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The efficiency of Loyalty programs in Fashion Retail Business in the Kingdom of Saudi Arabia

Aims, Objectives and Feasibility of the Study

1.1 Background
Customer loyalty programs are not a new invention in the retail industry. They date as far as the 18th century when the merchants issued copper tokens to their loyal and frequent clients which could be redeemed for future purchases. Throughout time, customer loyalty programs have evolved to become a significant determinant in creating competitive advantage in the retail industry. In the contemporary business world, marketing plays a vital role, and every successful retail firm needs to engage in marketing as a prerequisite to reaching their customers (Kotler, 2005). The establishment of customer loyalty is critical in the fashion retail business.
The fashion industry is highly lucrative but equally competitive. The average person spends between fifteen to twenty-five percent of their discretionary incomes on apparel. These high expenditures have attracted numerous retailers into the industry. There is a growth in the number of retail outlets, brand availability and high presence of online fashion brands (Grima, 2011). These factors reflect intense competition and the undoubted need for brand loyalty. Loyalty programs aim at building relationship marketing strategies in the fashion retail businesses. The goal of these programs is to increase the customer retention levels, sales and profits for the enterprise.
The culture and beliefs of individuals are essential in establishing loyalty programs, especially in the fashion industry. When coming up with the loyalty programs in the fashion industry, it is important to consider how the culture of a country affects the effectiveness on how such programs are implemented. According to Krithika and Ganesh, (2013) any loyalty program implemented by a retailer within the GCC region must take into consideration the strong family and community ties among the residents of the region. The retailers have to take into consideration the acceptable fashion trends to the religious, cultures and societal norms. Like many issues in today’s world, marketing has also evolved tremendously into the digital age. Technology has challenged the manner trough which companies communicate with their clients making customer value a key determinant to the survival of many retail companies.
Consumers are encouraged to purchase from brands with loyalty programs. In a recent survey of 600 customers, it was found that 61 percent of customers in KSA and 63 percent of those in UAE would prefer buying from brands that had customer loyalty programs. Additionally, it showed that 60 percent of the customers interviewed in KSA made more purchases from the brands they were loyal (Thomas, 2013). The loyalty programs are influential to the fashion industry consumers as they can retain customers, win back lost customers and impact their spending decisions.
The retail industry has not completely exploited the opportunities that the loyalty programs offer. The Nielsen Global Survey Company (2013) interviewed close to 30, 000 customers. It found out that loyalty programs were less prevalent in the MENA region (at forty-two percent). In spite of its less prevalence, they had very high favorability (eighty-seven percent). It suggests that there is a higher scope for loyalty products.
The efficiency of the loyalty program depends on many factors for its corrective application and success. The structure of the loyalty programs can influence the decisions of the consumers. In the Nielsen report, thirty-seven percent of the respondents explained that they would not sign up for loyalty programs if the process was complicated while over half also claimed that they could not sign up if the program was expensive. These group of people also stated that they were looking for goods with reduced prices and no-cost goods (Nielsen Global, 2013).
1.2 Motivation for the implementation of the research
The main source of motivation in carrying out the study on the efficiency of loyalty programs in the fashion industry is derived from my satisfactory experience in Sacoor Brothers, an international fashion lifestyle brand. The retail fashion businesses have adopted a loyalty program where customers are given points for every purchase they make. With numerous studies such as the study by Morgan (2015) that explained how loyalty programs can increase customer lifetime value there is the need of understanding whether the cost of loyalty programs is lower in comparison with their benefits to fashion retailers. The research is also important in making a case on why loyalty programs are important for retail businesses as a marketing strategy. It helps in filling the research void, as the studies that have utilized empirical evidence in evaluating the implementation of loyalty programs in the fashion industry are minimal.
1.3 Research Aim                                               
The aim of this research is to focus on the whole concept of loyalty programs and how the Saudi Arabia fashion retailers have utilized the loyalty programs in operating to operate in an efficient manner within the country.
1.4 Research Questions
With the guidance of the research aim the main and supporting research question for the study that will be implemented are outlined below
1.4.1. Main Research Question
How efficient are loyalty programs in KSA retail fashion industry?
1.4.2. Other Research Questions

What are the advantages enjoyed by retailers who use the loyalty program marketing scheme as compared to the retailers who do not?
How is the efficiency of the loyalty programs measured?
What relationship exists among the following; loyalty programs, market demand and customer satisfaction?

