Loyalty and Customer Relationship Management in Tesco Plc. Narrative

Table of Content


Customer Loyalty has been one of the most misunderstood concepts of recent years (Payne, 2002). Unfortunately there is no universally agreed definition of loyalty (Jacoby and Chestnut 1978; Dick and Basu 1994; Oliver 1999). Oliver (1999) suggested that loyalty and satisfaction are linked inextricably, but also that this relation is asymmetric, arguing that although loyal customers are usually satisfied, satisfaction is an unreliable precursor to loyalty. This research seeks to define the ‘real’ meaning of loyalty in retail terms and how it differs to satisfaction.

Some loyalty Schemes are termed as a disguised from of Sales promotion. They are just another way of bribing the customers (Woolf, 1996), It’s a ‘zero sum game’ as profit margins are squeezed to run the scheme (Oliver, 1999). Handling data is like drinking water from a fire-hose (Humpy et al, 2004). Still, loyalty schemes are practiced by big retailers.

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He, Woodcock, and Gamble (1999) defined CRM: “CRM is an enterprise-wide commitment to identify your named individual customers and create a relationship between your company and these customers so long as this relationship is mutually beneficial. ” (MERLIN, S. , WOODCOCK, and GAMBLE, 1999). In a business context loyalty has come to describe a customer’s commitment to do business with a particular organization, purchasing their goods and services repeatedly, and recommending the services and products to friends and associates. (Barnett,2000).

Loyal Customer can mean a consistent source of revenue over a period of many years. However, this loyalty cannot be taken for granted. It will continue only as long as the customer feels they are receiving better value than they would obtain from another supplier. There are many approaches companies can usefully adopt to measure loyalty and many companies keen to help with various tools and techniques. A large number of retailers have become so focused on customer basket analysis, profitability and driving down operating costs that they have forgotten to listen to the real voice of the customer.

Though global retail industry began humbly, it went onto become a business worth billions. Trade was more of a barter system once, where the surplus produce was swapped for another. Cretans were the earlier traders, who carried on the trade in the Mediterranean region. Then came the Phoenicians, who not only traded but also distributed the goods across various regions.

Romans followed and they developed a sophisticated form of retailing. Many small shops came up and it is said that the Romans built the first department store. It is these people who developed the retailing methods we know today. But with the fall of Roman Empire, retailing disintegrated. The only retailers left were the peddlers, who traveled across various places selling their wares. Inefficiency of the earlier distribution system led to a new concept of selling – department stores, which rose in the mid-19th century.

Then a century later, various retail formats arrived – chain stores, convenience stores, supermarkets and mail order business. With this, the retail industry began to expand. Nothing has remained the same since 1990s; the only exception is that Wal-Mart was the leader then and now also.


The related literature pretends to give an overview of the topic in the spheres of customer service , customer loyalty enhances profitability in retail sector. According the Heskett customer satisfaction is related to customer loyalty. And customer loyalty brings the profitability for the organisation. All these things are influenced by customer service. (James L. Heskett, 2002:355) Payne (2002), points out customer loyalty has been one of the most frequently discussed and most misunderstood concepts of recent years. Loyalty is .

This disagreement has led to a debate that originally started almost 30 years ago between Jacoby and Kyner and is still going on in present times (Rundle-Thiele, 2001) . In order to realize the purpose of the research, it’s important to assess loyalty schemes as a part of a strategy rather than a stand-alone entity. It must be considered that CLPs do not exist in a vacuum, but should be a coherent element of a company’s overall strategy and capabilities (O’Malley , 2000). Given the potential benefits of customer-loyalty-programmes, firms like Tesco have adopted them as a core business strategy (Morgan et al,2000).

Tesco’s design of a loyalty program takes into account the nature of the business, its market position and strategic goals, and the competitive landscape. (Fournier et al, 2001). It is essentially a long term CRM strategy that not only evaluates the current performance of Tesco’s relationship with its customers, but also drives its strategic direction (Roberts, 2004). The success strategy is always to closely align an organization with its customers but bringing this vision to reality is far from easy ( Sawhney, 2001).

