Performance of Customer Reward Programs on the Swedish Grocery Retail Market

• Main Authors: Mendoza, Jesus, Gonzalez, Daniel
• Format: Others
• Language: English
• Published: 2016
• Subjects: loyalty; customer reward program; grocery store; share of wallet
• Online Access: http://urn.kb.se/resolve?urn=urn:nbn:se:bth-13239

Customer Reward Programs (CRP) have increasingly been used in many industries and markets worldwide with the purpose of gaining customers and retaining their loyalty through repeated purchases in exchange of rewards. Currently, most of the retailers in the Swedish grocery store sector have implemented CRP of different types, from simple discount-based programs to complex multipartnership structures. Previous works have been carried on the competitiveness of the grocery retail market in Sweden, but these haven’t addressed the role of the CRP. Therefore, the objective of this thesis was to analyze the performance of the CRP offered by Ica, Coop, Citygross, Willys and Hemköp from a customer loyalty perspective. The discount store Lidl was also included although they haven’t implemented a CRP. The retailers included in our study covered approximately 93% of the market share in Sweden.   Data was collected through anonymous online surveys that included 12 questions addressed to households living in several Swedish cities. The online surveys allowed us to gather demographics data and info about CRP memberships, purchasing habits, customer loyalty, reward preferences, and customer awareness. In total 134 households replied the survey.   We found high store loyalty among the respondents. However, the strong preference for conveniently located stores indicated that most customers enroll in the CRP to take advantage of the repeated visits they already do to a certain store, which has a favorable location. In other words, we suspect customers become store loyal and then they enroll in the CRP. This attitude is masked as true loyalty but in fact it only implies a behavioral loyalty. Further deeper analysis shall be performed to confirm this finding.   We observed a clear increase of the customer loyalty (measured by share of wallet and purchase frequency) in respondents enrolled in CRP compared to not-enrolled counterparts. Households with children and households with high income had a greater tendency to participate in CRP and these two groups exhibited higher customer loyalty. Our results showed that the package of benefits and rewards offered by the CRP alone does not capture many customers into the CRP. Instead, customers looked for store location, quality and price as the appealing factors to enroll a CRP.   The survey results confirmed the dominance that Ica has over the Swedish grocery retail market. Further analysis combining level of expenditures and frequency of purchase showed that Lidl, Hemköp and Citygross performed quite similar within a group that does not capture great portion of the customer expenditure combined to a low purchase frequency. An output of our research showed that Lidl compete quite well with retailers that have CRP in place like Citygross and Hemköp, or on the contrary, that Hemköp with an advanced CRP does not attract customers sufficiently when compared to Lidl. An analysis based on the double jeopardy effect theory showed that Willys exhibits an “excessive loyalty”. This means, Willys had a higher frequency of purchase and level of expenditure than expected when compared against its market penetration level. Therefore, we identified that Willys overachieve results compared to the others retailers and also to Coop, its closest competitor. We concluded that a CRP with larger benefit scheme does not necessarily increases the customer loyalty to the store. Moreover, boosting CRP with multi-partnership programs that offer several experience rewards (spa, ski resorts, music events and travel tickets) could be inefficient for the grocery retailers since customers feel primarily attracted to immediate rewards related with groceries discounts.