1.5 Research Objectives
In the context of this dissertation, the research will investigate loyalty programs and their performance in KSA retail fashion industry. Further, the research will also seek to develop a loyalty program model that can be applied by various retail fashion businesses in KSA. Particularly, the objectives that the current dissertation seeks to meet are outlined below.

Evaluate the general performance of loyalty programs in KSA retail fashion industry
To identify the impact of loyalty programs in KSA fashion industry on customer satisfaction
To understand the changing trends in the loyalty programs market schemes in terms of technological advancements
To understand the common challenges hindering the effectiveness and success of loyalty programs internationally and also in the KSA

1.6 Feasibility of the Study
The current study is feasible as I have obtained permission to conduct the study from the ethics board and the academic institution. The use of interviews and questionnaires in collecting data is also major evidence that shows how the research that is implemented is feasible. Previous studies have shown that interviews and questionnaires can be used to provide adequate information and data. Furthermore, I will utilize the different networks that I have created with fashion retailer players in coming up with the respondents of the study within the KSA fashion. Other ways that have will be used in making the study to me more feasible include the implementation of cost cutting strategies such as applying information technology tools such as email, online surveys and telephone interviews when collecting the research information.

Literature Review

The review of current and past literate shows that there has been great focus among the past researchers in understanding the concept of loyalty programs as a part of marketing within a given company. According to Rese et al. (2013), Loyalty programs are customer oriented programs engineered to offer specific bonuses and discounts to returning customers who make frequent purchases. Easterby-Smith, Thorpe, and Jackson (2012) on the other hand argues that the primary objective of loyalty programs is customer retention that is critical to sustaining healthy businesses. Numerous factors can affect the loyalties of the consumers such as proximity to the store, customer care services, and consumer in-store experiences among others. The programs are, therefore, designed to facilitate customer retention and encourage bulk shopping, hence boosting the total sales revenue of retail stores.
There are various types of loyalty programs or customer reward programs for the retail fashion industry. These include the simple point-based loyalty programs, the tier system and coalition programs among others. The point-based loyalty program is the most commonly used model in the fashion industry. In this system, loyal customers earn points which they can redeem to obtain a specific reward (Rese et al., 2013). Point-based loyalty programs are very efficient in creating repeat purchasers. An example is a strategy used by Abercrombie & Fitch (A&F) Fashion Company. The A&F Club Card offers promotions, discounts, member-only offers and other rewards that are based on repetitive purchases.
Tier-based loyalty programs aim at providing customers with benefits depending on their ranks. These tiers are determined based on milestones such as amount spent, orders made, and the number of products purchased or the number of points earned. The tier-based system gives small rewards to customers at the early stages. The rewards increase as the shopper ascends in the loyalty ladder. The tier system encourages clients to purchase more so that they can earn the best rewards at the top of the ladder. The tier-based programs are popular in the luxury fashion industry where companies use approaches such as complimentary services, after-sale services, and special events. The German luxury company Montblanc offers special packaging and personalized gift notes, engravings and watch bracelet adjustments among other offers to its most loyal clients.
The strategic partnerships or coalition programs involves partnering with complementary companies to offer all-inclusive deals. Two or more brands work together to offer advantages for the customers of one of the two brands. The other company may benefit through obtaining client information for its planning purposes.  This method is very useful for small retail fashion firms as it is a very cost effective way of offering customers with purchase benefits. For example, Trendabl is known for designing applications for Apple. Diane Von Furstenberg (DVF) can partner with the Trendabl to create an app for checking fashion photos and reading feeds from customers. In this instance, DVF and Trendabl will both gain as DVF keeps closer relationships with the consumers while Trendabl increases its application categories. This study seeks to understand the efficiency of loyalty programs in retail businesses.
Nunes and Cespedes (2013) assert that many retailers have joined the retail fashion sector because of the appeal from the consumers and the few barriers of entry. As a result, there is stiff and tough competition. Consequently, firms have applied various marketing tools not only to protect their existing customer base from competition, but also to obtain and retain new customers. The growth and performance of a firm is dependent upon its capability to fulfill the demands of the industry, in spite of how difficult the market conditions (Easterby-Smith, Thorpe, and Jackson, 2012).
Developing an engaging relationship between the firm and clients is imperative in customer retention and loyalty.  Nunes and Cespedes (2013) argue that the common interest of relationship marketing and more particularly loyalty programs is to divert from the normal exchange of goods and services and aim to create sustainable relationships. It has also been argued that attaining new sales and customers only is not efficient in leading businesses to long-term sustainable success. It means that developing a loyal customer base is fundamental to all retail businesses. Currently marketing managers in companies agree that building relationships with clients is an important means for establishing relationships that are mutually satisfying and collaborative. When clients are aware of new products that aim at improving customer relationships with the company, such as a new loyalty program, the effectiveness of the program becomes more apparent (Al-Hawari, Ward, and Newby, 2009).
