MN5338 PROJECT WORK FOR MANAGERS (II): BUSINESS RESEARCH SKILLS
MN5338 PROJECT WORK FOR MANAGERS (II): BUSINESS RESEARCH SKILLS
INDIVIDUAL PROJECT ASSIGNMENT
Your coursework is a 400-word individual project assignment. This assignment builds on your weekly workshop/seminar case studies for discussion and is concerned with critically evaluating and interpreting a business research case study. You are asked to answer one out of four questions in your group report.
A customer loyalty journey
How loyal?
As part of your daily morning routine you take the same route to your office and stop for a while at your favourite coffee shop to get your usual hot cup of coffee. You are almost sure that you had just reached the ‘free cup’ level and you could redeem it today to get your coffee free of charge. But suddenly, as long as you are waiting at the queue to check at the cashier, you realize that you have forgotten your loyalty card. You look into your wallet anxiously only to confirm that you carry another four loyalty cards, not useful though today, except from the one you need desperately now.
What a frustration!
You use your loyalty card every day to collect points and earn rewards, such as the one ‘free cup’ every ten purchases, because you prefer this coffee shop in contrast to other ones nearby that offer less rewarding loyalty schemes. You ask the cashier whether you can redeem today, even if you are not carrying the card with you, but you get a polite rejection in response. Leaving the shop, you stare at the stand, next to the exit door, with the three smiley buttons eager to collect consumer feedback. Red, yellow and green are the three buttons and customers are asked to provide feedback on their overall satisfaction upon their exit. You are a loyal customer for long and overall satisfied from the service and the products. You think for a while, hesitating, but you press the red one in the end. “Let’s try another coffee shop tomorrow”, you muttered to yourself.
Retention vs. acquisition
A common debate among marketing practitioners, researchers and executives is whether companies should focus on customer retention rather than acquisition. No clear answer exists and both sides have their proponents. It is a commonplace to hear that the cost of attracting a new customer vs. keeping an existing one is, more or less, five to one. Spending on promotion via all possible channels is a substantial investment with limited, in most of the times, results. The old marketing saying “I know that half of the money I spend in advertisement is wasted. But I don’t know which half” expresses clearly the low return of such investment. Advocates of customer retention claim that campaigns for existing customers are far less costly but more effective. Even though this sounds beneficial for companies, the preference seems to be towards acquisition, according to some surveys. It might not be irrelevant to the pareto principle which, in sales, simply states that the eighty percent of the sales revenues originates from the twenty percent of the customers.
One question that turns up is whether a customer whom a company tries to retain, by investing in promotions, worth’s it or not in terms of revenues. Of course, retaining a customer is not by itself beneficial, unless this customer turns to a frequent buyer, generating thus revenues in the long term. A diversity of factors affects customer relationship with companies and brands, as well as product choice preferences and studying in depth is quite challenging and evolving. At this point of discussion what shows up is that a retained customer is not necessarily a loyal one. A retained one might become a frequent buyer, following company’s effort, but may easily switch to another company without any thought. Retained customers, to put it simple, continue to purchase from the same company because they have not yet switched to another. On the contrary, a loyal customer is a frequent buyer, more spontaneous and at the same time acts as an advocate of the company and the product. This segregation is quite significant for companies as the effort should be directed towards empowering customer loyalty. One popular approach to do so is to engage customers in reward programs, where various incentives promote repetitive purchase behaviour. Loyalty programs exist in a variety of ways and mixes, and although it is considered as “must have” for every company, it is debatable whether benefits overcome investments or not.
A success story?
Starbucks is a well-known coffee company and coffeehouse chain operating worldwide in several thousands locations. Except from its high quality coffee related products, it is noted for its loyalty programs that span across the years and for many are considered as a point of reference in terms of efficiency and success. One of the early days’ approach towards building a loyalty program was the collaboration with financial industry service provides in order to issue a mixed credit card product to enhance existing loyalty scheme offer.
Going back at the early 2000s the company was already offering a prepaid storedvalue card to its customers. It was identified as the “Starbucks Card” and its launch was proven to be a huge success according to the company. The card could be used by its holder for a variety of purchases at the chain’s stores, such as food and beverage. The idea was to provide customers with a payment medium, in the form of a card, that could store some value and could be reloaded at Starbuck’s shops. This medium was mimicking credit cards, a very common financial product that customers were familiar with, and was focusing on building customer loyalty by restricting purchases within the chain, combined with some offers and benefits.
