyalty schemes must support the equitable data exchange

theory in order for acceptance by both parties. This theory suggests customers exchange

personal information, even love, status, money, goods, and services (Brinberg and Wood,

1983) in order to obtain resources, such as monetary savings or enhanced services.

Studies have shown that individual consumers have shown a general willingness to

disclose information about themselves when they believe they will receive benefits in

return (Milne and Gordon, 1993) and that the exchange is fair. There are 3 types of

exchange (Lacey and Sneath, 2006):

Restricted exchange

This theory involves the maintenance of equality and balance in the relationship. By

joining such schemes customers involuntarily give permission to use and collect

information, providing that firms disclose how the information will be used (Lacey and

Sneath, 2006). Firms therefore provide benefits as compensation for this exchange

(Schultz and Bailey, 2000) although it can be perceived that non participating customers

who wish to maintain their privacy are penalized for non participation (Introna and

Pouloudi,1999).

In order for this exchange to be successful exchange must involves equal value, otherwise

future exchange will be limited and customers may perceive reward attempt as deceptive.

This allows an undue advantage by one party which may limit subsequent exchange

opportunities (Lacey and Sneath, 2006).

Generalized exchange

This occurs when 2 or more parties are involved and benefits are indirect i.e. it is not a

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direct exchange of 1 value for another. For example, 1 party may exchange value with

another party, but the benefits are received by the 3rd party. e.g. Credit cards companies

benefiting users by donating percentage of sales to charities for every purchase (Lacey

and Sneath, 2006).

Although customer may are always aware that they are giving their permission to pass on

information to other 3rd parties and databases could be used across many industries, as

this is more resource, time and cost efficient for forms involved in data collection (Lacey

and Sneath, 2006).

Complex exchange

This exchange involves 3 or more parties, e.g. multiple brand loyalty programs, or

possible corporate conglomerate. Benefits are usually provided by non-exchange parties,

although customer may not understand that information may be shared with all exchange

parties, and may even feel under-compensated for the information they are giving up,

once again leading to dissatisfaction (Lacey and Sneath, 2006).

2.13 Equity theory

For each of these 3 types to be successful, there must be equity throughout the exchange

referring to fair, right or deserving in comparison to other entities, whether real or

imaginary, individual or collective, person or non-person (Oliver, 1997). Inputs (money,

time, etc) and outputs (tangible / intangible benefits) within an exchange allow the

customers to form their perceptions (Lacey and Sneath, 2006). The 3 criteria to equity

are:

Distributive equity

This refers to the extent to which customers feel they are equitably rewarded for their

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inputs (Oliver and Swan, 1989) proportional to outcomes associated with the exchange.

Equity is further enhanced when customers feel the firm increasing effort to produce

enhanced value proposition.

Customers will consider the balance of their own inputs and outcomes compared to those

received by other customers who are deemed to be of similar stature although application

of such programs may create perceptions of inequity and dissatisfaction and negative

consequences can result (within other non-members) especially when customer

interaction is high, and being observed e.g. within the community.

This suggests that rewarding participants at cost of non-participants (Lacey and Sneath,

2006) is a bad move and results in light users generally not benefiting from loyalty

programs (Kim et al., 2001).

Procedural equity

This aims to bring fairness throughout the process, allocation and distribution of rewards,

through consistency of application in policies, procedures, and other criteria used to

determine the results (Blodgett et al., 1997).

Shugan (2005) found that customers were discouraged if non-standardized nature of

reward allocation existed and firms were discouraged due to difficultly to evaluate,

consistent changing of rules and regulations and lack of portability (Lacey and Sneath,

2006).

In order to achieve equity, allocation must be unbiased, with circumstances and

requirements considered (Tax and Brown, 1998), although this is very difficult as not

everyone perceives the reward offering as the same equity.

Interactional equity

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This considers the exchange of information and communication of outcomes (Goodwin

and Ross, 1992) i.e. the level of interpersonal treatment (Maxham and Netemeyer, 2003)

in terms of respect, interest, friendliness, honesty, and politeness. This is maximized

providing interactions with firm are consistent with what they believe is deserved (Lacey

and Sneath, 2006).

Open and extensive communication leads to recognition and personalization, which

maximizes the effectiveness of loyalty scheme communication, as part of an entire

communication effort (Roehm et al. 2002). Although some smaller firms are only able to

communicate with the loyalty scheme alone, with overall aims to produce a community,

dialogue and so relationship with best customers (Lacey and Sneath, 2006).

2.14 Rewards

A case study by Jang and Mattila (2005) showed there is a large difference over

preferential rewards. In this incidence casual diners preferred non-monetary

rewards/service extras such as preferential seating, whereas fast food diners preferred

monetary rewards such as discounted food.

These two categories could easily apply to the nightclub industry where large super clubs

(capacity of 2000 +) would account for the latter category, and smaller more intimate

venues would account for the first category.

Category 2 is also supported by Chandon et al. (2000), who investigated the motivation

for purchase and found that it was not just special deals that was the decision maker, but

quality, convenience, value expression and hedonic benefits that all contributed highly to

the decision.

Rewards of loyalty schemes are the part that convinces customer to sign up. It must

create a balance between attractiveness and cost, while appealing to profile customer with

diverse taste and desires. These include discounts, points driven system or even hard and

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soft rewards (The Loyalty Guide, 2008) such as discounts, gifts, prizes, exceptional

service levels, redeemed in house or elsewhere which make customer must feel reward is

worth collecting for (Clark, 1997).

9/10 people rate personal attention as one of the most important customer services. This

can be maximized providing employees are empowered, in order to solve issues quickly

and efficiently (Clark, 1997).

Sometimes a loyalty token can also be present in order to maximize interaction. These

can be seen, felt and be carried with them and increasing their contact with the program,

subsequently a balance between serving purpose and appeal to customer and cost must

conclude which token to use e.g. vouchers, stamps, smart cards, biometrics (The Loyalty

Guide, 2008).

There have been strategies for determining reward types. Kivetz and Simonson (2002)

found that value perception could also be influenced by type of rewards. Luxuries (often

associated with hedonistic experiences) are more highly valued than necessities as

reward. The reward scheme can “permit” people to spoil themselves (Rowley, 2007).

Awarding selected customers with elevated social status recognition and/or enhanced

products and services above and beyond what is normally offered to customers, can

convey prestige and make them feel special, important, and appreciated (Morgan et al.

2000). These luxury awards could be otherwise an unobtainable experience, such as

Harrods of London’s day with a top jewelry designer or Musicland Group and Clear

Channel Entertainment’s idea to offer VIP concert tickets before on-sale date (Loyalty

marketing: boring or booming?: How to turn customers’ antipathy around (2006).

Unfortunately with many copy cat schemes, usually relatively low value rewards are

offered and too many schemes have led the average customer to expect additional

rewards to the normal shopping experience therefore leading them to place low value on

rewards (O’Malley 1998; Rowley, 2007).

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Jang and Mattila (2005) suggested that rewards require immediacy, necessary, monetary

gratifications (such as savings), quality, convenience and even exploration and

entertainment in some categories (Rowley, 2007).

However, the perk that is meaningful to the consumer, yet affordable to the brand is often

hard or impossible to find, which normally leads to offering easy, inexpensive and non-

motivational (to consumer) benefits. Therefore creating the perception that it is not well

integrated with the overall brand experience (Duffy, 2005). Recently customers are

failing to see the added benefit as enticing enough to keep them going back to the same

store (Loyalty marketing: boring or booming?: How to turn customers’ antipathy around

(2006).

O’Brian (1995) suggested that rewards can create loyalty but only if rewards align with

company capabilities and take into account 5 elements that determine value for customer:

• Cash value

• Choice

• Aspirational value

• Relevance

• Convenience

Rowley, 2000

A key point is that benefits must be calculable at any time and without additional effort

by the customer (Strauss et al. 2005). All customers are not equally valuable, thus it may

be neither economically nor operationally wise to expand the firm’s value proposition to

all of its customers (Reichheld, 1996) and has therefore led the nature of customer loyalty

programs to be such that tiered levels of benefits and customer services are created

(McIlroy and Barnett, 2000).

Yi and Jeon (2003) found 2 types of rewards; direct rewards directly support the value

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proposition, whereas indirect rewards are incentives irrelevant to given product. Rowley

(2007) also found that immediate and delayed rewards altered the effect of the reward

system. Direct and immediate rewards are preferred in high involvement situations.

Jang and Mattila (2005) suggested 3 variation of these rewards; immediate versus

accumulated points system rewards, necessary versus luxury rewards and monetary

versus non-monetary rewards. The timing of the reward was found to be very important.

Most frequent-dining programs offer financial rewards based on a points system to

reward loyalty (Mattila, 2001) e.g. TGI offer 1 point for every $1 spend which equates to

1250 points for a free desert. By common sense this appears to be very poor quality

reward, even an insult to intelligence. Adding to the insult is that the delayed redemption

reduces the power of the reward (Bootzin et al. 1991).

Kivetz and Simonson (2002) found that when the reward requirement is high, customers

seem to prefer luxury rewards (e.g. expensive wine) to necessary rewards (e.g. gas

coupons). As there is usually a feeling of guilt for buying luxury items, there is an

encouragement for customer to work harder in order to accumulate the requireements.

For example the Reward network Inc, in 2004 provided 20% off in affiliated restaurants,

whereas the The Hardrock Cafe provided preferred seating for All Access Members (Jang

and Mattila, 2005).

The motivators of such luxury rewards include Quality, convenience, value expression

and hedonic benefits such as exploration and entertainment and monetary savings.

Hedonic or experiential benefits might be more relevant to casual dining restaurants

while savings might be the driving force in the context of fast-foods (Jang and Mattila,

2005).

In the case of dining, preferences found included immediate, necessary, and monetary

rewards over points-system, for both fast food and casual diners, across demographic

classification variables such as gender, age, income level, and employment status,

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although management may want to offer value in product rather than cash offer because

the net cost is lower and may encourages repeat patronage. Although increased effort (of

obtaining reward) tends to reduce feelings of guilt associated with the consumption of

luxury items (Jang and Mattila, 2005).

In addition to monetary savings, customers are seeking quality, convenience, and

entertainment benefits which is easier to provide in casual dining, therefore able to

advertise exciting special events as rewards (Jang and Mattila, 2005).

A study by Accenture found that although one of top reasons for being loyal in survey

was price, the top reasons were location and convenience. Price was found to only

stimulate trying of a brand, and therefore can not be considered a long term business

strategy in most cases (Hoffman and Lowitt, 2008)

Price also acts as a higher reason to defect to competitor, but price guarantees volume,

not sales (Hoffman and Lowitt, 2008).

A conference call in 2007 with hypermarket CEO suggested that gift certificates that

expires in 30 days causes a sense of urgency to return. This is supported by managers

want to achieve immediate business goals and be enticing to their customers i.e. a short-

term financial goal. Although this is not customer centric (Hoffman and Lowitt, 2008).

Managers tend to look at how they help or hurt their customers through financial and

operational performance rather than how they change their customers’ subsequent buying

decisions. This could in the long-term lead to increased customer defection risk. It is

therefore vital for managers to be customer centric (Hoffman and Lowitt, 2008).

2.15 Loyalty scheme trends

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Furguson and Hlavinka (2006) found the 3 major trends within loyalty schemes are

power of networks, data and convergence; contributing to the recent success of loyalty

schemes, which was also added by Capizzi and Ferguson (2005) who stated ubiquity,

technology, coalition systems, analysis and WOW factor contribute too.

Networks

As networks increase in size, their value increases exponentially. In its infancy, based on

the Sarnoff broadcast model - content is king. The 2nd stage, the metcalfe model, is based

on a transactional model, and finally the 3rd stage, the Reed model -acts as a facilitation

engine, where value is based in each user. The transition aims to move from a points

system and basic dialogue to virtual communities, create sub-segments within customers

and with similar interests so connections are built. (Furguson and Hlavinka (2006)

It is important for schemes to:

• Have knowledge of member base

• Create virtual sharing environment

• Be based on tangible asset

• Use network efficiently

Data

Basic data analysis leads to retention, but need to predict ROI and marketing insights. A

higher degree of personalisation and customer experience management, especially in

retail, is gained (Furguson and Hlavinka, 2006). General practices include:

• Casting a wide net to entice a large range of customers

• Understanding customer value

• Blend approaches (combine transaction and demographic data)

• Target offering

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• Personalization drives relevance

• Success goes to the innovators

Convergence

Various technologies and marketing trends have led to the development of greater loyalty

schemes. Coalition systems such as multi-merchant loyalty programs built around

geographical regions or lifestyle affinity, are also a good sign of convergence (Furguson

and Hlavinka (2006).

