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Undergraduate Major Project Achieving Customer Loyalty in e-Commerce: How does KPMG and PwC approach customer loyalty in 21st century business environment?

Student: 1208196

Lord Ashcroft International Business School.

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Abstract

Using materials provided by consulting firms KPMG and PwC conducted this research.

The objective of this research was to better understand the importance of customer loyalty

in e-commerce and how it can be developed even further. From analysing the reports

provided by these two companies it can derived that to create customer loyalty in e-

commerce the retailer needs to have a well-established network of brick-and-mortar

stores. Loyalty comes from the service and from the sense of being appreciated, which are

hard to achieve in e-commerce. Social media will continue play even bigger role in the

future in creating loyal customers, as it can create those much needed deeper, emotional

attachments between the company and its customers. Retailer to gain competitive

advantage it should not put too much effort on promotions and competing with price as

those tend be just short-term solutions. To create long-term relationships with customers

retailers should offer benefits that can be hard to achieve by its pure online competitors,

such as same day delivery and wide network of click-and-collect point of sales. Retailer

should tie all of its channels, whether they are in-store, online and mobile or catalogue,

together to provide ‘perfect’ customer experience across all channels. To complete this

research in an academic manner, pragmatist approach was used to collect and analyse

the data.

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List of figures

Figure 1. Growth per retail sector in 2013-2014 2.

Figure 2. Customer dispersion 5.

Figure 3. Characteristics affecting customers’ perception 11.

Figure 4. KPMG omnichannel pricing model 24.

Figure 5. The changing business model for retail 27.

Figure 6. Evolution of retail 28.

Figure 7. The traditional model of marketing 32.

Figure 8. PwC’s new model of marketing 32.

Abbreviations:

GIRC: Georgetown Institute for Consumer Research

Total Retail survey, 2015: Total Retail 2015: Retailers and the Digital Age of Distribution.

Total Retail survey, 2014: Achieving Total Retail: Consumer expectations driving the next

business model, 2014.

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Table of Contents

1. Introduction 1.

2. Literature review 3.

2.1. Strategy and CRM 3.

2.2. Importance of loyal customers 5.

2.3. Satisfied and loyal customers 6.

2.4. Value, Trust and Emotional attachment in relation to loyalty 7.

2.4.1. Value

2.4.2. Trust

2.4.3. Emotional attachment

2.4.4. Factors of loyalty

2.5. How to create loyal customers? 11.

2.6. Loyalty programs, do they work? 12.

2.7. Conclusion 13.

3. Methodology 14.

3.1. Research philosophy 14.

3.1.1. Approach

3.2. Research strategy 15.

3.3. Research design 17.

3.4. Research ethics 18.

3.6. Data collection and analysis 18.

3.7. Validity and reliability 18.

3.8. Limitations of the research 19.

3.9. Conclusion 20.

4. KPMG 21.

4.1. KPMG and omnichannel 21.

4.1.1. Mobile platforms

4.1.2. Train staff to create loyal customers

4.1.3. Data collection

4.1.4. Pricing

4.1.5. Trust

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4.2. Customer reviews 25.

4.3. Brands in the online market 26.

4.4. Delivery and satisfaction 26.

5. PwC 27.

5.1. PwC and Total Retail 27.

5.1.1. Branding

5.1.2. Social media

5.1.3. Loyalty programs

5.1.4. Shifting to mobile

5.1.5. Wi-Fi

5.1.6. Security issue

5.2. New marketing strategy 32.

6. Discussion 33.

6.1. Recommendations 35.

7. List of references 36.

8. Appendix 39.

9. Supervisor contact log 41.

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1. Introduction

The retail sector is transforming like never before and the major retailers are struggling.

According to Morgan Stanley, e-Commerce sales could exceed $1 trillion by 2016

(Boesler, 2013). As the online sales maintain steady growth in the long term, offline sales

have been steadily decreasing for the past couple of years (Business Insider, 2014).

The ever increase use of digital devices and changes in consumer behaviour are changing

companies operating models and the markets themselves all over the globe (KPGM,

2013).

The two main factors of e-commerce revolution are the changes in consumers’ buying

habit and increase in competition in the retail sector. Nowadays customers tend to be

more individual and aware of versatile selection of goods (and services). The new players

in the market (especially in the online) have given even better opportunities for customers

to choose where they want to shop (KPGM, 2013). The e-commerce revolution has

increased the competition enormously in the last few years. Because an online shop is

fairly easy to develop and you do not have the same costs as physical stores do, it is also

much cheaper to run (Boesler, 2013, KPGM, 2013). Also the current economic situation,

which is causing a lot of uncertainty among consumers, has led the customers to look for

bargains. Customers tend not to be as loyal as they used to be (Clark, 2014).

Amazon, the world’s largest e-retailer, now accounts approximately 10% market share of

the North American e-Commerce (Smith, 2013). Amazon has been growing much faster

than the rest of the retail industry as a whole.

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Figure 1. Growth per retail sector in 2013-2014.

(Internet retailer, 2014)

In his book Start With Why: How great leaders inspire everyone to take action (2011, p.

16) Simon Sinek claims that there are only two ways to influence human behaviour: you

can manipulate it or you can inspire it. Typical manipulations include: dropping the price;

running promotions; aspirational messages; and promising innovation to influence

behaviour. Manipulations are a norm in modern society, but do they actually work? Do

they offer long-term satisfaction to both the company and its customer or are they just a

short-term solution to a larger problem? Loyalty is underrated nowadays, especially in the

retail sector, where everything seems to be circling around massive sales, promotions, and

finding the lowest price possible. This research aims to investigate customer loyalty in the

retail sector and more specifically in the e-commerce by analysing KPMG and PwC views

on customer loyalty. The research’s main objective is to understand what is customer

loyalty built on, and how it can be developed in the changing retail environment. The

questions this research aims to answer are:

1. What strategies do KPMG and PwC suggest to retailers to increase their customer

loyalty?

2. How much they value the importance of e-commerce in creating customer loyalty?

3. How can well-known retailers better succeed online, as they should?

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2. Literature Review

This part of the research is investigating the existing literature related to customer loyalty

and retention. The first part explains the importance of implementing a strategy and

especially CRM strategy that is built around creating customer loyalty. Second section will

explore the importance of loyal customers to a company, why should a company focus

more on customer retention rather than acquiring new customers and also how customers

can be segmented according to their loyalty. In third part the researcher investigated the

literature to explain the relationship between satisfied customers and loyal customers.

Fourth part is very much in relation with the third but it looks more in depth to three factors

that affect customer loyalty according to Pitta et al. (2006): value, trust and emotional

attachment. Fourth part also includes the description and analysis of Srinivasan et al.

(2002) 8C’s of customer loyalty. Fifth section will explain the Zhang et al. (2011) views on

creating customer loyalty and what affects the customer’s perception in e-commerce. After

that is analysis about loyalty programs, do they actually work and should they be added to

retailers’ pricing strategy. Finally is the conclusion with questions.

2.1. Strategy and CRM

Retail strategy (Levy & Weitz 2009, p.134) is “a statement identifying the retailer’s target

market, the format the retailer plans to use to satisfy the target market’s needs, and the

bases upon which the retailer plans to build a sustainable competitive advantage.” Levy &

Weitz divide the development of competitive advantage into seven opportunities: (1)

customer loyalty, (2) location, (3) human resource management, (4) distribution and

information systems, (5) unique merchandise, (6) vendor relations, and (7) customer

service.

