Literature Review

Discuss about the Business Operations Strategies.

Every business has a responsibility of ensuring that its customers are fully satisfied with its products or services. This is the real driver for customer loyalty in the business. If customers are fully satisfied, they remain customers to the business. If not fully satisfied, they are lost to competitors who offer better services in a very short period (Leinbach-Reyhle, 2016). Satisfaction will raise the number of customers through the word-of-mouth by the satisfied customers (Thompson, 2015).Coles being facing stiff competition from Woolworth- the largest supermarket chain, is determined to introduce new products and services that would make it more competitive. The sentiments of consumers are constantly changing, and the options available to consumers are many (Carter, 2016). From the information available in the internet, Coles noted how the number of customers to Woolworth rose after the introduction of the policy selling business. It is not however defined the extent to which Woolworth will go into providing such services. Coles is, therefore, getting into a better position after the introduction of the financial service business. It is becoming unique from its competitors by introducing products with high demand (Ranade, 2012). This research will establish the reason for retaining customers in business. I.e. the things that make them stay loyal.

Coles is the second largest Australian supermarket chain which is owned by Wesfarmers. It is more than a decade since the selling of financial services by UK’s grocery store and elsewhere begun. Although the local banking market proofed tough to break into, Macquarie the investment bank estimated that established banks would lose revenue amounting to billions of dollars to such a service. It was in the year 2010 when the push of Coles to financial service begun. The first service to be offered was the car insurance policies which had more than 350,000 customers in 2014. In May the same year expanded its services and started offering life insurance policies. Rob Scott, the finance director of Coles, accredited of the fast growth of technology. He noted that more focus on how their physical store could be used, would be the current issue if the financial services operation were started up 15 years ago (Jones, 2014). He also noted that their customers were proposing to base their transactions through a digital process where they could use their phones and tablets.

It was on July 15^th 2014 when Coles made an announcement of its plans to expand its operations into an industry of financial services. In other words, its aim was to become a bank of its customers. Since 2010, Coles had already issued 400,000 credit cards. In 2014, it entered into a joint venture with the General Electric’s (GE) Capital. The goal of the venture was to ensure that financial services of a wide range were accessible to the consumers by 2015. I.e. loans. There would be additional rewards that were to be offered by Coles to its banking customers. These included discounted groceries. The venture was on a 50-50 basis and was subjected to regulatory approval (Jones, 2014). The initial offers were, loans, mobile wallets and credit cards that were Coles-branded.

Objectives and Research Questions

The banking operation had been practiced by Tesco and Sainsbury since 1997. It is therefore from the playbook of UK supermarkets where this initiative originated. This idea was borrowed by both Coles and Woolworth supermarkets.  Their leaders were noted to have spent some time in the UK where they found this initiative. John Durkan who was Cole’s new boss had spent 17 years in the Safeway of UK outfit, while Tjeerd Jegen who was the chief of Woolies had spent time with Tesco (Wenlei, 2014). Matt Levey, the choice director of campaigns, told news.com.au that the expansion into finance by Coles was a good thing for consumers and that it would yield many benefits. This is by shaking up the four large players in the banking markets. The main reason possibly why Coles invested in financial services is because of competing with Woolworth its biggest rival. The launching of the pet and life policies by Woolworth in 2011, and later expanding to home and travel policies enabled it to add more than 125,000 customers by the end of 2014.

The main aim is to make the products good enough to be attractive to customers. Since rewards program is attached to supermarket products, households would be more easily be influenced to choose the products. Jon Church who was the spokesman of Coles said that the core business of Coles was retail and predominantly a food retailer. It is around that the buildup of the other elements has occurred as a result of bringing value and choice to the customers (Wenlei, 2014). Jon noted that the growth of Cole’s business is determined by the customers; that they don’t sell if the customers fail to buy. Coles financial services combine shopping with the Coles credit cards and loyalty programs (flybuys) (Simes and O’Mahony, 2015). The key insights of this combination include; Cole’s mobile strategy important part is the provision of integrated services by combining shopping experience with Cole’s credit cards and loyalty programs (flybuys) (Leinbach-Reyhle, 2016). The use of loyalty programs and customer engagement has increased as a result of this combination (Levine, 2015). The fun of shopping experience is raised by the fact that customers earn points while they shop using their credit cards (creditcardfinder.com, 2012). The latest flybuys offers can be checked by the customers by using mobile apps which raise their engagement per the loyalty system.