As market was evolving, the company desired to build on top of their card’s success and advance its offering to customers by adding a reward scheme that would somehow surprise them. They performed a secondary research to assess the market, which was already saturated and credit cards were already a commodity. A new financial services product should be innovative and add value to the customer.
The initial outcome was that an offer combining credit card and Starbuck Card features in one card would be much appreciated by customers and would add value reducing at the same time the plastics into the wallet. They thus started another investigation to find the ideal potential partners for the product. Major card services companies (MasterCard, Visa, American Express) and banks were set under review. Starbucks conducted a series of interviews with executives of banks and card service providers, on site visits to call centres for observation of operations, and a close monitoring on phone calls with customer problems, so as to identify every aspect that would be critical for their decision. At the end of this phase, a choice was made: collaborate with Visa and Bank One, two of the top global players in the card’s market.
A new product, however, is not always successful in the market, even if it is well designed and offered by leading companies. All three partners were sceptical and decided to proceed to further investigation. As such, they examined the idea of the new card with four focus groups, using the services of an independent moderator. They selected Seattle and San Francisco cities which were both with good Starbucks coverage, for the focus groups. The groups involved two major classes of Starbucks customers who owned a credit card: those who used the Starbucks Card and those who did not. The aim was to determine how well the costumers perceive the new concept. From one group to the next, the research team refined the value proposition, until the participants understood they would need to carry only one card, not two. The findings from the focus groups were used to refine the concept and to restructure the communication of the idea to minimize confusion.
A number of quantitative studies followed after the focus groups completion phase. The first study was an online survey for product functionality. Participants were recruited from an online panel and the same customer classes as for the focus groups were used. The sample size for each subgroup was between 200 and 400 and the objective of this research was to understand which card concept consumers would prefer. This study measured quantitatively the level of understanding of the card functionality using the refined value proposition developed through the focus groups.
As soon as the decision was taken to proceed with the aforementioned functionality, a second online study was set. It comprised the concept evaluation/optimization as well as volumetric forecasting measurements. Again, the same parameters were used to stratify the sample, but a slightly larger sample size was used. The results from this study were compared to norms that have resulted from more than 200 similar concept studies by Bank One, using performance against those norms to predict the likely success of the new payment product.
Following the above, a press release was distributed announcing the partnership and website visitors were given the opportunity to submit comments. The comments piled to several tens of thousands and all were read and analysed by companies, to show an overwhelmingly positive reception.
The Starbucks Duetto Visa Card was launched in October 2003, and early indications showed that the program was headed for success. The program was to be evaluated on a quarterly basis according to specific metrics.
As the underlying idea was to promote customer awareness and loyalty, just six months after launch, a brand tracking study was completed to determine if the launch increased awareness and understanding of the card’s benefits. This study was done though an online survey, measuring participant awareness of promotional materials, whether participants had applied or considered applying, and why or why not.
Business Week named the Duetto card one of the best products of 2003.
Looks like a captivating journey with a success story at the end.
Please answer ONE of the following four questions as part of your 400 words individual project report. You may select any one of the four questions:
- Analyse critically the research design that was adopted in each phase.
- What are the advantages and disadvantages of focus group usage for the specific research?
- Discuss whether a longitudinal research design could provide more efficient insights on customer loyalty.
- Discuss ethical issues raised in customer loyalty research setting.
Requirements and limitations
- The word limit is 400 words.
- References are not part of the 400-word count.
- All text should be Times New Roman, with sizing and styles as follows: ▪ Main text: 12pt
▪ Heading level 1: 14pt bold
▪ Heading level 2: 13pt bold
▪ Heading level 3: 12pt bold
- Text must be justified with 1.5 line spacing.
- All citing and referencing must be in the Standard Harvard Academic style
Assessment Assessment and feedback of your project assignment will be based on the following four criteria:
References: 20%
Critical analysis of business research: 50%
Reflection and new insights: 20%
Presentation: 10%
Please review the assessment and feedback criteria in the rubric for this assignment (see below) when preparing your work prior to submission.
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