Modern trends include:

• Corporate convergence

• CRM convergence

• POS technology convergence

Capizzi and Ferguson (2005) added the following:

Ubiquity

Proliferation of loyalty schemes have been signified through figures such as:

• 89 million members of airline frequent flyer miles

• 76% of US grocery retailers offer frequent purchase programs

Technology

Smart cards, RFID, real-time point-of-sale (POS), wireless, the worldwide web are

examples of new technology, which are prolific in new loyalty scheme trends. Without

these new systems, the operator is confined to a punch card or a stamp program-

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anonymous versions of reward and recognition that out grandparents may have liked

(Capizzi and Ferguson (2005).

Data mining aims to reward members based on myriad behavioral, temporal and spatial

variables. All data must shared across all customer interaction channels including online

systems for online payments, vouchers, redemptions, online reward catalogue which can

be developed, maintained, accessed and tied into database, in real time.

Examples include:

• Rfid

• Radio frequency identification devices

• Track transactions through a contact-less communication with POS

Biometrics systems include examples such as iris scanning at Schipol airport in

Netherlands and access to private room to frequent travelers program. Also, Mcdonalds

are piloting a finger based system which can increase security for self service credit card

transactions with an extra identifier. A final example is Prada and Toys-r-us who use e-

tags attached to items, which enable tracking of behavior in store.

Coalition lite

3+ companies who merge to form 1 loyalty system in order to earn points for shopping at

coalition stores e.g. ClubMom Inc in US. The key factors include:

• Ability to be first to market

• Ability to offer real value

• Incorporate everyday spend to reward points

Customer analytics rule

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This involves the division of consumers into segments, through data mining. Analytics

accounts for 19% of the total CRM market, worth 4.4 $billion. It is this business

intelligence that allows firms to accurately:

• Forecasting marketing ROI

• Measuring customer value in a dynamic, ever-changing model

• Determining the appropriate marketing value proposition and the optimization of

the funding rate to yield the greatest behavioral change

• Increasing incremental revenue, one customer at a time

• Comparing ROI results to forecasts, determining the sensitivity associated with

specific variables and recalibrating

• Defining specific marketing strategies for increasingly finite customer segments

• Modeling customer attrition and intervening prior to their departure

• Modeling cross-sell/up-sell potential, enabling the marketer to put their money

where the impact is likely to be greatest

• Determining the net present value of major marketing campaigns and initiatives

WOW factor

Research by Quadstone in late 2000 found that 19% of 1000 people surveyed "usually

forget" about points, and they "expire before i use them" suggesting that a unique set of

rewards are needed to maintain consumer interest. Although, 73% believed that retailers

did "design future rewards that will be even more appealing" (Capizzi and Ferguson

(2005).

2.16 Data

Information is generally obtained on lifestyle and demographics of individual customers

(Uncles et al. 2003) in order to gain insight into individual and aggregate purchasing

behavior, allowing firms to target and specify market offerings (Byrom, 2001), although

divulging discretionary personal information depends on the existence and strength of a

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marketing relationship with the firm (Sheehan and Hoy, 2000) as well as the nature of

information being collected and how it will be used (Nowak and Phelps, 1992). This

system is summarized in diagram 15.

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Diagram 15: Byrom et al. 2001

It is said that the best way to address effectively the needs and wants of consumers is to

gain knowledge and understanding of consumer behavior, with the overall aim to

increase fidelity to a brand (O’Malley, 1999). The Loyalty Guide (2008), supported this,

by stating that data was best used to identify strengths and weakness' then build on

strengths and repair weakness'.

Another use of data was to determine customer behavior allowing greater efficiency of

target marketing (Uncles et al. 2003). These databases can be used to determine customer

value, define specific marketing strategies for finite customer segments, model customer

attrition and intervention strategies(Lacey and Sneath, 2006). With the application of

these databases, through statistical models it is possible to improve customer loyalty,

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support customer service, and develop new offerings to help reduce defection, increase

customer lifetime value (Wansink, 2003) determine terms of price, product range, service

quality, and convenience (Stone et al., 2004) answer important strategy questions; data

currency; data format and quality; and, tight control of data analysis costs. In general data

underpins all major business developments (Rowley, 2007)

The analysis of data requires both large data warehouses and the use of appropriate data

mining techniques if they are to be transformed into viable sources of information

(Byrom, 2001). Information must be generalized, ordered and contextualized in ways that

give them meaning (Mennis et al. 2000, p508).

Despite this major theoretical findings, nothing suggests that data management has

become the focus of a majority of loyalty schemes(Byrom, 2001), although the use of the

data has been shown to be the major benefit of some schemes (Worthington, 2000) e.g.

Boots and Tesco.

90% of commercial data is said to be geographical in nature (Moloney et al. 1993) i.e.

correlated to address and store location. This allows for mapping of store networks,

catchments and hierarchies and consumer behavior patterns (Diagram 16, Byrom, 2001).

There are different applications for geographically-based information, such as :

• Marketing applications tailored

• Tactical (corporate planning):

• Decision making, merchandising-depending on the varying composition and

purchasing behavior

• Promotional activity - depends on reactions to different methods /advertising

Although, not every transaction can be captured.

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Diagram 16: Byrom, 2001

Currently, studies have shown that data is not being efficiently utilized in schemes, which

has been suggested due to the sheer volume of data, required to be analyzed (Byrom,

2001).

There are examples of effective use of data through local marketing initiatives,

specifically through use of local press, material distribution and local offers depending on

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promotion e.g. 6 for the price of 4 beer Carlsberg during rugby games, plus free

merchandise (encouraging the move from single size to multi-pack). This aggregate data

plus purchasing patterns leads to greater future marketing initiatives (Byrom, 2001).

Catchment stores within set locations compares card information including products

purchased, frequency/recency of cardholder visit, life-stage, time of visit, other stores

visited, offer proneness, non card holders' information of total sales andoffer uptake, in

order to give an overall assessment of the effectiveness of such schemes (Diagram 17,

Byrom, 2001).

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Diagram 17: Byrom, 2001

In today’s untrustworthy market arena, some consumers are becoming increasingly

concerned about their privacy and how personal information is being used and

disseminated (Zabin and Brebach, 2004), with some customers resisting to trade in their

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privacy and data security unless compelling benefits are offered. It has even been

suggested that current regulation of customer information may not be sufficient (Petty

2000). Uncles et al. (2003), also found 4 major faults with data analysis of the

information:

1. Too much information to manage.

2. Wrong information- little information is available on customer experience, decision

making or range of products purchased from portfolio. This information is needed in

order to move along the continuum.

3. Contradictory information- loyalty scheme company claim to be highly successful

(Rayner, 1998) although issues such as increase sales of target brand, higher levels of

cross selling, fewer customer defections and more satisfied customers are questionable

(Reintarz and Kumar, 2000). Good schemes, with good benefits get copied quickly e.g.

the proliferation of airline loyalty schemes, or nullifying response.

4. Poor evaluation- Comparison of post-program number of sales, customer retention,

satisfaction tend to be very similar once taken all costs and considerations in account.

The control group at each stage tends to be different, resulting in a totally different

marketing environment. E.g. Tesco’s Clubcard was part of a change in overall marketing

strategy. The best comparison would be post program results obtained against the use of

the same amount of money for other marketing initiatives.

Byrom, (2001) found that there has been to date, little focused research that attempted to

highlight how data gathered through loyalty card transactions can effectively be applied

in particular areas of decision making.

Initially there has been unrealistic expectations, lack of experience or hope that installing

software would build customer relationships (The Loyalty Guide, 2008). Too many

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companies saw good gains in other industries and just copied the trend, resulting in poor

results and failure (anon). With some schemes costing over £20 million to set up and

employees ranging up to 30 members of staff (industry source, from Byrom, 2001), it has

become an industry saturated with too many copy-cats (Byrom, 2001).

2.17 Loyalty scheme skepticism

Consumers are becoming tiresome of offers that ask them to collect points in exchange

for money off vouchers, standard gift tokens and uninspiring ‘toaster-style' presents.

They are simply failing to see the added benefit as enticing enough to keep them going

back to the same store (Ndubisi, 2007).

The extent of loyalty scheme effectiveness to the overall value proposition was shown to

be minimal by Bellizi and Bristol (2004), founding that shoppers prefer quick moving

checkout lines and fresh produce variety over loyalty schemes. A truly unique loyalty

scheme is required in order to change spending behavior, which is not seen very often

(Uncles et al. 2003)

In general the price of information systems yields less benefits than other marketing

objectives, as recently demonstrated by Vodafone who stated that rather than the cost of

participating in the Nectar scheme, they would prefer to reallocate the money used, to

keeping price low for every customer (Anon). It is also, hard to measure true long-term

value of a customer, loyalty-profitability correlation and return on investment (ROI),

especially as data is generally not be utilized effectively (The Loyalty Guide, 2008).

The idea of awarding select customers with elevated social status recognition and/or

enhanced products and services above and beyond what is normally offered to customers

(Rowley, 2007) has not been well received by all, and has been suggested that the

resources allocated towards customer participating in loyalty scheme show the firms

having discriminatory customer treatment practices (Rowley, 2007). Supported by

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Hansen (2000, p. 429) demonstrating that customer-value-oriented differentiation in

loyalty programs may be perceived by customers as discriminatory and unfair. Even to

the extent that websites such as eopinions.com, for instance, has established a separate

category for customer opinions regarding mileage programs or frequent flyer programs,

the customer voice now being heard (Stauss et al. 2005).

In general marketing is becoming harder and audiences are becoming more cynical

therefore firms must aim to engage customers through active experience of brand values.

This key element is hard to relate to loyalty schemes and maybe competition for the

every constricting marketing budget.

A recent example is the Starbucks pre-paid card and visa card; Duetto. The aim was to

combine functionality and convenience, although this was proven to be a overall weak

proposition and benefit to overcome consumer reluctance to accept yet another credit

vehicle. The idea of earning a little bit of every purchase back toward future purchases is

not terribly meaningful. Especially if a consumer does the maths. For every 100 coffee's

purchased, customers receive 1 coffee free (a return of 1%). A particularly weak offering

when you consider the industry or social norm to be buy 10, get 1 free (at max).This can

be perceived as an insult to their intelligence. Firms should aim to build a natural

relationship-building program built into their brand, which Starbucks have already

obtained, leading to the perception that the cards are merely a superficial scheme. This

superficiality of certain efforts is more obvious to consumers because of the current

heightened sense of mistrust and skepticism fueled by activities in corporate America

which have led to an erosion in trust (Duffy, 2005).

Banasiewicz (2005) identified the 2 major sources of under performance as inadequate

data-analytical support and lack of well-defined planning framework. The outlined

treatment strategy and participant recruitment leads to price sensitivity and propensity to

register. After this initial rush, a disproportionally small increase in brand consumption

occurs. This will be completely inadequate and a program end objective strategy should

be undertaken in order for any scheme to succeed.

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Even with careful planning there are still many obstacles to loyalty including customer

idiosyncracies, multi-brand loyalty, withdrawal from product category, changes in needs

and switching incentives (Oliver, 1999), as well as relatively low value rewards that

loyalty schemes offer their members (O’Brien and Jones, 1995).

It was also found that loyalty schemes set up to gain database, physiological bond, and

customer insight although resulting in high expense set up and maintenance, with little to

no behavioral change (Dowling and Uncles, 1997).

Loyalty scheme advocates believe that models 1 and 3 (Diagram 8, Uncles et al. 2003)

are implemented and that unknown customers are attracted, maintained and eventually

become monogamously loyal to their own brand, but critics believe that model 2 plays a

greater part, with a sliding scale of loyalty, with many brands within the product

category.

Another finding in this paper was that monogamous loyalty is both unachievable to most

firms and undesirable to most customers. If consumers are already loyal then all that will

occur is increased product line extension and/or reduce profit margins within existing

sales (Uncles et al. 2003). There must be a good reason why some customers are multi-

brand loyal. If so firms cannot expect customers to become single brand loyal "variety is

the spice of life"!

Although loyalty schemes can attract new customers who are new to that product

category, making them loyal to 1 brand (model 1), it could just make consumers loyal to

the scheme not brand and so susceptible to competitive action/ if the loyalty scheme is

lost e.g. subway and lose of their discount card (Uncles et al. 2003).