Cole’s revenues according to Mr. Scott, was predicted to be heavily impacted during the first year after venturing with the GE Capital Australia. But the main aim of introducing these products was to promote spending and customers’ loyalty (PR Loyalty Solutions, 2012). The spending on Coles increases when the customers obtain products of financial services with Coles. The prediction of Rob Scott was that before long, Coles would be offering its financial services to a million customers. However, the proportion of revenue contributed by the financial business of the grocery chain is small. This is despite the growth experienced over the years in this sector. The target for Coles financial service business has not yet been disclosed, but it was noted that increment on the number of their customers was their priority.

Research Methodologies and Techniques

To determine the relationship that exists between credit card and customer loyalty of Coles supermarket and its impact on Australian revenue.

1. To determine how the loyalty of Coles customers was impacted by its introduction of the credit cards.
2. To find out why financial services offered by supermarkets are more attractive to households than those in the banking market.

• To recognize the advantages the customers have when they use credit cards instead of direct cash payments.

1. To establish the reason why Coles decided to invest in financial services.
2. To determine the proportion of revenue contributed by the financial business of the grocery chains.

1. How did the introduction of credit cards impact the loyalty of Cole’s supermarket customers?
2. What are the possible reasons that would make households more attracted to financial services offered by supermarkets rather than those offered by other large players in the banking market?

• What will be the advantages of using the credit cards over the regular payment system?

1. Is profitability the reason why Coles supermarket decided to invest in financial services?
2. Does the financial business have a significant contribution to revenue of the grocery chains?

The collection of data for this research will be easier and cheap since no much traveling will be required. It will only require an interview with the Cole’s supermarket management team to provide the required information. A thousand customers will be taken as a sample and observation be done on their purchasing method. Of the 1000 customers observed randomly, the number of those using credit cards will be recorded. Since this financial business has only been in operation for a short period, monthly data will be used for the analysis.

There will be the testing of hypothesis to test whether the introduction of the credit card has raised the customer’s loyalty. Both the null and alternative hypothesis will be tested.

H_O: The introduction of credit cards did not raise customer’s loyalty

H_A: The introduction of credit cards raise the customer’s loyalty

The decision criterion will be such that, if the null hypothesis is rejected, so we shall fail to reject the alternative hypothesis, it shall be concluded that the introduction of the credit cards raised the customer’s loyalty.

The first step to carrying out this research will be to write a project proposal. The proposal will consist the title of the project. The research questions that will consist of the opportunities identified will be drawn to guide the whole research process. Literature review on the identified topic will be obtained from the secondary sources. From the general objective of the study, there will be drawn some other specific objectives which will be in line with the research questions. The methodology and techniques provided in the research proposal will be applicable for the actual project. Data will be collected, analyzed, and various conclusions will be drawn. Recommendations will be provided.

The data to be collected in this research will be both quantitative and qualitative. Primary data will be gathered in the supermarket itself through the method of observation. The data will be a qualitative data to help in the determination of the satisfaction level of the customers. A high number of credit card users will be an indicator that customer’s loyalty is high at Coles. A simple interview question can be asked to those customers who don’t use credit cards – ‘do you have a credit card?’ This will help in the comparison of the number of credit cards issued and those that remain in use. I.e., some are never used after they are issued.

Description of the Research Process

Secondary data will be obtained from Cole’s management. Data to be collected will include; the change in the number of customers who use credit cards every month and the increase in the number of customers to the supermarket every month, whether a credit or non-credit user. The data on revenue contribution will be obtained from the revenue authority website.