Uncles, Dowling, and Hammond (2003) investigate the relationship between customer loyalty and loyalty programs. They find that although it is difficult to measure profits derived from loyalty programs, such programs when introduced by a single form in the industry are soon replicated by competition making it very difficult to compare company performance. This has also been argued by Yi and Jeon (2003), who conclude that in high- involvement customers’ preferred direct rewards over indirect directs. On the other hand, in low- involvement situations immediate rewards were more valuable than delayed rewards in maintaining the value of a loyalty program. In the retail sector, involvement of customers with the firm is very high and as such the value perception of the loyalty program influences customer loyalty to the brand.
Lewis (2004) also investigates the role of loyalty programs and short-term promotions in the retention of customers. He argues that loyalty programs enable customers to move from making single purchase decisions to begin making multiple- period decisions. From his empirical study in which he applies simulation, he concludes that for a large proportion of the customers, the loyalty program encouraged subsequent purchase. It is vital to note that the data collected in this Lewis research was from an online grocery store. In a concurrent study which can be considered to be a development of this study, Wirtz, Mattila, and Oo Lwin (2007) seek to examine the effectiveness of loyalty programs in driving the share of wallet. They conclude that when a loyalty program is attractive, it leads to a positive impact on the share of wallet regardless of the attitude of the customer to the company. For businesses in the retail sector who sell goods that are relatively undifferentiated, such findings are very important.
Its has been argued that when loyalty rewards programs aim at increasing relationship duration, clients will be more exposed to the full spectrum of the services they experience, including services that convince customers to switch from their current brand (Bolton, Kannan, and Bramlett, 2000).  This research finds that customers, who are engaged in a loyalty program with their current brand, overlook the advantages that competitors offer. It could be due to the reason that such customers perceive to be getting a better offer from their current company. Recently, McCall and McMahon (2015) reveal that for over time customers have developed to expect some form of reward for their patronage in the brand. While their research is aimed at the hospitality industry, it has implication in the mainstream retail sector as well. While managers can frequently revise their loyalty programs to fit in with their profitability strategy, customers become used to existing loyalty programs and sometimes respond negatively to changes. The researchers find that when changes are introduced into a loyalty program, or when companies suggest that they may discontinue a program, many customers are likely to defect.
But do loyalty programs actually lead to behavior change on loyalty? Leenheer, van Heerde, Bijmolt, and Smidts (2007) embarked on seeking to verify this assertion. They use instrumental variables to estimate the models for membership decision against the share-of-wallet the member has at their firm. The research found customers have endogenous membership programs and they also find that loyalty programs had a significant effect on the share-of-wallet. Thus they confirm that creating a loyalty program is an imperative step for businesses. Liu (2007) had also argued in this direction in his bid to investigate the long term effects of customer loyalty programs. He uses longitudinal data from a convenience store franchise establishment. He finds that customers who were bulky buyers at the onset of a loyalty program would eventually claim their loyalty rewards but this did not affects their spending habits. On the other hand, customers who started low in purchases gradually increased their purchases and transitioned into loyal members of the franchise. For the light buyers, loyalty programs increases the depth of their relationship with the firm.
It has been argued that loyalty reward programs when used effectively make customers happy (Easterby-Smith, Thorpe and Jackson, 2012). Further, it has been established that the loyalty programs help in boosting the reputation of the company (Pauwels-delassus and Mogos Descotes, 2013;Krithika and Ganesh, 2013). In addition, they help in boosting lifetime sales as argued by Andrew and Yap (2013) while boosting company growth. It implies that the costs involved in loyalty programs are very negligible when compared to the long-term benefits of such programs (Rese, Hundertmark, Schimmelpfennig and Schons, 2013).
The role of culture in influencing the behavior and attitudes of consumers is well documented. Numerous studies have shown how the cultures of the consumers influence the four Ps of marketing. However, there is little literature on the effects of culture in customer loyalty, especially in the fashion industry. The few studies that have been conducted indicate that culture plays a role in consumer loyalty. According to Lam and Lee (2005), individuals who score highly in individualism and uncertainty avoidance have a higher affinity for brand loyalty. The findings are supported by Thompson and Chmura (2015). The researchers concluded that countries high in uncertainty avoidance and masculinity shunned loyalty programs and preferred immediate offers.  They also found out that consumers from nations low in individualism programs and high in power distance prefer loyalty programs with related rewards. Therefore, the success of these loyalty programs varies from nation to nation and multinational retailers should analyze the market before determining the appropriate consumer reward program.