Although Stone et al. (2004), suggested that programs do not generate loyalty, but instead

enable firm to customize their offering. Another point is that repeat purchase is not a

proxy for customer satisfaction or commitment customers, and that benefits must be

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calculable at any time (Rowley, 2007).

In conclusion, it has been reported that schemes do little to aid in customer loyalty, but

actually may lead to promiscuity (Passingham, 1998). A thought of to why loyalty

schemes do not work was suggested by Bootzin et al. (1991) who found that delayed

redemption of rewards reduces the effectiveness of the scheme. Therefore it must be

decided if customers prefer immediate gratification or delayed and potentially more

lucrative reward.

There are also circumstances where, not all customer are wanted to be retained– change

in music policy, theme of venue and even location could cause a shift in the customer

profile and therefore excluding previous customers.

Just as investors need to dispose of poor investments and banks may have to write off bad

loans, each service firm needs to regularly evaluate its customer portfolio and consider

terminating unsuccessful relationships (Lovelock and Wright, 1999).

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3. Methodology

The overall aim of the research is to ‘unfold, cascade, roll and emerge’ (Lincoln

and Guba 1985, p210) theories in the modern day world.

From a learning exercise conducted from Kolb and McCarthy (1984), the research’s style

is said to be one of a diverger, which corresponds to an interpretivist (Appendix 10.4), a

philosophy resting on idealism - a view that the world is a creation of the mind. This

indicates a qualitative learning style preference, a field of inquiry that crosscuts

disciplines and subject matters. Although in this particular research a triangulative

approach will be performed (with a slight bias towards qualitative research).

Qualitative methodology is preferred as ‘They seek answers to questions that stress how

social experience is created and given meaning’ (Denzin and Lincoln, 1998), although we

will be using quantative methods too.

The quantitative types argue that their data is 'hard', 'rigorous', 'credible', and 'scientific'.

The qualitative proponents counter that their data is 'sensitive', 'nuanced', 'detailed', and

'contextual'6.

The overall aim is to create an ethnographic viewpoint through the use of grounded

theory based research i.e. theory and data arises from conducting the research.

Ethnography

N.

Descriptive study of a particular human society. Contemporary ethnography is

based almost entirely on fieldwork. The ethnographer lives among the people who

are the subject of study for a year or more, learning the local language and

participating in everyday life while striving to maintain a degree of objective

6

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detachment. He or she usually cultivates close relationships with "informants"

who can provide specific information on aspects of cultural life

Britannica Concise Encyclopedia4

Due to the fact that all data is obtained via social research it is classified as grounded

data, this inductive approach is derived from the interpretivist school of thought. (Denzin

and Lincoln, 1998)

Interpretivism conceives of a world where there is a multiplicity of realities. Each

individual perceives, understands, experiences and makes meaning of that reality

in different ways. For this reason, research in this paradigm focuses in on studying

individual lives and their significance. The overall aim of this paradigm is to

understand others' experiences and relate them to one's own reality. 5

The Kolb learning cycle (Kolb,1984) suggests there are 2 variations of reasoning–

inductive and deductive. Due to the fact that we are generating a theory/pattern from the

4

4 http://www.blackwellreference.com/public/tocnode?id=g9781405124331_chunk_g97814051243317_ss1-48#citation5

5 http://www.edb.utexas.edu/faculty/scheurich/proj2/text/interpretivism.htm

6 http://www.socialresearchmethods.net/kb/dedind.php

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reactions, usage and sign up variables of loyalty schemes based upon only a relatively

few observations which then generate a pattern (Appendix 10.5), this study must be

considered inductive.

Exploratory or descriptive, that assumes the value of context and setting, and that

searches for a deeper understanding of the participants lived experiences’

(Marshall and Rossman, 1995)

Deductive reasoning would not be applicable in this incidence due to the fact that we are

unable to predict the chain of events (x equals y which therefore equal z) as the wide

variety of influencing factors. This will therefore allow for a greater freedom of

questioning, stopping the highly structured deductive approach applicable to both

qualitative and quantitative methods.

Due to the uncertainty of the area of study, inductive reasoning will allow for the

generation of a theory both true to the working environment and practically applicable. It

can be argued that due to the lack of structured questions the interviewer may assert some

biased over the direction of questioning and therefore lead the study into a ‘one-way’

direction. Deductive reasoning does not fail in that aspect as all questions are structured

and are less easily influenced.

This will allow us to predict not only what the potential reactions to a loyalty scheme

maybe, but also allow insight into why, a scheme may fail or prosper. The researcher will

discover the diverse range of features surrounding loyalty schemes and thus provide

reasoning and understanding as to the uses, sign up criteria, frequency of use and

expectations of benefits to such schemes.

This type of research is considered empirical and probabilistic as it records observations

and measurements of reality perceptions; as well as basing its findings through estimating

probabilities- supporting the inductive reasoning philosophy.

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The approach type to all questions will be causal i.e. 1 variable affects outcome of

another variable, and the survey data must have a strong correlation to provide significant

prove that cause and effect relationship exists.

Although a cross sectional time recording will be used in this study (results captured at 1

specific point in time) a longitudinal approach would be better suited as this would relay

information over a significant time period, but unfortunately time restraints prohibit this.

The researcher has chosen to use focus groups, and in-depth interviews as the major

source of views/opinions, followed by the use of internet-based surveys in order to

validate the tentative hypothesis. This will strengthen the findings– not only from the

variety of viewpoints but also the confirmation of previous findings.

Polit and Hungler (1995) defined the concept of triangulation as:

“The use of multiple methods or perspectives to collect and interpret data about

some phenomenon to converge an accurate representation of reality”.

O’Donoghue and Punch (2003), stated triangulation is a

“Method of cross-checking data from multiple sources to search for regularities

in the research data”

Triangulation will allow for an exploratory and diverse viewpoint arising from a close

proximity to the culture observed. It also ensures data is cross-examined and reinforced to

ensure accuracy. This will therefore increase confidence and reduce weakness of data

from the fact that various different methods lead to 1 finding and also eliminate the

intrinsic bias from single viewpoint studies.

Qualitatative methods construct ideas and thoughts, which materialise as a theory.

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Participants introduce new areas of information themselves allowing the researcher to

map perceptions and find gaps in the market.

"A formal, objective, systematic process in which numerical data are utilised to

obtain information about the world"

(Burns and Grove cited by Cormack, 1991, p 140).

Focus groups and in-depth interviews are used due to the depth and subjectivity of the

results, unlike the surveys and questionnaires, which only address the ‘who, where and

when’ (Yin, 2003), but not the crucial ‘why and how’.

Qualitative methods employ inductive reasoning through which an open-ended approach

is utilized to enable exploration. As no theories or specific information are available, we

must aim to create our own theories. There are also wide ranges of factors that influence

decisions in this industry, therefore it is impossible to provide subjects with a range of set

answers and expect them to select from a list. Subjectivity is fundamental because this

research aims to explore the ‘grey’ areas.

This fits in perfectly with the overall theme of this research proposal, as it is the general

attitudes, perception and views held by a diverse range of people, that we wish to study

and theorise, rather than create a black and white picture of the complexity of loyalty.

Focus groups generate more views and enable interaction of people to express their ideas

and speak freely with within a group about the issues, thus, will develop more of an

insight into views and attitudes that participants hold (Krueger, 1994). There are many

strengths of conducting this type of method, for example the natural setting allows people

to express their opinions and ideas freely. Open expression is encouraged and participants

are empowered feeling more at ease within the setting. However, focus groups also have

several limitations, the researcher is often restricted as usually only a few topics can be

discussed in the session. Furthermore, the researchers presence may influence the group

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dynamic and they also may produce fewer ideas than in individual interviews.

In-depth interviews are similarly advantageous, the open-ended technique is especially

useful as it allows the interviewer to seek new areas of study/information if subjects feel

strongly about a topic. This method also enables the respondent to feel that their

information is important and relevant, however this type of interviewing may be

unreliable and time-consuming.

One issue with both techniques is that it does not provide a holistic view, just individual,

therefore different people’s viewpoints are needed: club managers, promotional staff and

students.

With both methods pre-theoretical information is needed before the study is to be

undertaken, as biased is formed within the study through questions asked and ways in

which the interviewer directs the questions (Marshall and Rossman, 1995), in addition to

this social actors are not always aware of their actions and intentions. Upon questioning

reflection occurs and that is the only time in which their actions are questioned. Routine

actions would not be explored as they would not be explored by the subject. The way in

which each person interprets events, previous actions, their believe system, morale code

and social conduct are not able to be considered in such a short interview period and so

does not take into consideration the reasons for which the views are held by the subject.

This does not mean that interpretivism is wrong, just that we need to consider these

points when deciding the level of which to accept each viewpoint.

Despite the deep and colourful views that the qualitative research is able to produce, it is

not able to confirm, deny or review the strength of the findings on a larger scale. This is

why the researcher needs to undertake quantitative research.

Quantitative methods are used express / support empirical data in a mathematical format.

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Kuhn (1961, p. 162) stated that

“large amounts of qualitative work have usually been prerequisite to fruitful

quantification in the physical sciences”

From a philosophical viewpoint quantitative research lends itself to a positivist view. This

fits well within this research as a more active experimentation stance (opposed to the

reflective observational style). From the original preferred style of a diverger, a

accommodator learning style preference would be observed. Although the essence of

experiential nature is still preferred, supporting the view that all data in this study is

grounded by nature and an ethnographic view of research is still preferred.

The start of quantative research has been stated to begin with the inquiry process model:

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Diagram 18: Crabtree and Miller , 1992, p11

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Historically, qualitative methodologists have described three major purposes for research:

to explore, explain or describe the phenomenon on interest.

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Diagram 19: Marshal and Rossman, 1999.

Internet based surveys allow for validation of these theories within a wider audience in

terms of both numbers and audience variety (job description, age, sex, consumer

viewpoint, income).

These surveys are practical, quick, cheap, easy to set-up, maintain and analyze. The

results can be viewed via easy to understand graphical representations therefore provide

immediate knowledge, at maximum privacy. Respondents are easily found especially

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with the recent boom in social network sites such as Facebook.com and Mysace.com.

The downside to these surveys is that there is a lack of personal contact and no opened

ended questions can be addressed, resulting in limiting views/expression.

All question variables are measured through attributes i.e. agreement with a statement on

a scale of 1-5, with responses being exhaustive of all possibilities, although if the

situation arises where there are too many answers then the most common attributes will

be listed followed by an 'Others box'. Finally all answers will be mutually exclusive, with

no question can having 2 possible answers.

Conclusion:

Although there is much information about loyalty schemes in reference to

supermarkets/retail is widely available, there still remains a knowledge gap within the

entertainment industry. This industry has tried to make schemes work and some do,

however it’s about time theories and models were applied to an ever increasing industry,

with this in mind we will take a triangulative methodological approach, with special

consideration to validity and fallacy.

The aim is to generate views and opinions through qualitative methods, then support and

determine the extent of these views through quantitative methods. This can therefore

produce measurable and accurate results, expressed in many formats.

The researcher aims to create a broad, colourful and deep view of the loyalty scheme

industry within the student market.

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4. Methods

The following interview procedures will be used in this research.

4.1 Design of interviews

Semi-structured questions will be used throughout with a background history of topics to

be discussed in the interview. All questions will be opened ended allowing subjects to

expand on what they feel is important.

- individual interviews with higher management staff from 3 night clubs.

Marketing/promotions managers, general managers and a managing director. 9 interviews

in total. (Free lunch to be provided as an incentive - £15 approx)

- individual interviews with a range of student nightclub goers–medium and high

usage. Male and female for each, age 18-23. 8 interviews in total. All subjects are

random generated. Not family or friends. Financial incentives (£5) to be given per person.

- Focus groups will be conducted in 3 different sessions:

Group 1: 4 subjects of nightclub customers aged 18 - 23, male and female, medium and

high usage

Group 2:4 subjects of nightclub customers aged 18 – 23, female, medium and high usage

Group 3:4 subjects of nightclub customers aged 18 - 23, male, medium and high usage

Although the original plan, was to use a higher number of management level staff in the

group interviews, not enough subjects were available or will to participate in the study

(mainly due to a possibility that data may be transferred between venues), which explains

the low numbers.

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4.2 Interview preparation

Consulting of literature review and specific book titles will be conducted previous to

designing questions, with standardised methods, protocol and procedures to be used when

possible. The researcher will be given access to the literature review and will be expected

to draw up suitable questions and themes for the interview, with previous working

knowledge of research topics expected.