A regression analysis will be carried out to proof whether the increased customer’s loyalty will contribute to the lower proportion of the revenue contribution of the grocery chains. It will also be used to confirm whether the introduction of the credit cards has raised the number of customers.

This research will establish that in deed the credit cards will raise the loyalty of Coles supermarket. The proof of increased number of the users of the credit cards will confirm the words said by Mr. Scott that before long, Coles supermarket will be having a million customers enjoying their offerings. In the consideration of the revenues contribution by financial businesses that were established earlier in the UK, and whose development has been recorded over the years, Coles supermarket contribution of the grocery chains is expected to be small. For instance, the contribution of Tesco to roughly 2% of the overall UK revenue (Jones, 2014). The banking income of Sainsbury’s accounted for almost 1% of its overall revenue. The research will, therefore, confirm that Cole’s goal is not actually to raise more revenue, but to bring value to its customers- value brings loyalty to business (Ranade, 2012).

Achievement of a significant customers’ loyalty positions a business at a competitive advantage level. This research will, therefore, pose a challenge to the other lower level supermarket chains to come up with unique products that will attract more customers to their business. The competition for customers’ loyalty will result in increased social welfare as quality products and services will be provided to the customers.

References

Carter, B. (2016). Customer Loyalty Statistics: 2016 Edition. [Online] Blog.accessdevelopment.com. Available at: https://blog.accessdevelopment.com/customer-loyalty-statistics-2016-edition [Accessed 8 Aug. 2016].

Creditcardfinder.com. (2012). Coles Platinum Rewards MasterCard| Credit Card Finder. [Online] Available at: https://www.creditcardfinder.com.au/coles-platinum-mastercard.html [Accessed 9 Aug. 2016].

Jones, D. (2014). Coles steps up bank competition. [Online] Theaustralian.com.au. Available at: https://www.theaustralian.com.au/business/business-spectator/coles-steps-up-bank-competition/news-story/35c6815d236748e9ad03be7f344523c6 [Accessed 7 Aug. 2016].

Leinbach-Reyhle, N. (2016). Forbes Welcome. [Online] Forbes.com. Available at: https://www.forbes.com/sites/nicoleleinbachreyhle/2016/04/20/customer-loyalty-in-todays-modern-retail-world/#34dbbf583008 [Accessed 8 Aug. 2016].

Levine, M. (2015). The ALDI effect: Australia’s changing supermarket scene. [Online] Roy Morgan. Available at: https://www.roymorgan.com/findings/6297-aldi-effect-australias-changing-supermarket-scene-201506220132 [Accessed 7 Aug. 2016].

PR Loyalty Solutions. (2012). What is Customer Loyalty?. [Online] Available at: https://prloyaltymarketing.com/customer-loyalty/what-is-customer-loyalty/ [Accessed 9 Aug. 2016].

Ranade, K. (2012). Customer Loyalty – What is it? How Can You Measure and Manage It? – Loyalty Research Center. [Online] Loyalty Research Center. Available at: https://www.loyaltyresearch.com/insights/customer-loyalty-what-is-it-how-can-you-measure-and-manage-it/ [Accessed 7 Aug. 2016].

Simes, R. and O’Mahony, J. (2015). Mobile nation – impacts of mobile technologies on retail industry | Deloitte Australia | Deloitte Access Economics. [Online] Deloitte Australia. Available at: https://www2.deloitte.com/au/en/pages/media-releases/articles/mobile-nation-impacts-of-mobile-technologies-on-retail-industry-020715.html [Accessed 7 Aug. 2016].

Thompson, D. (2015). 3 Ways to Increase Customer Loyalty. [Online] Entrepreneur. Available at: https://www.entrepreneur.com/article/244138 [Accessed 8 Aug. 2016].

Wenlei, (2014). How supermarkets have taken over your life. [Online] NewsComAu. Available at: https://www.news.com.au/finance/business/retail/woolworths-and-coles-have-taken-over-australians-lives/news-story/344d02196373c4f960a0d0014613ac1c [Accessed 6 Aug. 2016].