In a modern world having just a corporate strategy is not enough, companies need to

implement an e-business strategy as well. E-business strategy is the applications of

internal and external electronic communications that support and influence corporate

strategy. E-business strategy should be in connection with Customer Relationship

Management strategy, Supply Chain Management strategy and Information Systems

strategy (Chaffey, 2011, p.241). Ngai (2005, cited in Jih & Lee, 2010) explain that multiple

definitions of CRM exists, but no universally accepted has been agreed upon. Payne &

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Frow (2013, p.207) describe CRM as a strategic approach to managing customer

relationships in order to create shareholder value, but as Levy & Weitz (2009, p. 306) point

out, the objective of CRM is to create customer loyalty, then CRM is much more than just

creating shareholder value. According to Levy & Weitz CRM is a combination of strategies,

programs and systems that focuses on identifying and building loyalty with a retailer’s most

valued customers. They claim that the goal of CRM is to develop a base of loyal

customers who patronize the retailer frequently. Plumpton (1999) says that CRM is about

capturing and analysing consumer behaviour to create target groups of customers, market

to them as individuals through the right channels and track the result. Plumpton also

addresses the importance of CRM in creating long-term customer relationships. In Payne

& Frow (2013, 210) CRM is divided into five processes, the second one being the value

creation process where companies need to ask themselves how should they offer value to

their customers, and how should they maximise the lifetime value of the customers they

want? Jelassi & Enders (2005, p. 104) introduces the Customer life cycle that divides CRM

into four elements. These elements are (1) Customer selection, (2) Customer acquisition,

(3) Customer retention, and (4) Customer extension. Customer retention has mainly two

goals. One, turning one-time customers into repeat-purchase customers and two, keeping

customers for as long as possible in the online channel. Customer retention is achieved

primarily through two features: personalization and communities (Jelassi & Enders, 2005,

p.105). Customer extension focuses on maximizing the lifetime value of a customer. The

most common way to achieve this is expanding the scope of an existing customer

relationship through cross-selling1.

As the value of web to companies is increasing, it is important to also explain the e-CRM

point of view. Implementing e- to the CRM is crucial part of the corporate strategies.

Jelassi & Enders (2005, p. 104) identified four aims for e-CRM: Creating long-term

relationships with customers to offset acquisition costs, reducing the rate of customer

defections, increasing the profitability of low-profit customers, and focusing on high-value

customers. Jih & Lee (2010) explain how implementing e-CRM offers such benefits as

reduction of the cost of communicating with customers, reduction of administrative and

operational costs, streamlining workflows, improving sales through better segmentation,

and improving overall customer interactions.

1 Selling additional products which may be closely related to the orginal purchase.

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This report is focusing on the second process of CRM described by Payne & Frow,

focusing on loyalty, and on the third and fourth elements of customer life cycle by Jelassi &

Enders. These are, as proven in the following chapter, more profitable than acquiring new

customers, and can create more value to the company and to the customers.

2.2. Importance of loyal customers

In his book Who Stole My Customer, Harvey Thompson (2004, p.24) showcases that

customer loyalty and retention was the number one management issue CEO’s faced.

O’Connor & Galvin (2001, p. 98) quote research by Reichheld & Sasser to demonstrate

that 5 per cent increase in customer retention can increase the profits by 35-38 per cent

but, Payne & Frow (2013, p.268) claim that although many CEO’s understand the

importance of customer retention, they might not be fully aware of the economics behind it.

The importance of loyal customers to the retailer is addressed in Levy & Weitz (2009, p.

306) where they claim that all customers are not equally profitable and less profitable

customers need to be treated differently. This argument is also shown in Retail Info

System News (RIS) interview with the CEO of Advanced Pricing Logic Inc. Dave Leonard

who divided customers into three groups: true loyalists, promotion/discount loyalists and

‘fire sale’ customers (RIS, 2014).

Figure 2. Customer Dispersion.

According to Leonard, the ‘fire sale’ customers do not generate profit, as they are not

loyal. They are only after the major sales. Leonard also claims that these types of

customers also return most products out of the three groups. He suggests that a company

Customer dispersion

True loyalist50%

Promotionloyalist 25%

Fire salecustomers 25%

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should focus their promotions and discounts to their most loyal customers, as they are the

largest group anyways. These customers also appreciate these gestures and will continue

shopping at the store in the future. As was pointed out by Levy & Weitz (2009, p.314),

CRM can be used to identify these most profitable customers and together with their

customer database retailers can indicate how valuable these customers are to them. This

will then help the firms to target the most profitable customers more effectively.

It may be assumed that the amount of true loyalist can be shrinking due to the rise of

competition online as customers have greater options to choose from, but as Pitta et al.

(2006) describes having a strong brand online might actually increase loyalty. They argue

that if a firm fails to focus on customers who will increase their profit and reduce costs,

they run the risk of working hard with little to show for their effort. One of the most

commonly used measures to indicate the value of customers is Lifetime Customer Value

(LCV). It is the expected contribution from the customer to the retailer’s profits over her

entire relationship with the firm (Levy & Weitz, 2009, p. 314).

2.3. Satisfied and loyal customers

According to Levy & Weitz (2009, p. 306) customer loyalty is much more than just

repeating visits to the store and being satisfied with the experience, but according to Pitta

et al. (2006) this is the case in many companies, which measure loyalty purely on repeat

purchases. Dick & Basu (1994, cited in Jih & Lee, 2010) also claim that customer loyalty

and repeat purchase do not equal. This view suggests that when examining the impact of

customer loyalty on the company’s marketing performance, a distinction ought to be made

between behavioural and attitudinal aspects of the concept (Jih & Lee, 2010).

Oliver (1999, cited in Flint et al., 2011) describes customer loyalty as a buyer’s

commitment to stick with a product, service, brand, or organisation consistently in the

future, despite new situations or competitive offers to induce switching. Heskett et al.

(1997, cited in Flint, 2011) claims that loyal customers are usually satisfied customers, but

satisfied customers are not always loyal customers.

Levy & Weitz (2009, p. 306) describe how loyal customers have developed an emotional

bond with the retailer that is almost like a friendship. Oliver (1997, cited in Flint, 2011)

describes how this can occur in phases, where loyalty builds over time from initial

satisfaction to fully bonded commitment. According to Reichheld & Sasser (1990, cited in

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Srinivasan et al., 2002) loyal customers are willing to pay higher prices to continue their

relationship with the supplier rather than searching for an alternative option (=lower price

elasticity compared to nonloyal customers). Payne & Frow (2013, p.270) describe how

loyal and satisfied customers are also more likely to refer to others, which promote profit

generation, as the cost of acquisition of these new customers is dramatically reduced.

These facts emphasises the importance of developing and maintaining relationships with

loyal customers.

Flint et al. (2011) found in their studies that “customer value anticipation does positively

affect both customer satisfaction and customer loyalty, and also has a strong effect on

customer loyalty by operating through customer satisfaction”. Anderson et al. (1994, cited

in Flint, 2011) describes that customer satisfaction and loyalty are positively related to

marketer profitability and market share.

In the end it can be derived that customer loyalty and retention are important factors to the

company, as loyal customers will ultimately impact the profitability of a company (which

then leads to the increase in shareholder value, discussed by Payne & Frow). This

research is based on this conclusion that more loyal customers = profitable company. Also

the researcher wants to express the importance of increasing knowledge of customer

loyalty due to the changing retail environment, which is the main reason behind this study.

2.4. Value, Trust and Emotional attachment in relation to loyalty

According to Pitta et al. (2006) customer loyalty is built on three factors: trust, value and

emotional attachment. Strong brand can create an emotional tie with customers that build

their trust and loyalty. Positioning involves the design and implementation of retail mix to

create an image of the retailer in the customer’s mind relative to its competitors. The

image in the customer’s mind is critical and should not be underestimated

2.4.1. Value

According to Slater et al (2000, cited in Flint et al., 2011) marketing managers must

understand what their customers’ value in order to survive and grow in competitive

markets. This is the second process of CRM described by Payne & Frow in the first

chapter. Perceived value is described by Pitta et al. (2006) as customer’s overall

evaluation of the benefits versus the costs involved in a marketing context. Value is the

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price, costs incurred, and benefits delivered by a marketer versus competitors. Pitta et al.