Research Methodology and Methods

3.1 Research Design
In the past, different research methods have been employed in collecting primary and secondary data on the impact of loyalty programs in the retail industry. In implementing the current study, the qualitative and quantitative research methodologies will be adopted. According to Easterby-Smith, Thorpe and Jackson (2012), the use of both the qualitative and quantitative analysis helps in building strong research that is based on scientific and objective data. The quantitative methodology will be implemented with the use of a survey design while the qualitative methodology will be implemented with the use of an interview design. A literature review design will also be adopted in collecting qualitative information. The collecting of quantifiable primary information is guided by the positivity approach taken on the research where a deductive approach will be used in carrying out the study.
3.2 Population and Sampling method
The study population refers to individuals whose behavior is of interest to the researcher. The population of the research population is fashion retailers customers throughout the Kingdom of Saudi Arabia. With the use of simple and stratified sampling methods, the research will collect the views of 400 respondents where 200 respondents will be male while another 200 respondents will be female. Stratifying the respondents on terms of gender will help in measuring whether men and women have similar views on the efficiency of customer loyalty programs in the fashion industry. A single fashion retailer will also be used in the implementation of the interview design.
3.3 Data Collection
The data collection approach will be determined on whether; primary, secondary, qualitative or quantitative data is needed (Blumberg, Cooper, and Schindler, 2011). The survey design will be implemented through the use of close ended questionnaire to the research respondents. The interview design on the other hand will be implemented through an in-depth interview of the fashion retailer manager in KSA. The secondary information on the other hand will be collected through a literature review of past studies that have focused on customer loyalty programs in the fashion retail industry. Only publications that have been published in the last fifteen years will be considered to ensure the principle of relevance is maintained.
The Data Collection Instruments to be used include questionnaires, publications, interviews, and electronic databases. Individual in-depth interviews shall be utilized in the qualitative phase. Close-ended questionnaires and interviews will also be employed in this step as much information is being sought on the question to be addressed
3.4 Data Analysis
The data will be analyzed statistically. The methods will range from simple statistics techniques such as percentages to more precise techniques that are conclusive and descriptive such as ANOVA analysis and F-tests. Frequency tables and other tabulation methods will be employed mainly in presentation and analysis of the field data. Pie charts will also be used to illustrate a better comparison of the findings. They will provide descriptive statistics in the analysis of the collected data. The chi-squared test will be used for all statistics. The statistical significance will be set to P-values of <0.05.The questionnaire items will be tested using a correlation analysis and reliability as well as validity tested using the Cronbach’s alpha test. 3.5 Timing milestones Milestone Description Milestone met Stage 1: Area of interest identified Met Stage 2: Specific topic selected Met Stage 3: Topic refined to develop dissertation proposal Met Stage 4: Proposal written and submitted Met Stage 5: Collection of data and information Not met Stage 6: Analysis and interpretation of collected data/information Not Met Stage 7: Writing up Not met Stage 8: Final draft prepared— submission of dissertation Not met As shown from the table above, it is clear that the submission of the research proposal report will help in meeting the stage 4 research milestone.                       