A study by Sudman et al. (1977) found that interviewers are responsible for approx 7% of

total response variance and expectations from previous knowledge only contribute a

small amount, indicating that in most practical situations, interviewers expectations can

be ignored.

The self-fulfilling prophecy states if the researcher is also the interviewer (Marshall,

2008) it is possible to define situations as real, therefore becoming real in their

consequences (Merton, 1957). For example when research occurs and create theories

before, it is possible to manifest the ideas within the interviews. Although this can be

combated through fixed end questioning, pre structured questions and pilot interviews.

‘In the beginning, a false definition of the situation evokes a new behavior which

makes the originally false conception come true. [It] perpetuates a reign of error’

(Merton, 1957 from http://www.encyclopedia.com/doc/1O88-selffulfillingprophecy.html)

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4.3 Question types

Interviews will be based upon semi inductive questioning, regarding 4 major areas:

• Reasons for returning to a club (external to nightclub)

• Elements that encourage sign up to loyalty schemes

• Expectations of rewards to loyalty schemes

• Elements within a nightclub that encourage repeat business

Although these 4 areas will be the major area of exploration, the researcher will be open

to new and emerging ideas/themes.

The semi-structured questions will comprise a mix of fixed and open questions to allow

for conversational, two way or focused communication. The advantages of this are a less

intrusive and therefore interactive setting, allowing for extension on passionate topics,

providing reasons for matters and not just answers and finally subjects will be more

willing to discuss sensitive subjects.

Questions: (Appendix 10.6)

4.4 Validity

Although relationship validity has previously been shown to be true– both constructs,

loyalty schemes and loyalty, the internal and external validity maybe under question.

Internally, we cannot automatically assume that the loyalty scheme is the only affect of

loyalty, for example, it maybe a case that existing loyal customers have both

time/willingness to sign up to such schemes but also be loyal and return to the stated

venue, therefore this may disprove that this study is based upon cause and effect (Denzin

and Lincoln, 1998). Also previous studies such as Asda and the Co-Op (Byrom, 2001),

have shows that there are incidences where loyalty scheme data has been proven to be

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limited, varying data also questions the existence of the causal relationship.

It is possible to combat low internal validity by studying aspects of loyalty scheme which

can alter variables– e.g. direct use of loyalty schemes in repeat business, rather than

general loyalty/perceptions towards a venue.

Externally, it is hard to generalize the effect to other situations, locations and timings. As

each venue layout, queue system, door policy, weather, social norms and other factors

maybe in place to differentiate the studied crowd against the general population.

It is possible to combat low external validity through careful selection of a sampling

method. The use of random selection allows a greater diversity of subjects which can be

supported by ensuring a low drop out rates. A second method is to ensure subjects are

proximally similar to each other as possible.

Donald T Campbell model – proximal similarity model 7

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7 http://www.socialresearchmethods.net/kb/external.php

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Population validity should be strong as student to student generalization is high, but not

to other demographics. The desires, needs and wants within this group are very similar

and therefore a few subjects can easily represent the entire demographic. Low population

can be combated through careful selection of subjects, which will ensure the target

demographic is a true representative of the population.

Ecological validity in this study can be considered high as the methods, materials and

settings of the study are closely approximate to the real-life situation that is under

investigation (Brewer, 2000). Although this is closely related to external validity, it is not

determined by the studies results ability to generalize (also see interview settings- 4.7).

4.5 Reliability

The overall aim is to try and answer the question:

Are we getting consistent results from our measures?

(Taking the fear out of data analysis, p34)

Therefore with the intention of showing that our measurement device does in fact

measure what it appears to measure.

When we speak of reliability we are researching if results are repeatable or consistent.

Two different scores can be produced at any time – i.e. the true score or error score. The

observed measurement maybe different that true ability due to circumstances than actual,

which is close to impossible to calculate. This is why we must estimate reliability because

can’t calculate variance of true scores7.

Although inter-item reliability is able to be measured and can predict in this case whether

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the results between students are accurate. Statistical tests, such as rank correlation tests,

Independant T-tests and cross tab analysis, are required in order to measure variables

recorder’s Inter observatory reliability.

The extent to which a measure is free from random error indicates the reliability of the

measure, although this is necessary but not [a] sufficient condition for validity. (Taking

the fear out of data analysis, p34). This therefore indicates that it is still possible for the

overall results to contain error.

Reliability testing cannot produce 100% measurement of results, rather just infer overall

assessment. It is therefore possible, that reliability does not equal validity.

Appendix 10.7 indicates the 3 validity assessment approaches.

4.6 Pilot interview

A pilot interview will be conducted with one manager and one club customer. Upon

successful completion of this interview, all results being accurate, reliable, non-biased

and valid– the single in-depth interviews will be conducted, followed by the focus group

discussions.

4.7 Interview setting

Conduction of focus groups and interviews, in the experimental setting i.e. nightclubs,

would be extremely difficult due to potential intoxification and interest levels, therefore

reducing ecological validity. The trade off between experimental control and ecological

validity would alter based upon location of focus groups. Similar venues such as a large

well populate bar (although within a relatively quiet area), would reduce experimental

control levels and therefore increase ecological validity. A sample of a location would be

the quite area in a large scaled bar, secluded from outside interference, based in the city

centre and be well known by the subjects.

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Ecological fallacy would be present if individual assumptions were based upon group

data and exceptional fallacy would also be present assuming information for a group

when based upon only a small selection of subjects. Problems that could be encountered

when using the subject is that the moderator knows or becomes familiar with the subjects

and could subsequently provide answers they think the moderator wants to hear.

All subjects will be expected to sign consent forms, providing formal permission for use

of recording equipment and therefore potential replication of information.

4.8 Interview analysis

Upon successful completion of the interview, the information will be transcribe and saved

as an RTF file. This file format is needed for the application QSRNvivo to analyse the

data afterwards.

“Data analysis is the process of bringing order, structure and meaning to the mass

of collected data”

(Marshall and Rossman, 1995)

The data collected will be analysed through Nvivo. Once transcribed the researcher will

place nodes on important point throughout the interview, followed by axial coded against

literature review nodes, as this will already contain the theme and structure required. It

will also allow the irrelevant information within the transcribed data to be discarded

efficiently. This will then lead to the collection of overall themes within the study and

conclusions are able to be drawn. This strategy supports the grounded data philosophy of

creating conclusions from emerging findings throughout the research.

Upon completion of qualitative research an analytic induction process will be

implemented through the use of quantitative research. Analytic induction process

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involves a process of generating and then testing hypotheses against each successive case

or instance of the phenomenon (Denzin, 2007). In this case the conclusions created

through qualitative research and desk research will be tested against a larger but similar

population, in order to hopefully prove the previous findings.

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The following internet-based questionnaire procedures will be used in this research.

4.9 Questionnaire design

Full questionnaire is to be hosted on free online survey hosting sites, such as ‘Survey

monkey’. Each survey will take no longer than 5 minutes to complete , with 13 questions.

Question are segregated into 4 categories:

Section 1: Questions 1-5 = yes / no answers only

Section 2: Questions 6-8 = likert scale on agreeability of statements. Each question will

be based upon a Likert scale – 1 to 5, 3 being neutral.

Section 4: Questions 9-13 = rank question

Data collection is automatic and emailed to the researcher upon completion, as well as an

excel spreadsheet being available at all times.

The questions will be based upon a range of views, which encompass both positive and

negative views on the student nightclub industry. This ensures we receive a well-balanced

view of feelings.

An initial questionnaire will be based upon the results of the interviews, and then tested

upon of small group of randomly picked students, as well as a experienced survey

designer (most likely a university lecturer or friend). This will allow for any adjustments

to be made prior to internet launch with regards to design, layout and question structures.

Questionnaire (Appendix 10.3)

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4.10 Sample selection

All subject are to be students enrolled on a full or part time course within The University

of Liverpool or Liverpool John Moores University.

A Representative sample includes:

• Female

• Male

• Aged 18 - 23

• High nightclub visits (10+ per month)

• Medium nightclub visits (4 + per month)

It was not possible to survey nightclub management staff as this population is too small,

therefore the interviewer must rely on information obtained in the interviews.

100 subjects are required

The data collected must create generalisations about entire population, therefore the

probability method must be used to select subjects, which allows for each subject to gain

an equal and independent chance of selection (Aldridge and Levin, 2001)

The first step would be to create a sample frame although it is not possible to have every

student because it is not possible to gain access to the student database and have email or

correspondence sent out to all students. Although it is possible to have individual subject

heads send out group emails to their students, but this would not be fair unless every

department head was to do this, ruling out this method. All incentives are to be published

online via social network sites, internet forums and university forums. The volunteers at

this stage therefore create the sample frame.

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The initial stage of the internet surveys involves the input of personal data such as

university degree, age, sex etc. Upon all criteria being met, then the subject will be

allowed to continue to the questionnaire section.

The researcher would then use a stratified sampling method which assign every volunteer

on number, then a selection of 25 numbers are randomly generated from the total sub

section of the population- resulting in the selection of stratification variables.

The 4 sub sections would include:

1: male, high nightclub visits, 18 - 23

2: female, high nightclub visits, 18 - 23

3: male, medium nightclub visits, 18 - 23

4: female, medium nightclub visits, 18 – 23

If we are unable to obtain sufficient number of subjects then the snowball effect will be

implimented. This technique occurs when ‘you ask those who have already passed

through the selection screen for their suggestions for participants. The logic is that those

who have targeted characteristics are likely to know of others who also have the same

features ’ (Krueger, 1994)

4.11 Data

All data will be sent via email to the researcher, upon completion of 100 surveys. This

will include statistical and graphical information regarding the answers. Themes and

trends will be identified via further data analysis. Statistical information is also available

throughout the research via online applications.

All data will be transposed to a SQL database and imported into SPSS for data analysis.

Independant T-tests and rank correlation tests will be used in order to analysis the data.

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5. Results Analysis

5.1 Qualitative findings

All Semi structured interviews will be analysed through Nvivo. Each statement will be

coded, nodes placed to signify themes and then relevant themes co-ordinated with the

Literature review findings’ themes. An analytical induction approach will be used by

developing categories then sub-categories. The initial proposal regarding behaviour will

be produced and compare to all cases, with a final statement revision to be produced.

Full detailed results are available in Appendix 10.8

1. Sign up

The first theory to be generated from the research is that:

Customers are prepared to sign up to loyalty schemes.

A interviewee in the focus groups stated that :

every club bombards you with so much and you just sign up because you don’t really

want to miss out on all the offers, but actually you find out it’s all rubbish afterwards

This supports the student mentality and possible naivety of young students of

Anything for free - subject

The study showed that student enjoy sign up incentives such as

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• Really cool posters

• Free drinks tokens, half price entry and one place even gave away free can of

beans

• VIP invites

• Me and all the girls got a free champagne bottle, but it was the cheapo stuff and

tasted horrible! But it’s still free drink so we were happy

• Cheaper entry or quicker entry

• Something special

Although the study did indicate that the following were uniformly disliked regarding

rewards to sing up:

• Crapy goody bags which you think has loads of cool stuff, but then when you get

home, all they have is flyers and the occasional condom

• Free shooter which was so watered down

This study suggests that offers need to be standardised in order for customers to

appreciate the offering.

These findings suggest that the statement should be modified to :

Customers are prepared to sign up to loyalty schemes providing it supply’s benefits in

line with customer needs.

This answers the first area of investigation of ‘Elements that encourage sign up to loyalty

schemes’ focusing specifically on point 1 and 2:

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• Would peer usage encourage sign up?

• What factors would encourage sign up to loyalty schemes?

From the club's point of view, the first theory generated is :

nightclubs dislike loyalty schemes as they have proven to be expensive and relatively

inefficient

A subject that that the marketing [BUDGET] is mainly used for flyers, posters and

distribution. But this study also suggested further negative view held regarding loyalty

schemes, including:

• People will go where is most popular, or they get flyers for cheap drinks. The

cards just seem to get lost or forgotten. Thats why we hire external promotors

• Loyalty schemes just mean we give away more for free and that cuts the bottom

line.

• They always expect something for free.

• I hate giving away things. Students just expect to get it all the time then

Although positive views also came out:

• Some [loyalty schemes] are really good, especially at venues where the club is

really exclusive

• [loyalty cards] looks good and makes them feel special

• Unable to offer any truly unique service offerings to encourage repeat patronage -

students aren’t stupid they know when they’re getting ripped off

• Findings suggest that clubs are able to accommodate higher spending students, in

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an effective manner.

