Grocery loyalty: Tesco Clubcard and its impact on loyalty

The Authors

Jason J. Turner, University of Abertay, Dundee, UK

Karen Wilson, University of Abertay, Dundee, UK

Abstract

Purpose – The aim of the research is to identify the impact of the Tesco Clubcard on customer loyalty. The secondary aim is to contrast customer perceptions of the Clubcard, staff and “feeling valued” to identify which factor has the greater impact on customer loyalty to store.

Design/methodology/approach – Quantitative analysis was used based on 60 questionnaires conducted with randomly selected customers in Tesco Metro Dundee in 2005. Tesco were not involved in the research other than to provide approval at a store level for the research to take place outside their premises.

Findings – A positive moderate relationship was found r=0.388, p=0.01 between the owning of a Clubcard and loyalty to store. It was also found that there was a positive moderate relationship between the Clubcard returns and customer loyalty, with r=0.334, p=0.01. The research, however, found no relationship between loyalty and customers feeling more valued by Tesco, nor did the research reveal a significant relationship between Tesco staff and customer loyalty.

Research limitations/implications – The research is restricted in so far as it only considers Tesco Clubcard in the grocery retail sector and as it is an exploratory study the research is limited in so far as the number of participants is only 60. A further limitation surrounds the issue of generalisability as only one Tesco retail outlet in Dundee was used. Further research needs to include other Tesco formats and contrast with grocery retailers who do not use loyalty cards.

Practical implications – It is suggested that Tesco consumers are influenced by having a loyalty card in so far as it contributes to making them loyal. However, other factors need to compliment such a card, with consumers seeing the Tesco “provision” as inter-related.

Originality/value – The paper is useful to both practitioners and academics in the fields of relationship marketing and loyalty. The research provides some initial insight into consumer perspectives in the value of loyalty cards.

Article Type:

Research paper

Keyword(s):

Loyalty schemes; Customer loyalty; Supermarkets.

Journal:

British Food Journal

Volume:

108

Number:

Year:

2006

pp:

958-964

Copyright ©

Emerald Group Publishing Limited

ISSN:

0007-070X

Introduction

The aim of the research is to investigate the influence of the Tesco Clubcard[1] on customer store loyalty. In 1995, Tesco introduced the loyalty Clubcard that was to offer, “benefits to regular shoppers whilst helping the company discover more about its customer needs” (Tesco, 2004, p. 3). In the opinion of Papworth (2005, p. 2) the Clubcard effectively offers “a 1% discount off prices in store if the points are not swapped for special reward deals”. The success of the Tesco Clubcard has been well documented, in 2002 a Market and Opinion Research Poll found that Tesco's Clubcard had been more successful than the programmes offered by rival supermarkets (Smith, 2004). Cannon (2003, p. 3) emphasises the Clubcard's success stating, “Tesco's Clubcard loyalty program is almost legendary in the grocery world. A third of the UK's homes use the program”. In other words it appears that the Clubcard is a success, but in what ways do we judge success? If it were in terms of customer “take up” of the Clubcard or increasing customer numbers and spend, then yes Clubcard would be considered a success. However, if we were to examine the Clubcard in terms of its ability to create or even contribute substantially to customer loyalty then perhaps we would reveal a different picture.

Customer loyalty could be termed a “customer's commitment to do business with a particular organisation, purchasing their goods and services repeatedly, and recommending the services and products to friends and associates” (McIlroy and Barnett, 2000, p. 348). It is a term which is neither easy to gain nor maintain, rather it is vulnerable, where “even if its customers are satisfied with the service they will continue to defect if they believe they can get better value, convenience or quality elsewhere” (McIlroy and Barnett, 2000, p. 349). In order to investigate the concept of loyalty Dick and Basu (1994) created a framework of four different categories of loyalty based on the factors of attitude and behaviour. Sopanen (1996) took this framework further to reveal six different types of loyalty:

Monopoly loyalty, where there are no available choices.
Inertia loyalty, where customers do not actively seek substitutes.
Convenience loyalty, where loyalty is solely defined by location.
Price loyalty: where customers are influenced by the lowest price.
Incentivised loyalty, where loyalty relates to the benefits gained from reward cards and programmes.
Emotional loyalty, where customers are influenced by factors such as brand.