(2006) notes that different customers view value in different ways.

Flint et al. (2002, cited in Flint et al., 2011) describes the importance to acknowledge that it

is not enough to understand what customers’ currently value as these values might

change. It is just as important to be able to anticipate what customers will value. Some

customers might even come to suppliers expecting them to anticipate their needs and

desires, even if they themselves cannot (Flint et al., 2011).

Flint et al. (2011) also points out that company to achieve unique advantages it is

important for it to be able to anticipate changes in customers’ desired value. In those

markets where what customers’ value changes rapidly, it may actually be necessity.

According to Pitta et al. (2006) some customers might recognize the value in the

convenience of their transactions, and for some the time is a critical element. Value costs

are things such as the amount of time, effort, and uncertainty that are involved with a

transaction. These elements might refer to usability of the website, how convenient is the

payment process, what the delivery options are and how long the delivery might take.

Although Flint et al. (2011) findings help to understand the importance of customer value

anticipation in relation to satisfaction and loyalty, they do not, as they point out

themselves, tell how a company can anticipate what their customers will value. They do

suggest two capabilities to help with this. One is to create deep collaborative relationships

with customers and two, data collection and analysis techniques that focus on changes by

customers over time. This research is aiming to understand how to create those deeper

relationships with customers, by investigating KPMG’s and PwC’s approaches to

developing customer loyalty

2.4.2. Trust

Trust helps reduce perceived risk by lessening the likelihood that a customer will suffer a

loss. “Trust bolsters the customer’s belief in the likelihood of a positive outcome” (Pitta et

al., 2006). Trust is a key predictor for customer retention due to its crucial ability to

promote risk-taking behaviour in the case of uncertainty, interdependence, and fear of

opportunism (Fang et al., 2014). Pitta et al. (2006) emphasizes the importance of trust in

the online world as it still a major concern among online customers. They highlight the fact

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that trust must be established early and nurtured throughout the lifetime of the customer

relationship.

2.4.3. Emotional attachment

According to Pitta et al. (2006) brand loyalty is more than a set of repetitive discrete

transactions between consumer and brand. It is a set of motives that underlie the repeat

purchase behaviour. Gallup organisation (cited in Pitta et al. 2006) developed a set of

rating scales that measure four critically important emotional states. Those are:

confidence, integrity, pride, and passion. These states represent the strength of the

emotional connection existing between a customer and brand or a retailer. Confidence is

confidence in the retailer’s promise to benefits. Retailer needs to support it claims about

benefits it offers or new product innovation to gain customer confidence. Integrity means

that a retailer needs to stand behind its products or services to customers to believe in the

retailer’s integrity. When consumers feel appreciated by a retailer and are proud of their

personal association with them, then consumers feel pride in being customers of a certain

brand or retailer. Passion reflects the belief that the brand is essentially irreplaceable and

represents a seemingly perfect fit with the customer’s personal needs (Pitta et al., 2006).

2.4.4. Factors of loyalty

Srinivasan et al. (2002) define e-loyalty as a customer’s favourable attitude toward the e-

retailer that results in repeat buying behaviour.

The 8Cs of e-loyalty are, according to Srinivasan et al. (2002) customization, contact

interactivity, cultivation, care, community, choice, convenience, character. Jih & Lee (2010)

also added security and market response to define the value of e-CRM from the

customer’s perspective. The in depth explanation of the 8C’s can be found in the

appendix.

The research conducted by Srinivasan et al. (2002) found that all the characters of 8Cs

but convenience were found to have a significant impact on e-loyalty.

Their research does not take into account the individual-level variables that also may have

an impact (Srinivasan et al., 2002).

According to Srinivasan et al. (2002) interactivity increases the amount of information

presentable to a customer. As an example of this information Srinivasan et al. uses

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customers’ feedback they can leave to websites about certain products or services. It is

important to notify that this kind of information requires active customers that are actually

willing to leave feedback. This may not always be the case.

Customer care is important factor on creating e-loyalty but Srinivasan et al. (2002) do not

however present any specific ways a company can “take care” of their customers.

Virtual communities are important to retailers these days but as pointed out with the

interactivity factor, Srinivasan et al. (2002) assumes that customers would automatically

share their opinions to these communities. Also the reliability of the opinions and

information must be addressed. Is it from a trustworthy customer, or someone whom is

paid to leave feedback or giving negative feedback only because he or she does not like

the company?

According to Cameron (1999, cited in Srinivasan et al., 2002) lack of convenience may

cause customers not to return to the website. The researcher wants to point out that would

it be possible that customers are willing to shop on not so well planned site just because

the prices are much cheaper there?

Srinivasan et al. (2002) expresses the importance of collecting customer data to provide

relevant information and incentives in order to extend the breadth and depth of their

purchases over time. Collecting data to improve customer service is important and crucial

of course, but how much is too much? Not everyone is willing to provide every bit of his or

her personal information to a retailer just to get “better service”.

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2.5. How to create loyal customers?

What characteristics of the e-retailer affect customers’ perception? Zhang et al, (2011)

identified three vendor characteristics that have an effect on the Online Relationship

Quality, which then will affect the Online Repurchase Intention.

Figure 3. Characteristics affecting customers’ perception

Their data showed that perceived vendor expertise in order fulfilment had a greater impact

on online relationship quality than perceived website usability. This shows the importance

of post-purchase stage of order fulfilment and that post-purchase behaviour is more

important for online relationship quality than expertise in online activities. Perceived

reputation is also important factor on online relationship quality as it can positively

influence customers. Perceived website usability was shown to have a positive influence

on both relationship quality and repurchase intention (Zhang et al, 2011).

As Pitta et al. (2006) demonstrated having a positive brand image is benefit when

operating in e-commerce and that brick-and-mortar stores can have an advantage over

pure Internet retailers. They claim that trust is easier to generate for an existing store

brand name, but the researcher does not believe that customers would automatically shop

on a well-known retailer’s online store. Many well-known retailers have faced a lot of

difficulties when entering the online market.

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2.6. Loyalty programs, do they work?

According Newman & Cullen (2002, p. 481) the basic benefits of loyalty programs are the

ability to tie customers into long-standing relationships with the company and its loyalty

cards. Loyalty programs develop customer data that can help the company to understand

customer habits, patterns of consumption and customer requirements. Levy & Weitz

(2009, p. 138) understands the importance of loyalty programs as a part of creating

customer loyalty and they claim that to create customer loyalty a company needs to

develop a strong brand image, have clear and precise positioning strategy and create

attachments with customers through loyalty programs.

Loyalty programs are part of overall CRM program and as mentioned earlier customer

loyalty works hand-in-hand with CRM (Levy & Weitz, 2009, p.138). To contradict,

O’Connor & Galvin (2001, p.101) identify that true customer loyalty is much more than just

loyalty cards or sales promotions. They describe how the customer should be at the heart

of the organisation, where processes are designed around pleasing and delighting the

customer. According Anttila & Iltanen (2007, p.120) one of the key elements to develop

customer loyalty is the communication with customer even when the customer is not about

purchase anything. According to Anderson & Srinivasan (2003, cited in Jih & Lee, 2010)

better personalization generally leads to better customer satisfaction, which may in turn

result in better customer loyalty.