• To students who will actually spend money, then we could accomodate them well.

As long as the jump the queue, get free coat collection, vip room access and a

pretty girl smiles at them, there usually happy.

These findings have led to the alteration of the theory to:

Nightclubs dislike loyalty schemes as they have proven to be expensive and relatively

inefficient, due to the lack of service additions able to be offered, in exchange for free

drinks.

This answers the first area of investigation of ‘Nightclub perspective’ focusing

specifically on point 1,2 and 6:

• What are the advantages and disadvantages of a loyalty scheme to a nightclub or

customer?

• Is it financially worthwhile running loyalty schemes?

• What benefits would clubs be willing to offer?

2. Usage

A theory regarding the usage of schemes include:

Customers are willing to use loyalty schemes, providing the benefits are strong

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These can include such benefits as:

• VIP room access

• Giveaway every 3rd entry for free.

• Free shot with every full price entry or 1/2 price entry on selected nights

• I have been a restaurant before where they offered 10% money back to all

members and that really worked well. So after about 3-4 meals [of large groups

3+] the customer got a free meal and it was in a group of restaurants so customers

had a great choice

• [Combating] massive queue for the bar

Although the finding suggested that such schemes will work more effectively if it were

spread across multiple venues.

• I don’t really got to 1 particular club all the time

Once asked if [subjects] would prefer schemes to be across multipurpose venue - the

major answers were yes, as well as the following statement:

• Yeah maybe, more likely if its [club name] because i go there every Wednesday

and they do food deals for Monday to Thursday, so i go there for lunch while i’m

at uni sometimes.

Although the research showed that most subject are no willing to pay for such schemes

• There’s so many offers out there, why would i bother paying for anything. They

should be trying to encourage me to go to their clubs, and not asking for more

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money.

Therefore the statement should be amended to:

Customers are willing to use loyalty schemes, providing the benefits are strong,and in

keeping with the venues they frequent.

This answers the area of investigation of ‘Expectations of rewards to loyalty schemes’

focusing specifically on point 1, as well as Elements that encourage sign up to loyalty schemes’

point 1, 2 and 3.

• What benefits would be required in order to use the scheme?

• Would peer usage encourage sign up?

• What factors would encourage sign up to loyalty schemes?

• What limiting factors would there be for sign-up and usage of loyalty schemes?

From the nightclub's point of view, the theory of usage is:

Current detection methods of high spenders is limited, therefore loyalty scheme targeting

is hard and inaccurate.

The research findings demonstrated that most nightclubs operate a casual and

unmonitored high spending loyalty system with generates no true readings.

• But we cant keep track of exact numbers

• The big spenders we allow them to jump the queue but that’s only if the doorman

recognises them or if they book a table in advance.

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• I give the regulars who spend alot free shots occasionally but nothing else much.

Although upon correct monitoring of such members there have been instances where

benefits can be materialized quickly:

The cheapest things to give away are VIP room access and Q jump but these are the most

exclusive items for the club and we keep them for our higher spending customers

This then amends the theory to :

Current detection methods of high spenders is limited, therefore loyalty scheme targeting

is hard and inaccurate. With little structured benefit available even if detected.

This answers the first area of investigation of ‘Nightclub perspective’ focusing

specifically on point 5 and 6:

• What limiting factors would clubs face?

• What benefits would clubs be willing to offer?

3. Problems

Many problems have been identified within this study leading to the theory of:

Customers may dislike handing over private information, such as contact details and

carrying loyalty cards around.

The first problem was the spamming occurring within all media formats:

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• Same text every week and it pisses me off so much

• Yeah i hate being texted all the time, so i don’t give my number out

• Well i don’t mind signing up to discount websites or special offer sites

lastminute.com but i don’t really sign up to individual places cause they spam you

too much. The best websites never send you more than 1 email every so often and

that’s the way i like it.

Although this also extended into the privacy of the information obtained by clubs:

if the government can’t even keep out details private, how are clubs gonna keep it safe

With the final problem regarding the carrying of loyalty cards in the wallet all day long:

• Yep, i don’t have a wallet so just carry around a few cards, but i would leave it on

my desk and take it on a night out when needed and if i wanted to go to that club.

• [from the clubs point of view] people will go where is most popular, or they get

flyers for cheap drinks. The cards just seem to get lost or forgotten. Thats why we

hire external promoters

Therefore the final theory is amended to:

Customers may dislike handing over private information, such as contact details and

carrying loyalty cards around, but may not mind possessing the loyalty card at home.

This answers the first area of investigation of ‘Elements that encourage sign up to loyalty schemes

’ focusing specifically on point 2 and 3 :

• What factors would encourage sign up to loyalty schemes?

• What limiting factors would there be for sign-up and usage of loyalty schemes?

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5.2 Internet Survey Analysis

Overall aim

This section will aim to analysis results obtained with regards to the effect of loyalty

schemes on loyalty and the difference between the sexes, and through various data

analysis techniques – independent T-tests, cross tab analysis and rank correlation tests -

determine whether the results obtained are accurate.

Data results and visual representations are available in Appendix (10.9) for all questions

Q1-5:

Results indicated that

Q1: 72% of subjects were apart of more than 1 nightclub scheme, with women slightly

joining more.

Q2: 92% of subject do not like carrying around multiple cards, with women slightly more

against.

Q3:91% of subject do not like handing over personal information, with women slightly

more against.

Q4:61% of subjects do not consider service benefits when considering loyalty scheme

sign up option, with women slightly less considerate.

Q5: 72% of subjects do not believe that nightclub offer good enough benefits to its

members, slightly more by women.

The analyse conducted involved the comparison of the mean values of results obtained

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between male and females. This resulted in the creation of the following null hypothesis

and alternative hypothesis:

H0 - Null hypothesis – There is no difference in mean values between male and female

subjects.

H1 - Alternative hypothesis – There is a difference in mean values between male and

female subjects.

Analysis of these results indicated the following:

Q1:

Mean values are higher in women than men.

Observation of the 2 tailed significance value shows a lower value than 0.05 (i.e. in

comparison to 5% significance – 0.05), which leads to the rejection of the null

hypothesis and accept the alternative.

This allows us to draw the conclusion that there is a difference between men and women,

in regards to loyalty card ownership, although still high in both sexes.

Q2:

Mean values are higher in women than men.

Observation of the 2 tailed significance value shows a lower value than 0.05 (i.e. in

comparison to 5% significance – 0.05), which leads to the rejection of the null hypothesis

and accept the alternative.

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This allows us to draw the conclusion that there is a difference between men and women,

in regards to carrying around multiple loyalty cards, with high dislike levels.

Q3:

Mean values are higher in women than men.

Observation of the 2 tailed significance value shows a higher value than 0.05 (i.e. in

comparison to 5% significance – 0.05), which leads to the acceptance of the null

hypothesis and reject the alternative.

This allows us to draw the conclusion that there is no difference between men and

women, in regards to handing over personal information – both highly disliked.

Q4:

Mean values are higher in women than men.

Observation of the 2 tailed significance value shows a higher value than 0.05 (i.e. in

comparison to 5% significance – 0.05), which leads to the acceptance of the null

hypothesis and reject the alternative.

This allows us to draw the conclusion that there is no difference between men and

women, in regards to handing over personal information – both highly disliked.

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Q5:

Mean values are higher in women than men.

Observation of the 2 tailed significance value shows a lower value than 0.05 (i.e. in

comparison to 5% significance – 0.05), which leads to the rejection of the null hypothesis

and accept the alternative.

This allows us to draw the conclusion that there is a difference between men and women,

in regards to satisfaction of benefits in loyalty schemes – both happy.

Cross tab:

1-5:

Strong correlations exist between the following responses to the questions stated:

Answer Yes, to Q2 and 3: 91%

Conclusion: Customers who carry around multiple loyalty cards do mind handing over

personal information.

Answer Yes, to Q5 and 2: 77%

Conclusion: Customers who dislike carrying around multiple loyalty cards, do believe

nightclubs offer good enough benefits to its members

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Answer Yes, to Q5 and 3: 77%

Conclusion: Customer who mind handing over personal contact information, believe

nightclubs offer good enough benefits to its members

Answer Yes, to Q1 and 2: 72%

Conclusion: Members of more than 1 nightclub do not like carrying around multiple

loyalty cards

Answer Yes, to Q1 and 3: 72%

Conclusion: Customer who are members of more than 1 nightclub, mind handing over

personal contact information.

Answer Yes, to Q1 and 5: 72%

Conclusion: Customers who are members of more than 1 nightclub, believe nightclubs

offer good benefits to its members.

With the weakest correlation (0%) existing between the following:

Answer Yes to Q5 and No to 4

Conclusion: Customer who believe nightclubs offer good enough benefits to its members,

do not consider service benefits when considering which nightclub membership schemes

to sign up to.

Answer Yes to Q1 and No to 4

Conclusion: Customer who are members of more than 1 nightclub, do not consider

service benefits when considering which nightclub membership schemes to sign up to.

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Answer Yes to Q2 and No to 4

Conclusion: Customer who carry around multiple loyalty cards, do not consider service

benefits when considering which nightclub membership schemes to sign up to.

Answer Yes to Q3 and No to 4

Conclusion: Customers who mind handing over personal contact information, do not

consider service benefits when considering which nightclub membership schemes to sign

up to.

Answer Yes to Q2 and No to 1

Conclusion: Customer who do mind carrying around multiple loyalty cards, are not

members of more than 1 nightclub.

Q6-8

Determine positive and negative relationships

Measure of association

The following results have indicated the strongest relationships among rank order, using

Pearson rank order correlation method, are as follows:

Q6: Importance of loyalty scheme sign up

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• Free drinks and free entry

• Exclusive night access and VIP access

Loyalty schemes can therefore be divided into 2 major categories. First the customer who

wants a bottom of the line reduction in their total event cost, or secondly the customer

who wishes to have an enhanced experience through exclusive beneficial extras.

Q7: Repeat visits with regards to loyalty scheme usage

• VIP access and peer advise

• Reduced price entry and free drinks

Once again the 2 categories stated for question 6 apply – both bottom of the line cost

reduction or exclusivity are paramount.

Q8: Aspects hated most about nightclubs

• Poor quality music and high entry price

• Poor quality music and long queues

• Expensive drinks and poor service

• Long taxi wait and poor quality music

• Long taxi wait and long queues

The most paramount findings are that of poor music quality and high entry price as well

as long taxi wait and long queues and finally expensive drinks and poor service.

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The hatred of customer can be signified through service offerings – including music,

service and taxi wait times. All of which can be enhanced across the board to all

members, but also possible to enhance to members through taxi ordering service, shorter

queues and specialised DJ’s in exclusive members sections.

Q9 – 13

Results indicated that

Q9: subjects are neutral as to whether loyalty schemes, result in more visits or higher

spend per visit.

Q10: Subjects agree that service extra’s lead to a greater affiliation to a club (a surprising

contrast to question 4)

Q11: Subject (strongly) agree that being a part of loyalty schemes which provides service

extra’s, would encourage peer usage

Q12: Subjects are in agreement that long queues are the biggest put off to entering a

venue.

Q13: Subjects disagree that decisions about where to go are made well in advance (12

hours +) as opposed to a last minute decision.

The analyse conducted involved the comparison of the mean values of results obtained

between male and females. This resulted in the creation of the following null hypothesis

and alternative hypothesis:

H0 - Null hypothesis – There is no difference in mean values between male and female

subjects.

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H1 - Alternative hypothesis – There is a difference in mean values between male and

female subjects.

Analysis of these results indicated the following:

Q9:

Mean values are higher in women than men.

Observation of the 2 tailed significance value shows a higher value than 0.05 (i.e. in

comparison to 5% significance – 0.05), which leads to the acceptance of the null

hypothesis and accept the alternative.

This allows us to draw the conclusion that there is no difference between men and

women.

Q10:

Mean values are higher in men than women.

Observation of the 2 tailed significance value shows a higher value than 0.05 (i.e. in

comparison to 5% significance – 0.05), which leads to the acceptance of the null

hypothesis and accept the alternative.

This allows us to draw the conclusion that there is no difference between men and

women.

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Q11:

Mean values are higher in women than men.

Observation of the 2 tailed significance value shows a higher value than 0.05 (i.e. in

comparison to 5% significance – 0.05), which leads to the acceptance of the null

hypothesis and rejection the alternative.

This allows us to draw the conclusion that there is no difference between men and

women.

