Ow does the reward scheme system implemented by organisations help to increase the sales profit?

ase the sales profit?



Abstract

Purpose This research aims to explore how the reward scheme system can be used to increase the organisationsa sales profit. The research also aims to determine the value of the reward scheme system and to investigate customer review of the reward scheme system in the United Kingdom and the Hong Kong.

Design/methodology/approach a Data were collected on the loyalty scheme system, in order to identify what is a reward scheme system and the reasons of the organisation implement the scheme, to define what is a successful loyalty schemes, to investigate the correlation of loyalty scheme and loyalty, to measure the value of the loyalty scheme to business and consumer and to determine whether the loyalty scheme have met the effectiveness criteria and to determine the factors of the successful or failure of loyalty schemes and the difference result between United of Kingdom and the Hong Kong. Two main methods of data collection were used which is questionnaires and focus group in order to find out the customer reviews of the loyalty scheme.

Findings a

Originality/value



Introduction



Technology always helps the organisation improve their performance, therefore implementing a successful loyalty schemes can always help to increase customer retention due to the loyalty scheme helps the organisation transform cold data on consumer purchasing behaviour into warm relationships which improve customer loyalty through more understanding on the customers. Loyalty schemes are always free to join, however, it always create cost to the organisation in order to implement the loyalty scheme. In meanwhile, it can reduce the advertising cost to attract new customers. Since Safewayas loyalty scheme has been cancelled, some people argue that it may be a signal that loyalty scheme system is no longer helps the organisation improve their performance. However, loyalty schemes have become very popular in every sector around the world, and the number is continuing growing. The loyalty scheme has been widely use by the grocery, travel and retail sector, sector e.g. Tesco Clubcard, Boots Advantage card and the Nectar card in the UK. In order to become member of the loyalty scheme, they have to sign up for the membership card. Before getting the benefit from the loyalty scheme, customers have to provide some personal details for the member card. By getting the personal details of the customer, organisation can do the data analysis once the customers start using the member cards. The customer purchasing pattern is very important to the organisation for doing the segmentation which can help the organisation provide what the customers really want. Therefore, the loyalty scheme aims to collect customer purchasing behaviour, which helps the organisation analysis the customer database which help the organisation find out who the customers are and to understand their purchasing patterns, thus improve their product and services. It can also be a marketing tool to retain the current customer and create loyalty to the customer. Research has showed that organisation aim to sustain the current customers rather than obtain new customers. It was because the existing customer always loyal to the organisation and cost less to serve. Loyalty scheme help to create customer loyalty which offer some benefit to the customer e.g. special promotion offer to the member, collect points when the customer spend in the organisation and therefore the customer can use the point as cash for next shopping. The collect and spend loyalty scheme not only can attract customer do repeat visit the organisation, it may also can increase the spending of the customer. Since the customer believe the more they spend in the organisation, the more benefit they can get back. I am going to explore how the reward scheme system can be used to increase the organisationsa sales profit in the following research.



Literature Review

My research question is how the loyalty scheme helps the organisation increases their profit. The value of loyalty scheme to the organisations and consumers are the main focus of my research. Loyalty schemes aim to create long term loyalty from customer as customer loyalty has grown rapidly, it can be the most valuable business asset in the organisation. However previous research has stated that such schemes have failed (Divett et al., 2003; Worthingon, 2000; Rowley 2004).

Nowadays, organisations are not only competing on prices, they are also competing on the quality and reputation. In order to gain more market share, different marketing tactics are always in use, for example gaining customer loyalty is always necessary in terms of generating profit. Reward scheme is part of the loyalty programme and it has become very popular to many organisations in different industries around the world in recent years. It is seen as one of the most efficient methods for companies to find out who a large proportion of their customers are, to understand the purchasing patterns, to get more information on them and able to use these data to the customer database. Although some organisations would introduce one off benefits such as reduction in price on products, which can only use once by consumers, these promotions, however, would only increase short-term sales revenue compared to loyalty schemes, aiming at long term benefits for organisations as well as its consumers, it also designed to induce long term loyalty from customer. The loyalty scheme market has been running very successfully in the UK, there are over 150 such schemes in the UK, for example, with Tesco implementing their Clubcard and Sainsbury with their Nectar cards, resulting in the circulation of more than 40 million cards (Byrom et al., 2001). Shabi (2003) indicates that 85 per cent of households in the UK hold at least one card from the major grocery retailers. There are many different types of loyalty programme in the world, they are very popular in many industries, but mainly to the retailers from supermarkets to petrol stations to hotels. It is called loyalty card in the UK, rewards card or point card would be use in Canada, and in the United States they will be called discount cards, club card or rewards card. Previous research on loyalty has advocated that if customer loyalty is gained, profits will go down (Chen and Chang, 2006 and Reichheld, 2002). Although some argue that the correlations between customer loyalty and the profitability are low, there are advantages to implement the loyalty scheme. Moreover some argue that the main focus of the loyalty scheme is not to create customer loyalty but is to collect customer data, the customer data is not purchasable so it is very valuable that can help organisation to save cost in market research in terms of segmentation. Since different customers have different needs, therefore database segmentation is required. Segmentation can help the organisation sustain their customers, especially focusing on their most profitable customers. Since the loyalty scheme is not only the records of what customer bought, it can also be an identification of the customeras buying habit. It has shown that loyalty schemes can generate information that can be helped to produce what customer wants (Rowley, 2007; Stone et al., 2004). For