O’Connor & Galvin (2001, p.101) cite Miller (1998) who suggest that actually loyalty

schemes are designed to make it hard for customers to leave rather than trying to make

them advocate for a particular company or brand. Hart (1999, cited in O’Connor & Galvin,

2001, p.100) finds little evidence to support loyalty schemes and describes them as

defensive measures in a competitive market. Levy & Weitz (2009, p.306) also identify that

discount programs can be easily copied by competition. They also claim that price

promotion programs encourage customers to look for the best deal rather than develop a

relationship with one retailer. Anttila & Iltanen (2007, p.121) describe how customers also

need information and extra service to be satisfied. When there is an emotional connection

with a customer it is difficult for a competitor to attract that customer (Levy & Weitz, 2009,

p.306)

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2.7. Conclusion

The importance of loyal customers is very well known in the academic world as the

literature review showcases. To achieve loyal customers’ retailers need to be able to

satisfy their needs and understand what customers’ value. Loyal customers are crucial to

any firms’ success, as they tend to bring most value to the firm. Also customer retention is

proved to be more profitable than and not as costly as acquiring new customer.

Value, trust and emotional attachment are the key elements of creating loyal customers

and the importance of them should not be doubt. The literature explains different ways to

better understand what customers’ value; such methods might include data collection –

connecting the customer to the retailer through loyalty programs for example. This is

where the researcher believes exists a gap in the literature. Loyalty programs are mostly

just ways of manipulation. They do not tend to create long-term value to both the retailer

and the customer. One of the interesting arguments that the researcher found was that

being successful in the e-commerce market should be easier for well-known brands, but

this is not the case in many times. This research is investigating two of one of the largest

consulting firms in the world PwC and KPMG and what are their views on customer loyalty.

Reason to investigate these firms is to find actual evidence of how to develop customer

loyalty. Much of the literature investigated expressed the importance of customer loyalty

but failed to provide any actual methods to increase it. Analysing PwC and KPMG can

provide new views to the already existing academic literature.

The researcher aims to answer the following questions:

4. What strategies do KPMG and PwC suggest to retailers to increase their customer

loyalty?

5. How much they value the importance of e-commerce in creating customer loyalty?

6. How can well-known retailers better succeed online, as they should?

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3. Methodology

In this part the researcher will explain the research philosophy and approach used to

complete the research. The philosophical approach used in the research is pragmatism

approach as it allows a wider perspective on the possible issues. The approach used in

the research is inductive; the researcher aims to make observations and create a solution

or a theory from those observations. Also he will explain what kind of research strategy

was used in the research and how the research is designed. Qualitative strategy is used in

the research mainly because much of the analysis is based on companies’ reports and not

so much on numerical data. The design of the research is based on the case study design,

which is based on investigating a contemporary phenomenon. Case study design is used

when the researcher wants to understand a specific issue within one or multiple

organisations, which is the case in this research. There are short paragraphs about

research ethics and how the data is being collected and analysed. The research’s validity

and reliability are discussed in chapter 3.7. and possible limitations of the research are

acknowledged in chapter 3.8. Final paragraph is the conclusion.

3.1. Research Philosophy

Research philosophy is linked to the researcher’s views on the development of knowledge.

Understanding of research philosophy is important because it is fundamental on how to

approach the research (Wilson, 2014, p. 8).

Wilson (2014, p.8) cites Easterby-Smith et al. (2002) to explain the three main reasons

behind understanding of philosophical issues. First it can help to clarify research designs:

What kind of data/evidence should be collected and how it should be collected and

interpreted. Second, knowledge of philosophy can help the researcher to recognize which

designs works best. Third it can help researcher to identify and adapt research designs

according to the constraints of different subjects or knowledge structures. There are many

different research philosophies developed over the years.

This research is conducted using pragmatist approach. Easterby-Smith et al. (2012, p.32)

describes pragmatism as “compromise position between internal realism and relativism: it

does not accept that there are pre-determined theories or frameworks that shape

knowledge and truth; nor can people construct their own truths out of nothing. Any

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meaning structures must come from the lived experience of individuals”. According to

Cameron & Price (2009, p. 74) the output of pragmatic approach “might be greater

awareness of the concepts of being used to perceive and make sense of a situation, new

concepts to enhance perception and interpretation, and importantly, action to change the

situation”.

Pragmatists place the research problem and research questions at the centre of the

research and use methods they consider to be most appropriate in generating the most

significant insights into their research (Wilson, 2014, p.11). To conduct this research

appropriately pragmatism was found to be most suitable due to its versatile approach. The

approach does not align itself with any one philosophical stance and recognises the

importance of both the physical and social world (Wilson, 2014, p. 10). Pragmatism allows

the researcher to analyse the two companies’ views on customer loyalty in the most

effective and unbiased way.

3.1.1. Approach

Research approaches can be divided into two main categories: inductive and deductive. In

short inductive approach means the researcher is seeking to make observations about the

research, and then perhaps contribute to a new theory. Deductive approach, on the other

hand, “begins with and applies a well-known theory” (Wilson, 2014, p.12). This research is

using the inductive approach, because much of the research is based on collecting data

(qualitative) from the two companies KPMG and PwC and then aiming to create the

solution from there and trying to answer a question such as what strategies do KPMG and

PwC suggest to retailers to increase their customer loyalty and how do these strategies

differ from each other.

3.2. Research Strategy

The main research strategies are usually divided between qualitative and quantitative.

Wilson (2014, p. 14) cites Denzin and Lincoln (2008) to describe how these strategies

differ from each other: “qualitative implies an emphasis on the qualities of entities on

processes and meanings that are not experimentally examined or measured in terms of

quantity, amount, intensity or frequency. It stresses the intimate relationship between the

research and what is studied. According Koskinen et al. (2005, p. 16) the main purpose of

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qualitative research is to increase the understanding of how companies work by using

qualitative data, not so much to explain or control the companies actions. They also claim

that qualitative research offers a new kind of perspective to the mainstream world of

theoretical and conceptual views. It allows the use of practical concepts that are already

common in the company analysis. Koskinen et al. (2005, p. 31) states that the qualitative

research usually progresses inductively. When the researcher sharpens the research

questions he does not conduct hypotheses beforehand from a theory and whether or not

the theory fits to the searched scenario. Qualitative research is basically about testing the

hypotheses but these hypotheses are generated as the research process develops, and

the material is being collected and analysed.

Bryman & Bell (2007, p. 402) highlights three features of qualitative research:

An inductive view of the relationship between theory and research, whereby the

former is generated out of the latter.

An epistemological position described as interpretivist, meaning that, in contrast to

the adoption of a natural scientific model in quantitative research, the stress is on

the understanding of the social world through an examination of the interpretation of

that world by its participants.

An ontological position described as constructionist, which implies that social

properties are outcomes of the interactions between individuals, rather than

phenomena ‘out there’ and separate from those involved in its construction.

The main research methods associated with qualitative research are

Ethnography/participant observation, Qualitative interviewing, Focus groups, Language-

based approaches, the collection and qualitative analysis of texts and documents (Bryman

& Bell, 2007, p. 404).

Bryman & Bell (2007, p. 405) divide the qualitative research into six steps:

1. General research questions

2. Selecting relevant site(s) and subjects

3. Collection of relevant data

4. Interpretation of data

5. Conceptual and theoretical work

6. Writing up findings/conclusions

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Typical sequence of steps in qualitative research entails the generation of theories rather

than testing of the theories that are specified at the outset (Bryman & Bell, 2007, p. 408).

Qualitative data used in this research consists multiple reports and surveys conducted by

KPMG and PwC. The main reports from KPMG are the 2014 Retail Industry Outlook

survey, and Omnichannel retail: Consumer Experience, 2015. The main PwC reports are

Total Retail 2015: Retailers and the Digital Age of Distribution and Achieving Total Retail:

Consumer expectations driving the next business model, 2014. All of the reports used in

this research are not older than from 2013. Practicality reasons the PwC reports will be

cited as Total Retail survey, 2015 and 2014.

