Тема: Topic: Loyalty program development for small business: case of the accessories retailer

Loyalty programs have become a very popular instrument of marketing in many spheres. Most of top-10 retailers in Russia have their loyalty program: X5 retail (separate programs of Pyaterochka and Perekrestok), Magnit, Lenta, MVideo-Eldorado, Diksi, Krasnoe&Beloe, Fix Price, Sportmaster, Letual, etc. In the services sector there are also many examples of popularity of loyalty programs: airlines (Aeroflot and S7) and railways (RZD), fast food (McDonalds and Burger King) and restaurant chains (Eurasia and Tokyo City), taxi (Yandex) and food delivery (Delivery Club and Ya.Eda), etc. (Retailer, 2020)
The research of Cision (2018) states that 87% of generation Z consumers expect omnichannel loyalty programs which give bonuses for every spending on their favorite shop, cafe, etc. The same number is provided by the other researchers from Annex Cloud (2020), the only part of numbers are presented here: an average business loses 15% of its customers every year (based on US market research). Acquiring new customers can cost 16 times more than retaining old ones. 68% of millennials report that they need a loyalty program to keep buying from a brand; The cumulative loss to businesses due to customer churn is estimated at a staggering $1.6 trillion a year; 54% of consumers continue to buy from a brand if it offers rewards or loyalty points.
The fact that even biggest successful companies, market leaders, who work successfully for years without loyalty programs, such as McDonalds and Magnit recently launched LP deserves an attention of researchers and questions like: What are incentives to implement loyalty programs now? Which instruments of loyalty programs companies use now? How they are going to evaluate its efficiency?
In general, loyalty programs may be used:
1. To increase revenue or profitability;
2. To grow customer loyalty;
3. To increase the level of retention and frequency of purchases;
4. To return customers who stopped purchasing;
5. To influence on other KPIs (e.g. % of returns in LaModa).
Main instruments of loyalty programs are:
Database with contacts of clients, number of purchases, etc. Client mobile app, account or card. Motivators: discounts, bonuses, personal offers, gifts, rewards, statuses, notifications, sms reminders etc.
All these components require noticeable budget, big data analysis, specialists, which may be not affordable for small business. The company “Aksessuarnaya #1”, which is a chain of 8 shops of accessories for smartphones, operating on the accessories market of Saint Petersburg with total revenue in 2021 - 35,8 million rubles is the representative of the small business, which faces difficulties with growth and retaining customers nowadays, especially due to current expectations of the economic crisis. In such conditions, the company as many representatives of SMEs is interested in tools for retaining customers, grow the loyalty towards the brand of the shop, increase or at least retain the average check, etc.
The share of small business in developed countries is about 50%, and in Russia is 15% by different estimations (Sberbank, 2020). Even 15% is noticeable share of economy, which should be examined. There is a hypothesis that some features and ideas of loyalty programs conception may be applicable for “Aksessuarnaya #1” - small business representative. Besides budget limitations, small business may have staff competences limitations and data limitations - smaller number of observation data for loyalty program, which could also be a limitation for big data analysis and achieving relevant results for managerial decisions. And even in case loyalty program instruments are affordable, it will be harder to pay-off the implementation, as smaller companies have less economies of scale.
Here the research problem occurs: lack of loyalty programs studies devoted to small business.
It comes to the research topic: “The development of loyalty program for small business, with the main research question: How can small business implement modern loyalty programs solutions, used by bigger companies?
The object of the study is loyalty programs. The subject is loyalty programs development for small business.
The overview research in databases as Scopus and Google.Scholar showed that there is no articles covering the loyalty programs for small business with all limitations, and none of them counts the efficiency estimation or focuses retail companies from the same market. However, this is very important, as small business enterprise sometimes launch loyalty programs without understanding how to evaluate efficiency.
As there is a need for deeper understanding of subject with questions “how” - qualitative methods are used.
The goal of this master thesis is to formulate the recommendations for loyalty program development for small business.
For this study were formulated following research objectives:
1. To examine existing studies on loyalty programs trends, loyalty programs design and loyalty programs performance, also to consider small business limitations. To define key trends and features of loyalty programs, which may be implemented by small business.
2. To perform in-depth interviews among managers responsible for loyalty programs and interviews with consumers to examine the attitude and interaction with loyalty programs...
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As it was found, loyalty programs play very important role in marketing activities of companies nowadays. Many big famous companies, stated in the introduction, which never had loyalty programs, launched them during last 5 years. However, it is still not obvious, how to correctly evaluate the efficiency of loyalty programs. Some researchers claim that due to the effect of zero-sum game, many companies do not achieve benefits from loyalty programs implementation. This could be argued by the fact that in long term companies could use collected data to improve the efficiency of processes and marketing activities.
It was found that loyalty programs development involves the implementation of CRM system, big data analysis, mobile application and the development of different mechanics of the analysis, offers, personalization, which will influence expected KPIs. Also, it was confirmed that SMEs have some difficulties in the implementation of loyalty programs. These three main factor groups - organizational, technical and data quality. They could be connected with specific processes, not enough competencies of staff, not enough budget.
In the first part of this work the analysis of the terms “loyalty” and “loyalty program” was performed, which helped to understand that loyalty implies two dimensions - behavioral (repeated purchase) and attitudinal (positive attitude towards brand). The factors, which drive loyalty are: image of the company, expectations of the client and perceived quality (of core product/service and general impression of service). In general, brand loyalty is very important factor of success for companies, which includes attitude towards brand and repeating purchasing behavior. It comes from brand awareness, perceived quality and value of the brand, brand image and expectations.
To manage loyalty in business systematically, special system was developed - loyalty program. Loyalty program system consists of 4 main parts - membership requirements, program structure, reward structure and program communications. These aspects should be considered while developing a program. There are also 4 steps system, which helps to ensure analytical approach to the development - starting from competitor analysis and customer profiling, then segmenting customers, then developing relationship mechanism and offering individualization and satisfaction.
Also, main trends of loyalty programs were described in the paragraph 1.3. There is a trend of launching mobile app for customer profile, notification, contacts with the brand, catalogue, etc. Building modern app from scratch is not affordable for the small business, but the solution was found - CRM system with ready standardized mobile app. One of the issues - is the choice of CRM system for loyalty program management - saving and keeping data, counting rewards, sending notifications, etc. Main systems, suitable for SMEs in Russia were described in the 2nd paragraph of the 1st chapter. It also helps with efficiency evaluation, using the data analysis, clear goals and comparative analysis. Also, some of them provide affordable solutions for small business to launch branded mobile app using ready templates. Another trend is big data analysis, which helps with the segmentation of customers database, prediction of purchases, analysis of promotions and their efficiency. And partly this trend may be used by small business companies.
The specifics of small business, which should be taken into account, were covered in the paragraph 1.4. and mostly are devoted to staff training, budget limitations and lack of economy of scale.
In the second chapter, using the structure of stages of loyalty program development, the draft of steps was proposed. As there was a need in deeper understanding customers and the specific of launch of loyalty program in small business, the interviews of customers and experts from the industry were conducted. As a results of the interview, the list of insights was presented in the 2nd paragraph of the 2nd chapter. This list of insights was constructed by finding the repeated opinions among several respondents from both groups. It has tip for loyalty program development, for example, avoid the strict requirement of bringing physical card, make it easy to join, make the reward percentage at least 5-10%, avoid often notifications, use mobile phone as an identification of user, use analytics system to segment customers with RFM-analysis and other types of analysis and develop special initiatives to reach the goals which the company expects to gain from loyalty program - return of “churn” customers, increase average check, increase the frequency of purchases or sales of special category....
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