From this we can observe that loyalty programmes such as Tesco Clubcard can be considered an incentivised type of loyalty, which can be exhibited by customers, but the strength of this loyalty is often questioned.

Customer loyalty can be achieved through a number of means, convenience, location, quality and price which are considered by Wright and Sparks (1999, p. 431) as the main “elements that drive customers to patronise particular retailers”. For Wright and Sparks (1999, p. 431) loyalty cards “are nothing but mere promotional gimmicks”. Authors such as Salanova et al. (2005), Heskett et al. (1994), Christopher et al. (1993) and Berry and Parasuraman (1991) emphasise the importance of staff on customer loyalty and Uncles (1994) has examined the issue of customer value and “sense of belonging”, with Barnes (2003) examining the creation of meaningful relationships. In other words the loyalty card is but another method to achieve customer loyalty, a means of strengthening existing relationships (Ravald and Grönroos, 1996), but loyalty on a short-term and spurious[2] basis.

According to authors such as Noordhoff et al. (2004) and Sharp and Sharp (1997) the loyalty card does have a positive impact on increasing customer loyalty. This is emphasised by Gilbert (1999, p. 128) who states “loyalty cards aim to build greater customer loyalty and retention; develop methods of creating longer-term relationships and lead ultimately to increased sales and profits”. In the opinion of Uncles (1994, p. 341) consumers' attraction to loyalty programmes concern a “sense of belonging”, a feeling “that the retailer is prepared to listen, is willing to innovate on behalf of customers, and is caring, concerned and considerate”. However, it is also acknowledged that “in a loyalty programme the reward is the price of information, I buy knowledge through it, not loyalty” (Purdie, 1996, p. 11). Loyalty cards are becoming increasingly popular with retailers for this reason. According to Byrom (2001) there are more than 150 loyalty schemes in the UK, resulting in the circulation of more than 40 million loyalty cards. In other words with so many loyalty cards in circulation there is a concern that rather than creating or contributing towards customer loyalty to store, such programmes could stimulate “‘loyalty overload’, causing customer confusion and apathy” (Tapp, 2001, p. 253).

Bellizzi and Bristol (2004) and Jenkinson (1995) believe that although loyalty cards offer points to customers, loyalty cannot be gained simply through loyalty cards and programmes. “The customer's loyalty is simply not for sale. It cannot be bought for ever by companies or deals” (Jenkinson, 1995 cited in Rowley, 2000, p. 391). This is supported by Jardine (2000) and the research conducted by Divett et al. (2003, p. 120) who found that “we cannot buy loyalty (at least not directly)”.

Methodology

A total of 60 customers were surveyed by questionnaire for this research. The aim was to explore the impact of the Tesco Clubcard on store loyalty using a sample large enough to demonstrate meaningful results. Probability sampling was employed, where the sample of respondents is chosen because they belong to a particular “group” or “population”, in the case of this research, customers of Tesco. The sample size of 60 was decided before the research was carried out; this is known as convenience sampling. Saunders et al. (2003, p. 177) state: “in convenience sampling, the sample selection process is continued until your required sample size has been reached”.

The questionnaire used a mixture of open and closed questions. A benefit of using open questions is in the variety of replies, which could be supplied, “where each respondent can give a personal response or opinion in his or her own words” (Collis and Hussey, 2003, p. 179). This adds to the probability that the researcher will elicit unforeseen and insightful responses. The closed questions employed a multiple-choice answer format, using a Likert scale. The reasoning behind selecting a five-point Likert scale is that there needs to be sufficient choices available to respondents to cover fully the range of answers but not so many that the distinction between them becomes unclear:

It may be difficult to provide sufficient, unambiguous categories to allow the respondent to give an unequivocal answer (Collis and Hussey, 2003, p. 181).

Results

These results have been analysed using SPSS in an attempt to identify and reveal correlations between possessing and using the Tesco Clubcard and loyalty to store, investigating the attitudes of the respondents in relation to customer loyalty, and in particular the Tesco Clubcard.