3.3. Research Design

“Research designs are detailed plans to focus and guide the research process. They can

be formalized as research proposals and are influenced by both technical and contextual

considerations” (Wilson, 2014, p. 116). Research design is a framework or plan for the

collection and analysis of data whereas research method is the technique used for

collecting data (Wilson, 2014, p.118). Selltiz et al. (1981, cited in Jankowicz, 2000, p. 190)

defines design as the deliberately planned arrangement of conditions for analysis and

collection of data in manner that aims to combine relevance to the research purpose with

economy of procedure. This research is designed according to the case study approach. A

case study is an empirical inquiry that investigates a contemporary phenomenon within its

real-life context, especially when the boundaries between phenomenon and context are

not clearly evident (Cameron & Price, 2009, p. 302). According to Cameron & Price (2009,

p. 302) the approach is directed towards understanding a specific issue. This may mean

looking at an issue within a single organisation, or specific issue across number of

organisations. Koskinen et al. (2005, p. 154) states that case study approach is one of the

most common qualitative methods in the business economics research. The core of case

study approach is to collect cases and analyse them. The amount of investigated cases is

rather small, usually just a single case but sometimes multiple cases can be investigated.

This research is analysing the reports of KPMG and PwC related to customer loyalty.

Yin (2003, cited in Koskinen et al. 2005, p. 154) defines six sources of material that can be

used in the case study approach: documents, archival records, interviews, direct

observation, participant observation, and physical artefacts. The main aspect of case study

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approach is not about collecting data and material but to the way conclusion is build and

analysed.

3.4. Research Ethics

Due to the fact that this research is conducted only by using secondary data there is no

reason to acknowledge any participants as there are no one else but the researcher

himself contributing to the research.

But it is important to clarify that the research is done in an honest, professional and

transparent way. Absolutely no plagiarism of any kind is acceptable and all work from

other sources is to be acknowledged and referenced in an appropriate way.

All data used is from the companies, KPMG and PwC, themselves.

Both companies examined in this research should be treated fairly and with respect. This

research applies all of the ethical codes of the Chartered Institute of Marketing (CIM)

(Wilson, 2014, p.105).

3.5. Data Collection and Analysis

Due to Anglia Ruskin University’s assessment regulations this research is done entirely by

using secondary data. Even without the regulations the research would have relied mostly

on secondary data as much of the needed information already exists and can be accessed

easily. The secondary data used in the literature review is mostly accessible through

Anglia Ruskin’s library’s website. The case studies, or reports to be more specific, are

accessible through the KPMG’s and PwC’s websites and are referenced properly.

3.6. Validity and Reliability

According Mason (1996, p. 21, cited in Bryman & Bell, 2007, p. 410) “reliability, validity,

and generalizability are different kinds of measures of the quality, rigour and wider

potential of research, which are achieved according to certain methodological and

disciplinary conventions and principles”. Validity refers to whether you are observing,

identifying, or measuring what you say you are. Reliability, according to Carmines & Zeller

(1979, cited in Wilson, 2014, p. 129) concerns the extent to which a measurement of a

phenomenon provides stable and consistent results. LeCompte & Goetz (1982, cited in

Bryman & Bell, 2007, p. 410) relate the validity and reliability to qualitative research in four

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ways: External reliability, Internal reliability, Internal validity, and External validity.

According to them, external validity represents a problem for qualitative researchers

because of their tendency to employ case studies and small samples. Internal validity

means that whether or not there is a good match between researchers’ observations and

the theoretical ideas they develop. Internal reliability should be considered if there is more

than one observer, members of the research team agree about what they see and hear.

This is not an issue in this research as it is conducted only by the researcher himself.

External reliability is the degree to which a study can be replicated. This is difficult criterion

to meet in qualitative research since it is impossible to ‘freeze’ a social setting and the

circumstances of an initial study to make it replicable in the sense in which term is usually

employed.

Researcher wants to acknowledge that errors related to time and subject are highly

unlikely in this research as those issues usually arise when there are participants taking

part of the research which is not the case in this study. Both KPMG & PwC are analysed

and examined in the most unbiased way possible. The researcher does not have any

personal or professional relationships to either of the companies, which would have an

effect on the research. As the research is conducted using secondary sources, validity and

reliability of the research should not be negatively affected.

3.7. Limitations of the Research

The concept of customer loyalty in this research has been discussed from a very broad

point of view and no distinctions between cultures are made. The researcher

acknowledges that people in different cultures value different things and might perceive

loyalty differently but the researcher believes that in the end everyone, no matter what is

their background, want their needs to be satisfied and appreciate the sense of being

acknowledged.

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3.8. Conclusions

Using qualitative strategy to conduct this research, the researcher found pragmatism

philosophical approach the most suitable, as it does not narrow the research into some

specific path that should be followed. It does not accept that there are pre-determined

theories or frameworks that shape knowledge and truth; nor can people construct their

own truths out of nothing (Easterby-Smith et al. 2012, p.32). This researched is

approached from inductive point of view, meaning that the researcher does not aim to

analyse any specific theory to create an observations, but rather analyse cases provided

by KPMG and PwC and to create observations and solutions from there.

The researcher does not accept any form of plagiarism and all of the sources used in this

research are cited and referenced correctly. Both companies and their views are analysed

unbiased but recommendations will be made from those findings which the research

believes would answer the questions accordingly. The literature review is used as a

support in the research.

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4. KPMG

KPMG acknowledges the importance of understanding what customers want and how they

want it. The experience in the online market is more important than ever.

“In the online world consumer experience is as important as the product and price. You

can have great products and discounted pricing, but if they can’t find what they are looking

for quickly or they do not get personalized shopping experience, they are likely to switch

over to your competing brand immediately” (Omnichannel Retail, 2015).

According to KPMG’s Retail industry Outlook survey (2014) 52% of the participants said

customer retention is the biggest revenue driver in retail in the next one to three years.

This supports the views on literature review that customer retention is one of the main

issues CEO’s face and 5% increase in customer retention can increase profits by 35-38%

(Thompson, 2004, p. 24, O’Connor & Galvin, 2001, p. 98). On the contradict, Top of Mind

survey (2014) revealed that many retailers are focusing on short-term growth strategies

such as promotions and pricing. This supports the proposition by Payne & Frow (2013,

p.268) that although CEO’s understand the importance of retention, they might not

understand how to improve it. The case might also be that there can be some pressure on

CEO’s from shareholders/board of directors to receive quick results, that they are afraid to

make changes that can prove valuable in the long-term. According to KPMG, long-term

strategies include: innovation, customer service and multi-channel effectiveness.

Studies sponsored by KPMG, conducted by Georgetown Institute for Consumer Research

will be cited as GICR in this research.

4.1. KPMG and omnichannel

KPMG defines omnichannel retailing as the focus on creating a seamless consumer

experience through any and all shopping channels: mobile, tablet, computers, brick-and-

mortar stores, television, radio, direct mail and catalogue (Retail Insight, 2013). Engaging

with consumers online helps retailers to tailor their product offerings, and also tailor

product development and sales projections. Engagement can be achieved, for example,

through utilizing vast amounts of consumer data into meaningful information that can help

retailers to differentiate the services they provide to their customers (Omnichannel Retail,

2015).

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KPMG suggests five areas that retailers should focus on:

1. Integrating customer-facing platforms.

a. Mobile-enabled stores.

2. Winning with talent: Customer-focused, data-driven, and digitally savvy talent and

leadership.

a. Helps remove friction and inconvenience from the customer experience and

drive sales and loyalty.