Customer service is identifying and satisfying the customer needs. It is really important activities to approach the consumer to the level of their satisfaction that is the response of customer’s expectation. (Jamier I Scott, 2002) If customer service is poor customer’s relations can be damage thus developing the customer service and having better service is profitable for the company . (Kotler 2004:23)

Strategists have put in place a framework for understanding and meeting the needs of the customer or which (Fournier et al, 2003) calls as ‘The Ideal Customer Experience’. A framework for the Ideal Customer Experience is designed by (Fournier et al. ,2003) to deliver a Customer Experience that meets the needs of the individual customer. The strategy behind this (and behind Tesco’s strategy) is that a customer whose needs are understood and met will continue to purchase from the company with increased frequency and value. The result is win-win between the company and the customer.

Customer Strategies in TESCO “We have continued to make strong progress with all four parts of our strategy – a strong UK core business, non-food, retailing services and international – by keeping our focus on trying to improve what we do for customers:

  • Making their shopping trip as easy as possible
  • Constantly seeking to reduce our prices to help them spend less
  • Offering the convenience of either large or small stores
  • Bringing simplicity and value to complicated markets” [Source: Tesco Preliminary Results 2008/9]

Rhetoric vs. Reality According to Cigliano et al. 2000), is that many organisations underestimate the full cost of setting up and sustaining CLPs, arguing that even those that increase sales might actually be still draining money – which could have a variety of reasons apart from underestimating CLP-set-up and maintenance costs, such as getting caught up in price wars with competitors due to heavy financial incentives, or investing in the wrong customers (in some cases, the demand of certain customers is so small, even after a lifetime, that the cost and effort of turning them into loyal customers are out of proportion to the revenue they could generate (Butsher,2001)).

It has also been suggested that far too many customer-loyalty-programmes have overemphasized on information gathering rather than relationship building and have thereby ignored the need for customers’ voluntary participation in the programme (Tynan,2000). One reason therefore might be found in the false assumption by many marketers that every customer is keen to develop an intense and devoted relationship with them, while in fact it has been suggested that they are more likely to view companies as “enemies”, not “allies”(Fournier et al,1998) .

Furthermore, it has been argued by Fournier et al. 1998) that “the very things that marketers are doing to build relationships with customers are often the things that are destroying those relationships” since what is called “intimacy” by marketers is often viewed as “intrusive” by the customer in a world where customers want, and will increasingly demand control over their own data (Tynan,2000).

Also, there is a clear limit to the number of such schemes the customer will take the trouble to join. The greater the proliferation of loyalty schemes, the less they act like loyalty schemes, appealing more to the minority of customers who are especially susceptible to promotions. One must question whether the proliferation of loyalty programs represents real value creation or is simply a case of “keeping up with the neighbours. ” (Kadar & Kotanko, 2004).


There are a wide variety of marketing research classifications and design methodologies; therefore the researcher faces the dilemma of choosing the most suitable approach to meet its objectives as there is not one single ‘best approach’ to follow. In addition, the most appropriate methodology is dependent on the availability of resources and time constraints on the research project.

Thus, the chosen process is different to each research case and consequently has to mirror the objectives of the particular research (Sutherland, 2004). The following chapter discuss and justifies the methodology used in this research, starting by reiterating the objectives of the research project, moving to a theoretical explanation of the most relevant approaches, research design, data collection methods and data analysis to finally select the most suitable methodology for the current research and it finishes by concluding the main points through the chapter.

Research Objective

  • To determine the loyalty in retail industry in the UK.
  • To analyze the correlation between consumer satisfaction and consumer loyalty
  • To understand the key concept of customer commitment.

Specific Objectives

  • To define the ‘real’ meaning of loyalty in retail terms and how it differs to satisfaction.
  • To assess the contribution of loyalty programs in creating relationship with the consumer.
  • To examine TESCO’s skill and the will which makes its loyalty program stand out and the extent to which it contributes to the retailer’s success. Assess whether loyalty marketing should form a part of a retail firm’s overall business strategy.

Along with the ideas of Creswell (2009), research designs are strategies and the procedures for research. These involve decisions to the research makes sense. The researcher presents these strategies informing what worldview assumptions are brought to the study. The choice of a specific design is shaped according to the nature of the study and researcher’s personal experiences and the audiences of the study. Research design is a very necessary precursor to carrying out any form of market research (Sutherland, 2004).