References: Al-Hawari, M., Ward, T and Newby, L, 2009. The relationship between service quality and retention within the automated and traditional contexts of retail banking. Journal of service Management, 20(4), pp.455-472 Available at: http://dx.doi.org/10.1108/09564230910978539 [Accessed 28 Dec. 2016]. Bolton, R.N., Kannan, P.K. and Bramlett, M.D., 2000. Implications of loyalty program membership and service experiences for customer retention and value. Journal of the academy of marketing science, 28(1), pp.95-108. Blumberg, B., Cooper, D., and Schindler, P., 2011. Business research methods. London: McGraw-Hill Higher Education. Easterby-Smith, M., Thorpe, R. and Jackson, P. 2012. Management Research. 4th ed. London: SAGE Publications. Grima, Y., 2011. Brand loyalty in the retail fashion industry. [online] Available at:https://www.um.edu.mt/library/oar//handle/123456789/4409 [Accessed 28 Dec. 2016]. Lam, D. and Lee, A.Y., 2005, January. The influence of cultural values on brand loyalty. In ANZMAC 2005: Proceedings of the Australia and New Zealand Marketing Association Conference 2005: Broadening the Boundaries (pp. 163-171). ANZMAC. Kotler, P., 2005. The role played by the broadening of marketing movement in the history of marketing thought. Journal of Public Policy & Marketing, 24(1), pp.114-116. Available at: http://dx.doi.org/10.1509/jppm. [Accessed 6 Dec. 2016]. Krithika, G, and Ganesh, L., 2013. Perception of Loyalty Programmes and their Influence on Purchase. Behaviour, Store Attractiveness and Loyalty. International Journal of Advances in Management and Economics, 2(5), pp. 107-115. Leenheer, J., Van Heerde, H.J., Bijmolt, T.H. and Smidts, A., 2007. Do loyalty programs really enhance behavioral loyalty? An empirical analysis accounting for self-selecting members. International Journal of Research in Marketing, 24(1), pp.31-47. Lewis, M., 2004. The influence of loyalty programs and short-term promotions on customer retention. Journal of marketing research, 41(3), pp.281-292. Liu, Y., 2007. The long-term impact of loyalty programs on consumer purchase behavior and loyalty. Journal of Marketing, 71(4), pp.19-35. McCall, M. and McMahon, D., 2016. Customer Loyalty Program Management What Matters to the Customer. Cornell Hospitality Quarterly, 57(1), pp.111-115. Morgan, R.M., Parish, J.T. and Deitz, G. eds., 2015. Handbook on research in relationship marketing. Edward Elgar Publishing. Nielsen Global, 2016. How Loyal Are Your Customers ? A View of Loyalty SENTIMENT Around the World. 1st ed. [ebook] New York: The Nielsen Company. Available at: http://www.nielsen.com/content/dam/nielsenglobal/eu/nielseninsights/pdfs/Nielsen%20Global%20Report%20of%20Loyalty%20Sentiment%20November%202013.pdf [Accessed 28 Dec. 2016]. Nunes, P. and Cespedes, F., 2003. The Customer Has Escaped. Harvard Business Review. Available at:  https://hbr.org/2003/11/the-customer-has-escaped [Accessed 11 Nov. 2016] Pauwels-Delassus, V. and Descotes, R.M., 2013. Brand name change: Can trust and loyalty be transferred?. Journal of Brand Management, 20(8), pp.656-669.  

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