3. Gaining customer insights: Using data to understand what customers want, when,

and for what purpose.

4. Unifying pricing: Base pricing consistency and channel-specific promotions.

5. Managing cyber risks: Creating confidence and preserving trust.

4.1.1. Mobile platforms

KPMG acknowledges that integrating mobile (online) with brick-and-mortar stores is an

important element of a retailer’s omnichannel strategy. This integration includes especially

the in-store Wi-Fi that can track customers’ movement and apps that consumer can

download. With Wi-Fi tracking retailers would be able to send targeted messages to

customers based on their location and profile (Top of Mind survey, 2014). The researcher

as well as KPMG wants to point out that with Wi-Fi tracking retailers need to be very

cautious with it. How much is too much? Where does the line go between tracking and

stalking? With apps KPMG believes they can make consumers more productive and more

connected. Shop apps can sort through product wish lists and construct the quickest route

round a store. Giving deeper discounts to customers loyal enough to download a store can

make these apps even more attractive (Consumer Currents, 2014).

KPMG suggest that with modern day mobile phones/tablets retailers can introduce mobile

point-of-sales, where employees can check out customers anywhere in the store (Top of

Mind survey, 2014).

4.1.2. Train staff to create loyal customers

Brands should embrace Customer Relationship Management (CRM) early on, taking the

time to understand their customer, articulate the value proposition, and distribute the

information to the workforce that is delivering the experience (Retail Industry Outlook

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survey, 2014). CRM has an important role when creating long-term customer relationships

and customer loyalty, as was pointed out by Plumpton (1999). Investing in the sales force

is critical in the long-term omnichannel strategy. This might mean that a retailer needs to

hire more experienced and passionate sales people or providing more training on solving

customer-related problems or using technology effectively. Digitally savvy and well-trained

staff can help remove friction and inconvenience from the customer experience and drive

sales loyalty (Retail Industry Outlook survey, 2014).

4.1.3. Data collection

Collecting and disseminating data is important factor to better understand customers, and

retailers should be able to identify the right data to collect. According to KPMG (Advisory

Institute, 2014) data can be divided into two sections: Structured data, such as transaction

records, and unstructured data, such as online comments, brand sentiments, and social

media likes and dislikes. With collecting data it comes down to learning who your

customers are, how to serve them, and how to keep them. When the retailer has collected

the right data and analysed it properly, it can create customer profiles, segment its

customers, and develop right marketing strategies (Advisory Institute, 2014). GICR divides

customers into only two categories: frequent buyers and fiercely loyal buyers. In the

literature review there was also discussed a third category of ‘fire sale’ customers (RIS,

2014). The researcher wants to highlight that segmenting customers into three categories

might be more logical as it can help a retailer to identify potential loyal customers more

easily.

4.1.4 Pricing

According to KPMG competitive prices and promotions are the most important influencers

of in-store purchase decisions. They suggest channel-specific promotions, which reward

customer loyalty (Retail Industry Outlook survey, 2014). This view on pricing is very much

the opposite of the views of O’Connor & Galvin (2001, p. 101) presented in the literature

review. They believed that competing purely on prices and promotions are just ways to tie

customers to the retailer and make leaving difficult for them, not to create actual customer

loyalty. This view has not gone completely unnoticed in KPMG. They suggest that for

some retailers it might be better to avoid large sales and focus on providing competitive

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prices in the long-term. According to Robert Browne, Partner at Strategy Group, KPMG

UK, the high-low model of pricing – marking products up, only to discount them later – not

only lowers margins, but damages and devalues brands over time. Constant discounting

might essentially tell to customers that products are not worth the regular price.

Sometimes the promotion of a branded product actually cannibalizes the retailers’ private-

label sales rather than creating a halo effect on other products (Customer Currents, 2014).

Figure 4. KPMG omnichannel pricing model

(Omnichannel Retail, 2015)

KPMG do understand that knowing what consumers’ value is just as important: service,

shipping, and support – and the ways these might affect pricing strategies (Omnichannel

Retail, 2015).

In their Consumer Currents (2014) publication, KPMG told about a new company that has

taken their loyalty program to a new level. Birchbox offers five samples of beauty products

delivered to customer’s home for just $10 per month ($20 for men’s boxes). If a customer

likes the content he or she can order the full-sized version from their online store. This is a

great example of a promotion/loyalty program that has been taken to the 21st century.

4.1.5. Trust

Earning consumer trust is an important way for brands to ensure they do not compete

purely on price but what if customer does not trust the retailer, why should they then care

about retailer’s assortment or prices. “Trust allows you to charge more for services2, for

example the shipping fees can be higher than the average if people trust you and enjoy

the quality of the service, but in the end to be successful in online it comes down to having

2This was pointed out in the literature review by Reicheld & Sasser (1990, cited in Srinivasan et al., 2002) that loyal customers are willing to pay higher prices to continue their relationship with the supplier rather than look for an alternative.

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the right product, at the right price, delivered conveniently” (Nicholas Martin, CEO of Jumia

interviewed in Consumer Currents, 2014).

KPMG suggests that companies should put a lot of focus on their Corporate Social

Responsibility (CSR) practices, as these are something that especially younger customers

are sensitive about and they place a lot of value on environmental sustainability and other

forms of CSR. In study of 10,000 participants, 85% told that they consider CSR when

deciding where to shop, what to buy, and should they recommend the products or services

to others (Advisory Institute, 2014). Being able to securely handle the customer data, such

as credit card information comes crucial in these days. Retailers should put a lot of time

and effort when building secure platforms for all of their data, this can have a major impact

on consumer trust, one way or the other (Focus 2014).

4.2. Customer reviews

In online product information is key to buying decision. Retailer has to have quality

photographs of products and preferably videos as well. Customer review section is also

very important as was pointed out too by Srinivasan et al. (2002). Consumers consider

user reviews – through social media, online forums, comparison Web sites, and other

Internet research – as a part of their decision. KPMG claims that nowadays consumers

tend to trust more on the opinions of other consumers – the content that they can find on

their own – rather than messages pushed out to them by large companies and

organisations (Advisory Institute, 2014, Omnichannel retail, 2015).

The same discovery was made by Payne & Frow (2013, p. 270); loyal and satisfied

customers are more likely to refer to others. The researcher, as did in the literature review,

wants to point out that consumer reviews require active consumers that are willing to give

feedback about products or services to different platforms. Also the reliability of the

feedback should be questioned and treated with criticism if it seems that the sole purpose

of the feedback was to give negative or positive reviews.

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4.3. Brands in the online market

KPMG cites GICR to claim that consumers tend to have a fairly strong preference for

underdog brands and when large brands are perceived as competing with small brands

consumers tend to favour the small brands (Advisory Institute, 2014). This might explain

why some retailers might not succeed in e-commerce but as Pitta et al. (2006) explained

strong brand should almost automatically succeed in the online market.

4.4. Delivery and satisfaction

KPMG has investigated the delivery options provided by retailers very closely and their

findings show that delivery plays a significant role in customer satisfaction. One of the

most popular delivery ways is the click-and-collect; it can provide a stress free and

effective way to the customers to receive their products. They found that same day

delivery was only used by 15% of the retailers in their survey, next day delivery was found

much more popular. According to KPMG, same day delivery is dependent on three factors:

Accurate stock information, stock close to customer, and agile 3rd party couriers or

transport solutions. Workable same day delivery does not come cheap and also many

retailers do not want to make promises they may not be able to keep at busy times

(Omnichannel Retail, 2015). KPMG discovered that improvements could be made when it

comes to offering delivery slots. Majority of options offered were full day delivery slots,

which is obviously rather inconvenient to the customer. Less than 9% of retailers even

bothered to confirm the delivery slot and 43% did not even provide estimated delivery date

(Omnichannel Retail, 2015). John Lewis provides next day delivery, which has been a

significant investment but has proven to be a competitive advantage for them. They also

offer click-and-collect service through their 325 Waitrose stores. Also many stores offer in-

store returns to increase consumer options and store footfall (Consumer Currents, 2014).