The results found that 78 per cent of respondents owned a Clubcard, with 85 per cent of Clubcard owners, rating the Clubcard as either “excellent” or “satisfactory” in terms of returns. This result was analysed further using the Pearson Correlation which found a moderate significant relationship of r=0.334, p=0.01 between Clubcard returns and customer loyalty to Tesco. This high level of satisfaction was investigated further to assess whether the possession and use of the Clubcard induced an increase in shopping frequency at the Tesco store. The results show that the majority of the total sample (55 per cent) “strongly agreed” or “agreed” that the Clubcard made them shop at Tesco more often. However, this figure includes those respondents who do not own a Clubcard, when these individuals are removed, the results show that 70 per cent of Clubcard owners “strongly agreed” or “agreed” that the Clubcard influences the frequency of visits to store.

A total of 70 per cent of respondents who owned a Clubcard “strongly agreed” or “agreed”, that they are loyalty to Tesco, with 11 per cent “disagreeing” or “strongly disagreeing”. To consider whether customers are more loyal to Tesco because of the Clubcard loyalty scheme, the research used a Pearson Correlation which produced the result r=0.388, p=0.01, which confirmed there was a moderate significant relationship between Clubcard ownership and loyalty to Tesco. This indicates that the Clubcard does have an influence on customer loyalty, but alludes to the point that it is not the single most important factor in making a customer loyal.

The Clubcard does, however, have a larger (albeit not significant) impact than first thought, when one examines the entire sample of 60 respondents. When respondents were asked if they consider themselves loyal, 65 per cent of the total sample, “strongly agreed” or “agreed” that they are loyal to Tesco, with 15 per cent “disagreeing” or “strongly disagreeing”. Which indicates that customers are more likely to be loyalty to Tesco if they own a Clubcard.

In order to investigate other factors that may contribute to customer loyalty at Tesco a Likert scale was used to gauge the respondent's attitudes and feelings. The respondents were asked to state whether they agreed or disagreed with the statement “I feel valued as a customer at Tesco”. This results indicate that from the entire sample of 60 respondents, 57 per cent stated that they “agreed” or “strongly agreed” that they felt valued as a customer at Tesco; a substantial segment of the sample (28 per cent) stated that they were “neutral”, with 15 per cent “disagreeing” or “strongly disagreeing” that they felt valued as a customer of Tesco. It must therefore be considered that customers exhibit loyalty to Tesco more strongly because of the Clubcard than their perception of feeling valued.

To investigate the assertion further that the Clubcard has a stronger influence than that of “feeling valued” and the impact of Tesco staff, respondents were asked to rate the influence of staff relationships on loyalty. The results show that only 45 per cent of respondents “strongly agree” or “agree” that the variable of staff influenced loyalty to Tesco. Investigating these figures in more depth we find that only 10 per cent “strongly agreed” with the majority of respondents remaining “neutral” or “disagreeing” that staff had an impact on customer loyalty.

Discussion

The results indicate that from a sample of 60 respondents, A total of 78 per cent (47 of the 60) of customers own a Tesco Clubcard, with 85 per cent of Clubcard owners stating that the returns from the loyalty card are “excellent” or “satisfactory”. These results highlight the popularity of the Clubcard and indicate that customers are generally happy with the returns from the Clubcard that of one point for every £1 spent on Tesco products and Clubcard vouchers sent to customers every quarter (Papworth, 2005). Cannon (2003) acknowledged the popularity of Tesco's Clubcard scheme stating that one third of homes in the UK use Tesco's Clubcard. In the opinion of Smith (2004) customers have a favourable perception of the Tesco Clubcard as they feel that they are being rewarded at no cost to themselves when they use it. This is supported by this research with 67 per cent of the entire sample of 60 respondents of the opinion that the returns from the Clubcard are “excellent” or “satisfactory”.