Q12:

Mean values are higher in men than women.

Observation of the 2 tailed significance value shows a lower value than 0.05 (i.e. in

comparison to 5% significance – 0.05), which leads to the rejection of the null hypothesis

and accept the alternative.

This allows us to draw the conclusion that there is a difference between men and women.

Q13:

Mean values are higher in men than women.

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Observation of the 2 tailed significance value shows a higher value than 0.05 (i.e. in

comparison to 5% significance – 0.05), which leads to the acceptance of the null

hypothesis and rejection of the alternative.

This allows us to draw the conclusion that there is no difference between men and

women.

Cross tab:

9-13

3 strong correlations existed within these results:

Totally agree Q11 and totally agree Q10 = 33%

Agree Q11 and totally agree Q10 = 25%

Conclusion:

Being a part of loyalty schemes which provides service extra’s, would encourage peer

usage and lead to greater affiliation to club

Agree Q12 and totally agree Q10 = 31%

Totally agree Q10 and totally agree Q12 = 22%

Conclusion:

Service extra’s from the venue (such as Q-jump, ½ price entry, free drink) leads to

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greater affiliation to club, although long queues are the biggest put off to entering the

venue. Therefore any queue jumping service addition would lead to the greatest

affiliation to any club.

Totally agree Q11 and totally agree Q12 = 22%

Agree Q11 and agree Q12 = 23%

Conclusion:

Being a part of loyalty schemes which provides service extra’s, would encourage peer

usage, although long queues are the biggest put off to entering the venue.

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5.3 Conclusion of analysis:

• These results therefore demonstrate that loyalty is not equal for men and women.

These findings found that:

• Most subjects were apart of multiple loyalty schemes, they do not like carrying

around multiple cards, handing over personal information and that being apart of

a good loyalty scheme would encourage peer usage.

• Subjects also agreed generally on that long queues were a big turn off and service

extras would lead to greater affiliation to a club.

• Most subjects were neutral to agreeable on the provision of service benefits upon

sign up, the poor provision of benefits to its members and finally if loyalty

schemes actually encourage greater usage.

• The point that most subjects disagree on was the decision making process

timescale being less than 12 hours.

• Customers are prepared to sign up to loyalty schemes providing it supply’s

benefits in line with customer needs.

• Nightclubs dislike loyalty schemes as they have proven to be expensive and

relatively inefficient, due to the lack of service additions able to be offered, in

exchange for free drinks.

• Customers are willing to use loyalty schemes, providing the benefits are strong,

and in keeping with the venues they frequent.

• Current detection methods of high spenders is limited, therefore loyalty scheme

targeting is hard and inaccurate. With little structured benefit available even if

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detected.

• Customers may dislike handing over private information, such as contact details

and carrying loyalty cards around, but may not mind possessing the loyalty card at

home.

• Customers who carry around multiple loyalty cards do mind handing over

personal information.

• Customers who dislike carrying around multiple loyalty cards, do believe

nightclubs offer good enough benefits to its members

• Customer who mind handing over personal contact information, believe

nightclubs offer good enough benefits to its members

• Members of more than 1 nightclub do not like carrying around multiple loyalty

cards

• Customer who are members of more than 1 nightclub, mind handing over

personal contact information.

• Customers who are members of more than 1 nightclub, believe nightclubs offer

good benefits to its members.

• Customer who believe nightclubs offer good enough benefits to its members, do

not consider service benefits when considering which nightclub membership

schemes to sign up to.

• Customer who are members of more than 1 nightclub, do not consider service

benefits when considering which nightclub membership schemes to sign up to.

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• Customer who carry around multiple loyalty cards, do not consider service

benefits when considering which nightclub membership schemes to sign up to.

• Customers who mind handing over personal contact information, do not consider

service benefits when considering which nightclub membership schemes to sign

up to.

• Customer who do mind carrying around multiple loyalty cards, are not members

of more than 1 nightclub.

• Loyalty schemes can therefore be divided into 2 major categories. First the

customer who wants a bottom of the line reduction in their total event cost, or

secondly the customer who wishes to have an enhanced experience through

exclusive beneficial extras.

• The most paramount findings are that of poor music quality and high entry price

as well as long taxi wait and long queues and finally expensive drinks and poor

service.

• The hatred of customer can be signified through service offerings – including

music, service and taxi wait times. All of which can be enhanced across the board

to all members, but also possible to enhance to members through taxi ordering

service, shorter queues and specialised DJ’s in exclusive members sections.

• Being a part of loyalty schemes which provides service extra’s, would encourage

peer usage and lead to greater affiliation to club

• Service extra’s from the venue (such as Q-jump, ½ price entry, free drink) leads

to greater affiliation to club, although long queues are the biggest put off to

entering the venue. Therefore any queue jumping service addition would lead to

the greatest affiliation to any club.

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• Being a part of loyalty schemes which provides service extra’s, would encourage

peer usage, although long queues are the biggest put off to entering the venue.

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6. Recommendation

Dowling and Uncles (1997) summarized the key benefits of loyalty schemes as:

1. Keep existing customer base therefore maintaining sales and profits.

2. Increase sales to existing customers,

3. Increase cross selling of other products/services within the company

Once a customer has found a service that he or she enjoys and continues to use, results

indicate less concern with seeking alternatives and reduced responses to advertising or

competitive threats (Newman and Werbel, 1973; Sambandam and Lord, 1995), which is

the main priority for all venues. This is achieved through ensuring the adequate level of

stimulation is met, in order for individuals not to try and increase the stimulation level by

seeking new or novel experiences, or challenges (Patterson, 2007).

"...loyalty occurs when the customer feels so strongly that you can best meet his

or her relevant needs that your competition is virtually excluded from the

consideration set and the customer buys almost exclusively from you - referring

to you as their [venue]...."

Specifically within a service landscape such as nightclub venues, it is "all about how you

make them feel" (Fournier, 2002), and as students frequent nightclubs often, it is possible

to generate a emotional and extensive bond, resulting in perceived product superiority,

personal fortitude, social bonding, and their synergistic effects (The Loyalty Guide,

2008).

The ultimate aim of committed loyalty results in high resistance to other brands and high

switching costs. These customers are more susceptible to marketing communications and

may even pass on embedded marketing message to other customers or potential new

ones, which is a great support for viral marketing efforts. (Rowley, 2005).

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It is the aim of most firms to move customers from brand buying (CBB) to customer

brand acceptance (CBA) to customer brand commitment (CBC), with multiple brands,

placed along the continuum within each product category (Uncles et al. 2003). Although

due to the experiential nature of students and vast offerings in the market place, high

levels of CBA should be satisfactory.

With the results obtained in this study, loyalty schemes should aim to alter attitude driven

behavior, through closer proximity of buyers wants and value proposition offered, with

characteristics, circumstances and situational factors such as street promotion, playing a

smaller part too. Supported by Hoffman and Lowitt (2008) who found that firms cannot

just buy loyalty through reward programs and short term price promotions, but must

create an attitudinal change.

Most subjects in this study were apart of multiple loyalty schemes, although they do not

like carrying around multiple cards or handing over personal information, suggesting that

for a loyalty scheme to be effective the customer must highly value the scheme in order

to create maximum return.

Schemes could be made up of simple to complex system of recording all info, including

lifestyle, purchase choices, motivations, interests, circumstances, and in many cases even

about their household and immediate family. This information will allow for the

calculation of customer lifetime value and so allows for key customer focus segmentation

The isolation of these key customers allows for Best Customer Marketing techniques,

which increases the value offerings to key customers, in order to change behavioral and

attitudinal loyalty, through rewarding consumer behavior that the firm seeks, resulting in

an overall positive event with impact (The loyalty guide, 2008).

This study showed that loyalty schemes customers could be divided into 2 major

categories. First the customer who wants a bottom of the line reduction in their total event

cost, or secondly the customer who wishes to have an enhanced experience through

exclusive beneficial extras.

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This research has found and concluded that price promotions are preferred by customers

who display lower levels of loyalty in general, and should therefore be avoided as target

customers. Price was found to only stimulate trying of a brand, and therefore can not be

considered a long term business strategy in most cases (Hoffman and Lowitt, 2008).

Although, access pricing could be used in order to entice in ‘Cherry-pickers’.

Within these 2 categories the ‘Easy to signup’ customers are best to be avoided who are

members of more than 1 nightclub, do not consider service benefits when considering

which nightclub membership schemes to sign up to, around multiple loyalty cards and do

not consider service benefits when considering which nightclub membership schemes to

sign up to – as found in this study.

The research found that customers are prepared to sign up to loyalty schemes providing it

supply’s benefits in line with customer needs. Firms must therefore distinguish the value

proposition quickly and effortlessly, without collecting useless info in order to enhance

experience and treat like individuals (2000, a structural analysis of hotel sector loyalty

programmes international journal of hospitality management).

It is neither economically nor operationally wise to expand the firm’s value proposition to

all of its customers (Reichheld, 1996) and has therefore led the nature of customer loyalty

programs to be such that tiered levels of benefits and customer services are created.

(McIlroy and Barnett, 2000)

This value proposition must be supported throughout the entire life cycle e.g. Tesco baby

club within mothers, or in this case during exams periods, freshers week, times of

financial struggle. Venues should create support systems through fluctuating offers,

themed events and additional offerings such as competitions etc, in order to maximize

relationship and create and implied contract with consumer.

Data exchange theory suggests that customers exchange personal information, even love,

129

status, money, goods, and services (Brinberg and Wood, 1983) in order to obtain

resources, such as monetary savings or enhanced services. Customer must therefore be

fairly compensated for this information, in terms of value, and be unbiased, with

circumstances and requirements considered (Tax and Brown , 1998), while be delivered

in respectful, friendly, honest and politeness manner.

Reward characteristics must include quality, convenience, value expression and hedonic

benefits, as 9/10 people rate personal attention as one of the most important customer

services. Elevated social status recognition and/or enhanced products and services above

and beyond what is normally offered to customers, can convey prestige to customers and

make them feel special, important, and appreciated (Morgan et al., 2000).

Venues must create a balance between attractiveness and cost, while appealing to profile

customer with diverse taste and desires, at each of the tiered levels, although meaningful

and affordable benefits are hard to find (Duffy, 2005). Subjects in this study suggested

rebate ideas, queue jump, members bar, as suggested benefits to name a few, that would

lead to greater affiliation to a club and peer usage.

Previously, venues tend to dislike loyalty schemes as they have proven to be expensive

and relatively ineffective, due to the lack of service additions able to be offered, although

with the recent technology, extended opening hours and consistent redesign of clubs, it is

now possible to alter service benefit offerings in a major way, depending on the venue

and investment potential.

The enrolment process must focus on the key spenders although this may alter dependant

on the venue. Some venues aim to increase spend across the board by 5% (for example),

where others may aim to increase by a larger percentage between a fewer number of

customers. Customised calculations must be done, in order to determine individual cases’

best outcome.

Engagement must be high enough that customers value the offerings and desire the

130

scheme., for example invitation only, fee based (minimum spend within club allows

membership or annual fee for subscription)

Findings from this study have indicated that the current detection methods of high

spenders is limited, therefore loyalty scheme targeting is hard and inaccurate. With little

structured benefit available even if detected. Technology and staff training can allows

alter this though and increase detection and utilization of key customers.

In order to maximize loyalty scheme usage venues create structured social relationships

among brand users and social support through firms’ communication leading to a

reduction in customer’s uncertainty; enhances self-esteem; or creates a sense of social

connection to others (Patterson, 2007) leading to a feeling of belonging, belief that

members matter to each other and to group, faith in needs will be met by community

(McMillan and Chavis, 1986).

Venues communication must be strong, consistent and understandable in order to move

customer down the ladder: Awareness–Preference/repeat purchase–Complex message

communication (possible intangible)–Create dialogue.

Open and extensive communication leads to recognition and personalization, which

maximizes the effectiveness of loyalty scheme communication, as part of an entire

communication effort (Roehm et al. 2002).

Employees acts as ‘loyal leaders’ (The loyalty Guide, 2008), and should therefore be

considered of vital importance, with integrated systems in order to manage and maintain

the relationships, especially true of front of house staff, who are generally employed

because of there customer service skills. Simple training of scheme sign-up could

produce excellent results.

The most underutilised aspect of loyalty schemes is this use of data, possibly due to the

sheer volume of data obtained. Without this information it is impossible to determine the

131

return on investment (ROI), gain marketing insights, customer value, define specific

marketing strategies for finite customer segments, model customer attrition and

intervention strategies (Lacey and Sneath, 2006). Although key information such as

customer experience, decision making or range of products purchased from portfolio, has

previously been unobtainable, but recent technology allows for greater tracking of

customer spend per head, frequency of visits and key decision making factors.