It forms the master plan that specifies the methods and procedures or collecting and analysing the needed information; it is a framework for the research plan of the action. There are three different kinds of research design that can be described as Qualitative, Quantitative and Mixed design.

Qualitative research is used mainly for any data collection technique (such as an interview) that generates the use of non-numerical data (Saunders et al. 2007; Walliman 2006). Qualitative research is given when exploring individuals or groups related to a social or human issue.

Quantitative research assesses objective theories by investigating the relationships among variables that can be measured using statistical procedures (Creswell 2009). Quantitative research is mostly used for any data collection techniques such as questionnaire or data analysis procedure that generates or uses numerical data (Saunders et al. 2007).

Mixed methods research Mixed research is the use of both approaches and is greater that either qualitative or quantitative research (Creswell 2009). Merely quantitative and qualitative techniques and procedures are not presented in ‘isolation’, this means for example, that quantitative data can be modified in qualities, transforming it into narrative data and analysed qualitatively; as well as quantities qualitative data, modifying it into to numerical codes so that it can be analysed statistically. According to Silverman (2001) quantification can precisely fix with the logic of qualitative research when counting participants. Therefore the choice of using multiple methods is increasingly advocated within business and management research.

Quantitative data are analysed quantitatively and qualitative data are analysed qualitatively (Saunders et al. 2007). The methodology literature suggests that there exist three research designs: exploratory, descriptive and explanatory. Each one has an individual purpose (Saunders, 2007). Hart (2006 p. 45) suggests that the research design must be shaped by the goal as illustrate in the table below.


Secondary data

‘The secondary data is the one which have been already collected for some other purpose, includes both quantitative and qualitative data and they can be used in both descriptive and exploratory research. This data gives the firsts steps to the researcher to answer or start answering the research questions’ (Saunders, 2007). For the purpose of this paper the one will be the multiple-source secondary data, as the documentary source and the survey source will be used.

The study is going to be based on academic articles found online; some private, some from government websites to enable the role of the advertising in brand preference on previews studies. Furthermore, some of the theoretical information could be taken from published documents and book via libraries in order to clarify concepts and factors that may have the stronger or weakest impact in the study.

Primary data

Primary data collection methods range from survey research and in-depth interviews to observation and experimentation. In this project some questionnaires will be asked, the respondents will be chosen randomly and normally after a purchase will be made, following the convenience sampling technique Malhotra (2004), selected because they happened to be in the right place at the right time. Once primary data will be collected by; data will be summarised and analysed by utilising Excel Microsoft as this will be an easy, costless and understandable form to summarise the data for the following chapter will relate to analysis and findings.


It is clear to recognise the customer’s satisfaction and important element to companies’ success. However questionnaire is usually ignored the reason of responding wrong answers by consumers. In the dissertation questionnaire will be done by TESCO consumers . Malhotra (2004) suggests that the most common used instrument in survey research is usually the questionnaire. The three major alternatives of survey are by mail, telephone, and personal interview questionnaires.

There is one alternative will be chosen for the purpose of this study, that is going to be personal interview which will become the method for the data collection. Personal interviewing provides greater flexibility in that where convenience sampling is used; a list of the target population is not required.


To summarize the previous explanations, this particular research will adopte the customer relationship management approach as positivistic research will try to identify and evaluate those causes that influence outcomes.

The design will be descriptive, and the theory will choose for the study will be deductive; in addition it should also be of the limitations in this research. The research will use mixed methods of research as questionnaires, observations and interviews will use. Due to word count, financial and time constraints the latter two methods will be not included either the literature or the finding of this report, but will have an overall relevance and will be referred to during the and recommendations. It should be noted that the study will use only quantitative methods of data analysis.

The most appropriate option for the nature of the research itself will be the descriptive type of research; however, for the nature of case study, this research may take some characteristics of the explanatory type of research. The data collection of this dissertation will use questionnaires and sample technique will use in this study is the triangulation method will use mixed a population group with regards of age, ethnic origin and marital status.

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