The main aim of this research is to identify whether the loyalty card actually contributes to customer loyalty within Tesco. Customer loyalty through loyalty reward cards and programmes was identified as one of Sopanen's (1996) six types of loyalty. This type of loyalty is known as “‘Incentivised loyalty’ where the loyalty relates to reward schemes to gain benefits” (Gilbert, 1999, p. 20). From the research, it was found that there was a moderate significant relationship between Clubcard ownership and store loyalty of r=0.388, p=0.01. Although not a strong correlation the findings indicate the impact of the Clubcard, which is emphasised when compared to the entire sample. A total of 70 per cent of respondents who own a Clubcard indicate loyalty, whereas 65 per cent of all respondents indicate loyalty. In other words respondents who possess a Clubcard are more likely to exhibit customer loyalty. This is supported by Sharp and Sharp (1997) who found that the loyalty card has become an important component to the development of increasing customer loyalty. Noordhoff et al. (2004) also found a relationship between the possession of a loyalty card and loyalty. It is acknowledged, however, that these findings conflict with Bellizzi and Bristol (2004), Divett et al. (2003) and (Jardine, 2000, p. 19) to name but three authors who found that loyalty cards and programmes “do not make customers more loyal”. However, we are not saying that the Clubcard is the sole reason for customer loyalty to Tesco, nor are we saying that the Clubcard creates behavioural and attitudinal loyalty. Rather the findings reveal that the possession of a Clubcard contributes to store loyalty.

When one examines the moderate significant relationship between Clubcard ownership and store loyalty of r=0.388, p=0.01 with the moderate significant relationship of r=0.334, p=0.01 between Clubcard returns and customer loyalty to Tesco it can be seen that consumers are loyal to the Clubcard which would give rise to the assertion that the loyalty in this case is more related to that of repeat purchase rather than meaningful loyalty where there exists an “emotional attachment to or connection with the firm; a necessary condition for a relationship to exist” (Barnes, 2003, p. 178). This finding is supported with the data on propensity to increase product purchases. Of Clubcard owners surveyed, 70 per cent “strongly agreed” or “agreed” that the Clubcard influences the frequency of visits to store. These findings are supported by Smith (2004) who revealed that 48 per cent of people who join loyalty programmes, such as the Tesco Clubcard, increase their expenditure in the supermarket.

The impact and relationship between “feeling valued” and store loyalty and the correlation between Tesco staff and loyalty does reveal an interesting finding in that neither contributes a significant correlation to loyalty. In the opinion of Heskett et al. (1994) “Customer satisfaction is supposed to be one of the most important criteria for customer loyalty” (cited in Ravald and Grönroos, 1996, p. 20). However, this research revealed that only 57 per cent of respondents “agreed” or “strongly agreed” that they felt valued as a customer at Tesco. Only 45 per cent of respondents “strongly agree” or “agree” that the variable of staff influence loyalty to Tesco. This suggests that customers, although satisfied, do not perceive the factors of “feeling valued” or Tesco staff as having a major influence on store loyalty. This result is supported by Divett et al. (2003, p. 120) who found that “better customer service (or rather the particular intervention studied) does not increase customer loyalty”.

Although this finding has support to a degree from Divett et al. (2003), that staff and the level of service offered do not significantly influence loyalty it is perhaps still necessary to provide some rationale for this result. The reasons could be related to the Tesco store used in the study, the Metro. It is assumed that respondents use this store for convenience, using the Dick and Basu (1994) model, if customers simply use a store for pure convenience, where there is an “absence of store commitment a patron to a store is merely spuriously loyal, i.e. repeat behaviour” (Bloemer and De Ruyter, 1998, p. 501). In other words there is less store commitment, which is necessary for store loyalty (Bloemer and De Ruyter, 1998), with customers less interested in the trust and satisfaction components of a relationship and therefore the impact of “feeling valued” and the relationship with Tesco staff is diminished.

Conclusion

The research attempted to identify whether Tesco's Clubcard affected customer loyalty. It was found that the Clubcard had a moderate significant correlation with loyalty, r=0.388, p=0.01, with the outcomes and returns of the Clubcard also revealing a moderate significant correlation with loyalty, where r=0.334, p=0.01. It was also found that the Clubcard had a greater impact on customer loyalty than “feeling valued” and/or Tesco staff. It would be reasonable to conclude that although the Clubcard contributes to customer loyalty to Tesco that it does not operate in isolation, with the contrasted elements of “feeling valued” and Tesco staff perhaps being underestimated by respondents because of the store type used in the research.

References

Barnes, J.G. (2003), "Establishing meaningful customer relationships: why some companies and brands mean more to their customers", Managing Service Quality, Vol. 13 No.3, pp.178-86.