The final advantage of loyalty schemes is that it encourages the customer to complain

which leads to trust and perceived quality of relationship, implemented through various

conflict handling strategies.

Frustration incidents directly related to the loyalty program include: difficulty of access

(qualification barrier), impossibility of claiming the reward (inaccessibility), low value of

the reward (worthlessness) and being required to invest additional material and mental

costs in order to enjoy the benefits (redemption costs) (Stauss et al. 2005).

132

7. Action Points

• Any loyalty scheme must offer high value to the customer.

• Avoid ‘Easy-to-sign-up’ customers.

• Distinguish high value customer.

• Avoid price dependant or easy to sign up customers.

• Price incentives provide short term benefits only.

• Distinguish value proposition.

• Used tiered level of benefits to customers, dependant on customer value.

• Provide support through life cycle, through competitions, themes, fluctuation

offers, therefore creating implied contract.

• Compensation for data exchange must be fairly and unbiased, delivered in

respectful, friendly, honest and politeness manner.

• Reward characteristics must include quality, convenience, value expression and

hedonic benefits.

• Social status, recognition and/or enhanced products are the main benefits wanted

by customers.

• Suggestions in clued rebate ideas, queue jump, members bar.

133

• Recent technology, extended opening hours and consistent redesign of venues,

enable alteration of service benefit offerings in a major way, depending on the

venue and investment potential.

• A higher scheme value is placed on fee based (minimum spend or subscription

fee) or invitation to scheme.

• Detection and targeting of key customers are difficult, although new technology

and staff training can alter this.

• Communal spirit within customer leads to less uncertainty, enhances self-esteem

or creates a sense of social connection to others, which is key to any nightclub

business.

• Communication takes customers from simple awareness to a complex dialogue,

enhanced by recognition and personalisation.

• Employees are loyal leaders and should be trained in order to maximise results.

Simplified by the fact that they are employed due to their interaction skills and

look. Resulting in maximised sign up!

• Data allows for return on investment (ROI) calculations, gaining of marketing

insights, customer value, define specific marketing strategies for finite customer

segments, model customer attrition and intervention strategies

• New technology such as biometric membership systems could be implemented in

order to gain insight into customer spend per head, frequency of visits and key

decision making factors.

• Correct communication avenues should be set up within loyalty schemes to

encourage customers to complain, resulting in stronger relationships and a

134

reduction in frustration.

135

8. Limitations

• The low external validity in this study could have been avoided within the

selection process. Candidates could be mapped with regards to their proximal

similarity between groups of people, places and times, a similar philosophy to

concept mapping.

• Single variable measure (sex) could have been expanded to income, location,

university, course and specific age in order to provide a more detailed consumer

insight.

• Despite the study indicating that females were more susceptible to loyalty

schemes and may provided better results, this study failed to indicate whether

these consumer produced financial benefits (i.e. higher spend per head or within a

group) or other benefits (i.e. encourages a larger crowd, keep higher spends

happy)

• The venue proposed to subjects could have been segregated in various themed

nights, therefore allowing each venue type to determine best offerings to it’s

customers.

• Finally, it could have been possible to determine value requirements at various

time periods and therefore providing value requirements within stages of the

product cycle–within each term and between the years at university.

136

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10. Appendix

10.1 Index 1

Leading multiple nightclub operators, November 2006

Operator Nightclub venues % of total

Luminar Leisure 110 5.5

CanDu Entertainment 25 1.3

Novus Leisure Ltd 22 1.1

Barclub Limited 15 0.8

Nexum Leisure 12 0.6

G1 Group PLC 11 0.6

Summit Clubs 11 0.6

Vimac Leisure 8 0.4

Utopian 6 0.3

Other 1,780 88.8

Total 2,000 100.0

http://academic.mintel.com/sinatra/oxygen_academic/search_results/show&/display/id=1

73638.

157

10.2 Index 2

Nightclub visitors (of 25'000 adults)

Heavy users (1 or more a

week) 2.7%

Medium (2-3 a month) 7%Light users (less than once a

month) 17.7%

Non-users 72.6%

http://academic.mintel.com/sinatra/oxygen_academic/search_results/show&/display/id=1

73638.

158

10.3 Index 3

Survey questions:

Are you a member of more than 1 nightclub? y/n

Do you mind carrying around multiple loyalty cards? y/n

Do you mind handing over personal contact information? y/n

Are service additions a major factor when considering which

nightclub membership scheme to sign up to? y/n

Do you believe nightclubs offer good enough benefits to its members? y/n

Please rank the following in importance of loyalty scheme sign up (1-5+):

Peer sign up _

Free drink (s) _

Free entry _

VIP access _

Exclusive night access _

Others ____________________________

Please rank the following in importance repeat visits with regards to loyalty scheme

usage (1-4+):

Peer advise _

Free drink (s) _

Reduced price _

VIP access _

Others ____________________________

Please rank the following with regards to aspects you hate most about nightclubs (1-7+):

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Early closing hours _

High entry price _

Long queue _

Long wait for taxi _

Poor quality music _

Poor service _

Expensive drinks _

Others ____________________________

Please indicate the level of which you agree or disagree with the following statements

(1 = totally agree, 2=agree, 3=neutral, 4=disagree, 5=totally disagree)

Being apart of loyalty scheme encourages me to make more visits or spend more money

_

Service extra’s from the venue (such as Q-jump, ½ price entry, free drink) leads to

greater affiliation to club _

Being a part of loyalty schemes which provides service extra’s, would encourage peer

usage _

Long queues are the biggest put off to entering the venue _

Decisions about where to go are made well in advance (12 hours +) as opposed to a last

minute decision _

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10.4 Index 4

161

10.5 Index 5

162

10.6 Index 6

What would make you sign up to a nightclub loyalty scheme?

Would you sign up to a loyalty scheme is it was spread across multiple popular venues?

Would you pay for this membership?

Do you mind carrying around many loyalty cards?

What benefits could you provide to your average member? with regards to affordable and

accessible options.

What benefits do you provide to your most loyal customers?

What percentage of your customers are loyal (more than 1 visit per fortnight)

Do you have any past experience with loyalty schemes? If so, please describe.

163

164

10.7 Index 7

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are needed to see this picture.

165

QuickTimeª and aTIFF (Uncompressed) decompressor

are needed to see this picture.

Diamantopoulos, Adamantios and Schlegelmilch, Bodo B. (1997). Taking the fear out of

data analysis. pp. 34 - 35

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10.8 Index 8

FOCUS GROUP 1

Interviewer: Hi there everyone

Subject 1: Hey

Subject2: Hi

Subject3: Hi

Subject4: Hi there

Introduction regarding study

-purpose of study

-time length

-instructions to speak clearly and concisely

-instruction not to use any names of venues

Interviewer: So are you guys a member of any nightclub loyalty or membership schemes.

Subject 1: Yeah a few, but can’t remember all of them

Interviewer: How come?

Subject 1: Cause during fresher’s week you sign up to soo much that you never actual

remember everything.

Subject3: yeah i agree, every club bombards you with so much and you just sign up

because you don’t really want to miss out on all the offers, but actually you find out it’s

all rubbish afterwards.[laugh by all subjects]

Interviewer: ok, so what made you sign up to each of the schemes?

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Subject4: the fit girl

Subject2: yeah yeah

Interviewer: anything else?

Subject3: I got some really cool posters though

Subject 1: some gave away free drinks tokens, half price entry and one place even gave

away free can of beans

Subject2: Yeah, they’ve all got crapy goody bags which you think has loads of cool

stuff, but then when you get home, all they have is flyers and the occasional condom.

Interviewer: So what benefits would you like to receive for signing up to such a scheme?

Subject4: cool freebies !

Interviewer: such as?

Subject4: Free booze or something i can actually use

Subject 1: how’s about free entry for the first time we come to the club?

Interviewer: Well do you believe that the rewards for you returning to a club constantly

are good enough?

Subject4: No their crap

Subject2: I a go to [club name] every week with all my flat and we never get anything,

but it’s the only place to go on a Thursday which does £1 drinks so we don’t really have

an option.

Subject 1: Well i know most of the promoters and if i bring along a few people they

normally let me just the queue.

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Interviewer: If the rewards were strong would you mind paying for membership

Subject 1: depends, how much?

Interviewer: ok say less than £20 per year

Subject2: Well if it was for just 1 club then maybe but i like trying new places all the

time so I doubt ill go to 1 place enough to justify it.

Interviewer: anyone else?

Subject4: Doubt it, unless I got some free drinks or free entry every time I go.

Subject 1: No

Interviewer: Are you happy with giving across you personal details/information?

Subject4: No, every club texts and facebook’s you constantly if you give them the info,

so I never give my number away anymore!

Subject2: I agree

Subject 1: yeah, they send you the same text every week and it pisses me off so much!

Subject3: yeah and there’s no way of getting out of it cause there no number to call

Interviewer: And final question, do you mind carrying some token of loyalty such as a

card ?

Subject 1: No

Subject3: No not really

Subject2: No its fine, but i don’t usually carry a wallet around so would probably just

stayin my room

Subject4: same here

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Subject 1: Me to

Interviewer: thank you everyone

FOCUS GROUP 2

170

Interviewer: Hi there all

Introduction regarding study

-purpose of study

-time length

-instructions to speak clearly and concisely

-instruction not to use any names of venues

Interviewer: So is anyone a member of any nightclubs?

Subject4: yeah loads seem to always sign up to everything when I’m drunk !

Subject2: [laugh] same here, anything for free

Subject 1: me too

Subject3: yep

Interviewer: so what made you sign up?

Subject3: I got told that I get VIP invites to all the special events, like the fashion show

that was coming up.

Subject 1: i got a shot

Subject4: Me and all the girls got a free champagne bottle, but it was the cheapo stuff and

tasted horrible! But it’s still free drink so we were happy.

Subject2: the club is also a bar in the day, so i got 2 for 1 on burger and drink meal deals.

Interviewer: What benefits would you like to have for every visit to the nightclub?

Subject 1: cheaper entry or quicker entry, I hate getting dressed up then waiting in a

massive queue, my hair gets all messed up.

Subject4: definitely, I wish there was a different entry for members

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Subject2: totally agree

Subject3: I agree, I’d like to have a special bar inside for members cause it takes years to

get served and you spend half then night getting drinks in.

Subject 1: So agree with quicker bars

Subject2: Me too

Interviewer: Good stuff, so are the benefits to using you membership good enough for

every time you visit the club?

Subject2: Not really, they don’t really give you offers, just give you a guestlist number to

ring if you want £1 off, but you can get that anyway.

Subject3: Nah

Interviewer: So if the benefits were good enough would you mind paying for membership

Subject 1: depends on what they are offering.

Subject3: Not really

Subject2: maybe but i don’t really got to 1 particular club all the time. I got to

[promotional company]’s nights but they do their events in different clubs for each night

of the week.

Interviewer: Ok, so do you mind giving over your contact information.

Subject2: Depends on the club

Subject3: Yes, I never give it out

Subject4: No its ok

Subject 1: Yeah i hate being texted all the time, so i don’t give my number out.

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Interviewer: Do you have any concerns regarding who is using your infomation

Subject4: No not really thought about it

Subject2: Same here

Interviewer: ok last question, do you mind carrying around membership cards

Subject 1: No, ive got loads in my purse

Subject3: Same here, got about 10, but none for nightclubs

Interviewer: why is that do you think?

Subject3: The clubs we got to never seem to give cards out. I don’t think......

FOCUS GROUP 3

Interviewer: Alright guys

Introduction regarding study

-purpose of study

-time length

-instructions to speak clearly and concisely

-instruction not to use any names of venues

Interviewer: Is anyone a member of any clubs?

173

Subject 1: No

Subject2: think so, but I can’t remember which ones

Subject4: Yep, a few

Subject3: Loads

Interviewer: what made you sign up to them?

Subject2: The fit bird that was asking me to sign up

Subject3: They gave me £2 off next time i came.

Subject 4: A free shooter which was so watered down

Subject2: O yeah I got a free drink too

Interviewer: What benefits would you like to receive every visit for using your

membership?

Subject 1: I’d sign up if they gave me free drink

Subject3: cheaper entry or a free drink

Subject2: maybe the first round for free or a free shot with every round.