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5. PwC

PwC had very similar findings to KPMG and Payne & Frow (2013, p.268) about the

importance of customer retention. 56% of retail CEO’s surveyed told that they are planning

to change their business model towards more customer focused organisation and 53%

said that they have change programs underway towards more customer focused

organisation (Total Retail survey, 2014).

5.1. PwC and Total Retail

PwC claim that the costs and complexities of managing on multichannel basis are too

great and offer too few rewards for the customer experience. In a multichannel

organisation trade promotions are inconsistent among channels, products are unavailable

in-store because units already were sent from distribution centers to fulfill web orders and

customer loyalty information is haphazardly applied across channels (Total Retail survey,

2014). Loyalty in e-commerce requires a working brick-and-mortar unit, in other words the

omnichannel model, but PwC has taken the integration of channels one-step further from

omnichannel retailing by introducing Total Retail: Unified brand story across all channels

that promises consistently superior customer experience and integrated back-office

operating model with agile and innovative technology. Retailers do not need a digital

strategy anymore; they need a business strategy for a digital age and according to PwC

Total Retail aims to do this by incorporating supply chain, marketing and sales, and

finance (Total Retail survey, 2015, Total Retail survey, 2014). PwC highlights the

importance of integrating CRM across all online and offline parts of retailer’s business.

PwC says that the organisation should be customer focused, not channel focused

organisation. Online shopper will expect that product promotions, offers, and other

communications will be available in the store and also work on every kind of mobile

device. This view differs a bit from the KPMG’s where they suggest more channel specific

promotions.

Figure 5. The changing business model for retail

(PwC, 2015)

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Figure 6. Evolution of retail

(Total Retail survey, 2014)

5.1.1. Branding

According to PwC a retailer can have harder time to gain customer loyalty compared to

individual brands. This is because a retailer does not have its own brand, so it is hard for

consumers to really feel attached to the retailer. Customer might ask why I should spend

money with you. PwC claims that when it comes to actually making a purchase,

consumers make few distinctions between manufacturers and retailers (Total Retail

survey, 2014). Could it be possible that consumers want to buy directly from brands not

from the retailer? This situation is very similar to the buying from the ‘underdog’ explained

by KPMG. To achieve a strong brand presence, retailers must develop a very clear

proposition and a brand that means something to the consumer. To build a brand that

consumers can relate to it is important to make sure that employees understand what the

brand represents. This can be achieved through training. Retailers should put a lot of

29

emphasis on staff training and development as when they have clearer vision of what they

are doing and why there are doing it, then they are able to serve customer better and

efficiently. Then customers can feel more satisfied and eventually this will result in higher

customer loyalty (Total Retail survey, 2014).

5.1.2. Social Media

According to PwC’s survey a compelling brand itself can exert a strong pull on consumers.

The number one reason to shop at a certain brand was “I trust the brand” and customers

were also attracted to brands that tell a story in an engaging manner. This supports the

view by Pitta et al. (2006) about emotional attachment. To engage with customers, a

retailer should apply the opportunities provided by social media. With the help of social

media, a retailer is not only able to build brand power, but to manage risks as well. PwC

found that those who use social media to interact with their favourite brand led them to like

the brand even more than before interaction (Total Retail survey, 2015).

Social media enables companies to build meaningful, connected experiences for both

long-time and possible future customers. Enthusiasm for social media is driving customers

to engage, comment and even effect change at the retailers and brands. Companies must

think about their investments in social media as a journey toward increasing internal

capability and true consumer engagement. Retailer that really wants to improve its viability

as an online purchase destination should invest in search engine optimization. Retailer

could also increase ‘direct traffic’ in which consumers go straight to a retailer’s online

assets instead of searching for generic products via a search engine (Total Retail survey,

2015, Total Retail survey, 2014).

5.1.3. Loyalty Programs

PwC does not want to underestimate the importance of loyalty programs. 71% of their

survey respondents told that loyalty programs play an important role in their decision to

shop at a specific retailer. Online shoppers like to be known and recognised at their

favourite retailers. They want personalisation based on their past purchases. PwC found

that there was increase in visits to brands social media sites from customers who received

personalised promotions via email or text messages. Retailers could offer coupons that

are sent to customer’s smartphones and those can be used in-store, home or in transit. All

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of this customisation and personalisation can be used to drive traffic toward online

purchases (Total Retail survey, 2014). To make the shopping experience better in-store,

shoppers valued the ability to check other store or online stock quickly, but PwC notes the

risk here. What if a long-time customer checks a store kiosk for an out-of-stock item and

sees it in another store 12 miles away, journeys to pick it up, and then finds that someone

else has just bought the last one? (Total Retail survey, 2014).

5.1.4. Moving to mobile

PwC say that Total Retail to work the retailer needs to embed digital marketing materials

with the appropriate formatting necessary to be readable on every digital device. This

especially important on mobile devices as 40% of PwC’s survey respondents told that the

mobile screen is too small. Designing an app would be the solution to this, but PwC found

that actually mobile browsers were 20% more popular than apps (Total Retail survey,

2014). Apps are not as popular mostly because customers are not eager to download

multiple apps from different retailers. Researcher’s solution would be an app where a

consumer can find 5-10 retailers own apps that the consumer has chosen – kind of like an

app within an app. This would include offering benefits to all of the stores in the app. PwC

suggests that when retailer’s mobile apps provide a more customized, intuitive and

immediate experience that their equivalent browser, more people will start moving towards

using apps. The researcher thinks that the strength of apps is that they can work offline.

Customer would be able to browse without any connection, for example in an airplane or

train ride where connections are usually poor. Browsers require a data or Wi-Fi connection

to work. PwC believes that brand loyalist deem it worthwhile to download a retailer’s app

because they are particularly eager for that retailer’s content, personalized promotions,

speed, and loyalty reward points. Casual shopper, on the other hand, are unlikely to make

effort to download an app and will shop online with that store only if the store website is

optimized for their devices (Total Retail survey, 2015). To conclude PwC’s findings mobile

sites are more about acquiring new and casual customers, whereas the apps are more

about appealing to loyal online customers. Smartphones can also just be instruments for

getting to the point of buying a product, rather than a tool for the actual purchase.

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5.1.5. Wi-Fi

PwC acknowledges the importance of offering Wi-Fi in-store and understands its

capabilities (Total Retail survey, 2014), as does KPMG. In-store Wi-Fi should have fast,

simple login process, but the researcher believes that consumers to actually start using the

Wi-Fi, it should be free and possibly no login at all. Registering to use the Wi-Fi might feel

frustrating and time consuming to some consumers. Also the researcher wants to point out

that is Wi-Fi connection essential in the future as data technology develops and becomes

cheaper, so that people do not need Wi-Fi anymore?

5.1.6. Security issue

Loyal customers require a unified customer experience: Consistent promotions across

channels, loyalty programs recognised in-store and online, price consistency, and stored

personal credit card and other ID information to speed transactions (Total Retail survey,

2014). Storing personal credit card and other personal information requires investments

into retailer’s information security. 43% of respondents in PwC’s survey told that they were

worried about the security of their personal data. The number is noticeable low. Although

investing in security is crucial, it is something that the researcher believes should not be

advertised too much, as it could attract hackers. PwC believes that the one truly difficult

long-term obstacle to major growth in mobile shopping may be the security issue (Total

Retail survey, 2014).