Interviewer: Would you mind paying for a membership if it was to give you exception

benefits?

Subject 1: I guess so

Subject4: Yes, if it was at a club I go to regularly

Subject3: if i got free drinks then yeah.

Interviewer: Do you have any concerns about the privacy of your infomration

Subject 1: Defo, if the government can’t even keep out details private, how are clubs

174

gonna keep it safe. And they always give the details to their promoters and other clubs

they own, so everyone keeps sending you junk. That’s the reason i never sign up to

anything!

Subject4: yeah your right

Subject3: but i don’t mind hearing from them

Subject2: i don’t really care, i always lose my phone so i never have the same number for

more than a few months [laugh]

Interviewer: Last question, do you mind carrying around loyalty cards ?

Subject2: yeah , I hate carrying around too much in my pockets

Subject4: If i use it all the time then its ok , but normally i just bin them otherwise they

just pile up in my room

Subject 1: i hate it,

Interviewer: Thanks everyone

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INTERVIEWS

8 interviews

What would make you sign up to a nightclub loyalty scheme?

Subject 1: I really don’t like to sign up to anything because all they do i send you junk

emails and texts all the time..... but if i had to sign up i guess it would have to be

something special.

Subject 2: Hmmm, i like getting treated special so i guess VIP room access, but i guess

they can’t give that to everyone [laugh]

Subject 3: I don’t wanna have to wait in a massive queue for the bar, so if they could do

like a members super quick service bar, then i would sign up for sure.

Subject 4: I sign up to anything and everything so any discount or freebies.

Subject 5: Well i don’t mind signing up to discount websites or special offer sites

lastminute.com but i don’t really sign up to individual places cause they spam you too

much. The best websites never send you more than 1 email every so often and that’s the

way i like it.

Subject 6: Anything to save me money when I go out. It’s so expensive to go out

176

nowadays.

Interviewer: So you don’t mind having lots of vouchers or cards then basing all your

decision on what provides best value for money?

Subject 6: Absolutely, its the best way to shop

Subject 7: Well i used to sign up to a few schemes but what i found was that all they sent

me was offers for all the off peak or rubbish nights. All the popular nights are always

expensive and hard to get into.

Subject 8: Free stuff like drinks or entry. I hate paying to get into places.

Would you sign up to a loyalty scheme is it was spread across multiple popular

venues?

Subject 1: Maybe, if the offers were good at all clubs

Subject 2: Yes, but only if it was at the clubs i like going to

Subject 3: I guess so, if we actual benefited from the nights they recommend then yeah.

Interviewer: so what benefits would you like to gain?

Subject 3: i dunno, maybe like a free entry after going to the recommend clubs a few

times. Like when you buy coffee.

Subject 4: Yeah , it makes more sense as i barely ever go to the same club every week.

Subject 5: Why not, providing that it’s regulated by a well known company and they

don’t all send me loads of info.

Interviewer: so how often would you mind receiving emails or alerts about special

177

events?

Subject 5: i prefer to not get monthly emails cause i just put them in my junk folder, so

only when there is something really good going on.

Subject 6: Yes if it was at the places i like to go to

Subject 7: I guess so, but like i said before, it all depends if the best nights are included,

otherwise there’s no point.

Subject 8: Yeah of course, providing it was free.

Would you pay for this membership?

Subject 1: No way, if they want me to come their clubs then why should i have to pay

Interviewer: Even it was at a venue in which you frequently visit and it could save you

money?

Subject 1: Yeah even then, cause there’s always something new going on and i change

my mind all the time..

Subject 2: Yeah i really would mind paying, unless they gave me free entry to

everywhere.

Subject 3: For one venue or across a fre clubs?

Interviewer: either

Subject 3: i wouldn’t pay for one venue, but maybe if it gave me loads of good offers at

the places i like to go.

Subject 4: Nah, it wouldn’t be worth it

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Subject 5: No way! There’s so many offers out there, why would i bother paying for

anything. They should be trying to encourage me to go to their clubs, and not asking for

more money.

Subject 6: No, why should i?

Interviewer: for the use of exclusive areas or discounted offers?

Subject 6: No thanks, not really into that poncy VIP s**t, but if they gave me free entry

or free drinks then i might.

Subject 7:If a truly benefited from it, then i might consider it

Subject 8: NOT ASKED

Do you mind carrying around many loyalty cards?

Subject 1: Yes, i really hate having a full wallet. I only every carry around my tesco’s

clubcard cause i use it all the time.

Subject 2:Yep, i don’t have a wallet so just carry around a few cards, but i would leave it

on my desk and take it on a night out when needed and if i wanted to go to that club.

Subject 3: Maybe, but i generally don’t carry around cards

Subject 4: I will lose it straight away! I lose everything [laugh]

Subject 5: Possibly, but if i don’t use it very often ill just throw it away.

Subject 6: Yep its fine. I really don’t mind. Ive got a massive wallet anyway !

Subject 7:Depends

179

Interviewer: On?

Subject 7: If i went to the club often enough?

Interviewer: So if you went regularly say around twice a month, would you carry around

the card?

Subject 7: Yeah maybe, more likely if its [club name] because i go there every

Wednesday and they do food deals for Monday to Thursday, so i go there for lunch while

i’m at uni sometimes.

Subject 8: No, it’s no problem at all

Individual interviews - clubs

Do you have any past experience with loyalty schemes? If so, please describe.

General manager / owner - subject 1: Yes we currently operate a membership scheme

Interviewer: what do you offer?

Subject 1: we give away a free shot with every full price entry or 1/2 price entry on

selected nights. We've got around 1000 members but it doesnt really make any

difference.

Marketing manager - subject 2: The one we operate has been working for about 6

months, with over 1000 members. We have all their information and send regular emails

and text messages. It leads to around 20 or 30 guestlist bookings every-time we send out

any communication. This brings in about £100 of business..... Unfortunately the budget

for marketing is mainly used for flyers, posters and distribution.

180

bar manager / manager 2 - subject 3:

Yes, we currently operate a scheme, but to be honest it doesn't seem to be working at all.

nobody really comes in becuase of it.

Interviewer: Why do you think that is?

Because all you get is a free shot and that only costs £1. plus we got all the student to

sign up in september during freshers week and by now they would of all lost the cards

and stuff. There's no point in it really.

General manager / owner - subject 4: Ive had past experience with them and they dont

really do anything, so ive not implemented a scheme at this venue.

Interviewer: Why dont you believe them to work?

Subject 4: Because people will go where is most popular, or they get flyers for cheap

drinks. The cards just seem to get lost or forgotten. Thats why we hire external promotors

and by the time you've typed in all the numbers and email addresses half of them are fake

ones anyway so it just doesnt work out to be cost efficient.

Marketing manager - subject 5: Ive dealt with them before, Some are really good,

especially at venues where the club is really exclusive. Customers will always carry it

around because it looks good and makes them feel special. But somewhere like this [large

nightclub] it doesn't really work. we have to work on mass promotion and getting out

name out there as much as possible. Loyalty schemes just mean we give away more for

free and that cuts the bottom line.

181

bar manager / manager 2 - subject 6: No not really. We dont have one in this place, but i

have been a resteraunt before where they offered 10% money back to all members and

that really worked well. So after about 3-4 meals [of large groups 3+] the customer got a

free meal and it was in a group of restaurants so customers had a great choice.

General manager / owner - subject 7: Yes, we operate a very successful student only

scheme which works great. We give away every 3rd entry for free.

Interviewer: How is this achieved?

Subject 7: Well like the subway cards we had a load of cards and stickers printed and the

door team give everyone a sticker, and a card if need be, as well as a free shot. The whole

thing only costs pennies per person, but student love it, and they always bring the cards

with them.

Marketing manager - subject 8: Well ive worked at places before where there has been

nothing special to give away, like a free shot or q-jump which is in fact just the same as

the guestlist line [a number which can be called all day to reserve entry - nothing special].

students arent stupid they know when there getting ripped off, but the system that we

operate is loved by students. We go around all the halls and give them out as well as

everyone that turns up at the club.

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bar manager / manager 2 - subject 9: Ive worked at a few placed that have tried it out, but

nothing as good as this one. We get at least 100 people every night with the free shots

vouchers and they seem to come regularly, but im at the bar most of the time so cant

really tell what's happening outside.

What percentage of your customers are loyal (more than 1 visit per fortnight)

General manager / owner - subject 1: not too sure, we have a regular base of promoter

who bring in a lot of business, but we cant keep track of exact numbers. The VIP room is

always full which is a goo dindication of our best customers

Interviewer: How many does your VIP room hold?

Subject 1: around 75 - 100

Marketing manager - subject 2: A good portion. i'd guess around 20%. Its especially

obvious with the sports teams.

bar manager / manager 2 - subject 3: I would guess a few. Not too sure as i dont get to

leave the bar that often and you forget faces easily.

General manager / owner - subject 4: Not a clue, We dont keep count to be honest.

Marketing manager - subject 5: A largish number i guess. We have strong drinks offers

on a good night of the week so our offering is strong a competitive.

Interviewer: Do you have any idea of numbers?

Subject 5: No sorry we dont keep number, just door figures.

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bar manager / manager 2 - subject 6: No a clue, sorry. But i do see some faces every

week while the students are here. But mainly people i know.

General manager / owner - subject 7: Easily over 100 people use our scheme, a lot of

them come from societies or sports teams

Marketing manager - subject 8: hundreds, we get lots of group bookings as well as our

regulars who have come every since they stared uni.

bar manager / manager 2 - subject 9: at least a hundred people use it every week, but

dunno if they are the same people or not.

NB. the question was phrased with regards to the scheme, not overall loyalty for this

question.

What benefits do you provide to your most loyal customers?

General manager / owner - subject 1: ANSWERED BEFORE

Marketing manager - subject 2:Well to the people we know and the staff's friends we

allow free entry but nothing else apart from the loyalty scheme.

bar manager / manager 2 - subject 3: I give the regulars who spend alot free shots

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occasionally but nothing else much.

General manager / owner - subject 4: The big spenders we allow them to jump the queue

but that’s only if the doorman recognises them or if they book a table in advance.

Marketing manager - subject 5: No, nothing much. Just the familiar faces or friends of

staff get benefits like a free drink or free entry, but apart from that nothing.

bar manager / manager 2 - subject 6: Nothing really. everyone pays for drinks, even table

bookings get charged full price. but we dont get any of them at the student nights

General manager / owner - subject 7: ANSWERED BEFORE

Marketing manager - subject 8: The regulars are usually the promoters friends so they

can skip the queue, but apart from that nothing really. you really dont get that many big

spenders in the student nights. they're all really tight after the first few weeks of uni

bar manager / manager 2 - subject 9: Nothing from the bar, but maybe they get special

treatment at the front door. i know when i tell them i have friends coming that they sort

them out with a free entry and they dont make them wait in line either.

What benefits could you provide to your average member? with regards to

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affordable and accessible options.

General manager / owner - subject 1: We already do half price entry and free shots. They

dont cost much so it doesnt really bother me either way.

Marketing manager - subject 2: Shots are cheap but then they stop them spending more

on drinks. plus they always expect something for free.

bar manager / manager 2 - subject 3: Drinks arnt that expensive. the club makes massive

margins on every drink so they could give away pretty well much anything but the boss is

way to tight for that.

General manager / owner - subject 4: I hate giving away things. Students just expect to

get it all the time then. The drinks are cheap enough anyway so they shouldn't really

complain

Marketing manager - subject 5: Well, to students who will actually spend money, then

we could accomodate them well. As long as the jump the queue, get free coat collection,

vip room access and a pretty girl smiles at them, there usually happy.

bar manager / manager 2 - subject 6:Drinks are cheap, and if we had a quick serve bar

that might help. But then you'll have big logistic problems i guess.

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General manager / owner - subject 7: What we do at the moment is pretty much the most

cost effective way. Even letting them in for free, there still gonna spend far more at the

bar and we'll make money that way. its only mid week anyway so any profit will do.

Marketing manager - subject 8: The cheapest things to give away are vip room access

and Q jump but these are the most exclusive items for the club and we keep them for our

higher spending customers. The free shots offer we have at the moment is pretty good.

bar manager / manager 2 - subject 9: The free shots seems to work well, but i think they

need to come up with something new for the new years. everyones used to the free shots

and possibly like a 1/2 price cocktail jug or 1 off 10 beers for the price of 5 or something

to keep people interested. And everyone knows the shots are watered down and there

really not that bothered about them anymore.

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10.9 Index 9

Quantitative analysis

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