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5.2. New marketing strategy

PwC explains their idea how social media can be useful when launching a new product. In

the traditional social media marketing strategy, the product is launched in social media,

then customers have changes to gain promotions/coupons and finally the company

receives feedback (comments/complaints) about the product. PwC turned this method

other way around, where first the company listens to its customers in social media to gain

new product ideas, and then they see how customers might feel about them and finally

product is launched (Total Retail survey, 2014).

Figure 7. The traditional model of marketing

Figure 8. PwC’s new model of marketing

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6. Discussion

Retailers should not underestimate the importance of well-trained and technologically

skilful employees in relation to customer satisfaction and loyalty, but these employees are

mostly useful in brick-and-mortar stores. The challenge with e-commerce is the lack of

personal contact with the customers compared to an in-store experience. Customer will

not receive the same level of service in online as in in-store environment. That is why a

retailer should provide a seamless online shopping experience that has been made as

easy and convenient as possible to the customer.

Both KPMG and PwC suggest implementing a customer centric organisation model, where

all channels/point-of-sales are connected with each other, but PwC takes this a bit further

with their Total Retail model. They both believe that adapting new technologies and

collecting data to better serve their customers is going to be crucial for retailers to be

successful in the future. The main difference is the promotion programs they recommend.

KPMG talked about channel specific promotions, and this remained a bit unclear what they

meant by it. PwC suggested identical promotions across all channels, which seemed more

logical and easier to apply.

Both companies appeared to be in favour of personalised messages to customers,

whether those would mean messages through apps, Wi-Fi, email or text messages.

Although personalised message can be important factor to create loyal customers, the

researcher does not really believe customers would actually want constant messages

about promotions, ‘this is something you might like’ –messages, new product launches

and so on. The amount of information we receive nowadays is very high anyways, so

messages from retailers that encourage us to shop more might just become irritating

eventually. That is why social media is becoming more and more important for customers

to get information about products or services so they can access that information wherever

they want it, whenever they want it. Both companies understood the importance of social

media, and the customer review possibility that comes with it, but PwC seemed to better

understand the value it provides with their new marketing strategy for social media, where

customers are at the centre of innovation and launching of a product.

Neither of KPMG or PwC suggested support chat services to help the customers find what

they are looking for. That could be one option to get into contact with customers better but

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the researcher does not recommend it either. In a case where customer would have to rely

on chatting with an employee to find a product, the e-commerce has more or less failed to

serve its purpose.

KPMG and PwC both understand the importance of e-commerce in the modern retail world

and what kind of impact it might have on customer loyalty, but it can derived from their

reports that having working, well-established brick-and-mortar store is still important for

retailers to be able to be successful. It still remains the only place where customers can

have genuine shopping experience and expect to be served personally. The in-store part

of the retailer’s business should work in a perfect alignment with the online part and they

should fulfil each other through technological innovations such as apps.

How can retailer achieve more customer loyalty in e-commerce then?

According to Pitta et al. (2006) well-established brand should be able to gain loyal

customers fairly easily, but this is not always the case in retail, and one of the reasons

might be the ‘underdog’ situation explained by KPMG, where customers tend to shop at a

brand that they feel is underdog compared to a larger, more well-known brand. One way

where retailer can differ it from smaller, mostly only online-based competition is the

delivery service they offer. Delivery has a high impact on satisfaction as was explained by

KPMG. Retailers might have wide network of smaller grocery stores, as in the case of

John Lewis, or affiliate shops where customers can easily collect the items they have

purchased online. Retailer to be able to offer next day or even same day delivery would

give it major competitive advantage and increase customer satisfaction. Loyal customers

might be willing to pay for this kind of services as was explained by KPMG and Reichheld

& Sasser (1990, cited in Srinivasan et al. 2002). This is also supported by findings from

Zhang et al. (2011) that website usability and expertise in order fulfilment are important

factors in customer relationships. Offering delivery times should be something considered

self-evident. Delivery slots should not be more than two hours and if possible allow the

customer to decide the best time for them. Offering full-day delivery slot is not good

customer service, customers should not wait at their home for retailer to arrive whenever is

best for them. Also offering tracking service is something that can increase satisfaction

and the feeling of safety as the customer sees where her product is.

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6.1. Recommendations

As explained the approaches these companies have towards gaining customer loyalty are

very similar with their customer centric organisation models suggested. PwC takes the

approach a bit further with their Total Retail model. The researcher would recommend a

retailer to try to adapt this model as it focuses on integrating all channels and treating them

as one unit whereas KPMG’s omnichannel model still treats channels as separate units to

some level.

Three most important factors in creating customer loyalty, from the researcher’s

perspective are:

Creating meaningful relationships with customers through social media.

Offering benefits that prove valuable to the customer in the long-term, such as

better delivery times, personal service in-store and promotions across all channels.

Safe and secure service, that customers can trust the retailer to leave their personal

information, such as credit card, to them.

Retailer to use promotions or loyalty programs they could consider adapting the model

used by Birchbox (Consumer Currents, 2014) where customer would receive a monthly

box of small goods, with preferably individually designed content. This could increase the

sense of belonging and the emotional attachment to the retailer.

Researcher acknowledges that this has been very general study about customer loyalty.

When investigating customer loyalty the use of primary sources would be very valuable

and actually provide new information about customer loyalty. Due to the university

restrictions this was not possible to undertake.

Researcher believes that further study is needed as the retail sector keeps evolving and

customer behaviours change overtime. Especially the social media aspect should be

investigated more thoroughly and what is its impact on customer loyalty? Do the ‘likes’

transfer into profits?

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Koskinen, I., Alasuutari, P., Peltonen, T., 2005. Laadulliset menetelmät Kauppatieteissä.

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Newman, A. J. & Cullen, P., 2002. Retailing: environment & operations. London: Thompson Learning. O’Connor, J. & Galvin, E., 2001. Marketing in the Digital Age. Harlow: Pearson Educated Ltd. Payne, A. & Frow, P. 2013. Strategic Customer Management. Cambridge: Cambridge

University Press Pitta, D., Franzak, F., Fowler, D., 2006. A strategic approach to building online customer loyalty: integrating customer profitability tiers. Journal of Consumer Marketing. [e-journal] 23(7) p.421-429. Available through Anglia Ruskin University Library website: <http://libweb.anglia.ac.uk/> [Accessed 20.04.2015] Plumpton, J., 1999. CRM. The Computer Bulletin. [e-journal] 41(4). Available through: Anglia Ruskin University Library website: <http://libweb.anglia.ac.uk> [Accessed 25.02.2015] PwC, 2015. Achieving Total Retail. [online] Available at: <http://www.pwc.ch/en/industry_sectors/retail_consumer/achieving_total_retail.html> [Accessed 28.04.2014] PwC, 2014. Achieving Total Retail: Consumer expectations driving the next retail business model. [pdf] PwC. Available at: <http://www.pwc.nl/nl_NL/nl/assets/documents/pwc-total-retail-2014-nl.pdf> [Accessed 28.04.2015] PwC, 2015. Total Retail 2015: Retailers and the digital age. [pdf] PwC. Available at: <http://www.pwc.com/gx/en/retail-consumer/retail-consumer-publications/global-multi-channel-consumer-survey/assets/pdf/total-retail-2015.pdf> [Accessed 28.04.2015] Research Info Systems News, 2014. Big Data Fuels Next-Generation Pricing Strategies. RIS. [Online] Available at: <http://risnews.edgl.com/thought-leadership/Big-Data-Fuels-Next-Generation-Pricing-Strategies96796> [Accessed 26.02.2015] Sinek, S., 2009. Start With Why: How great leaders inspire everyone to take action. London. Penguin Group. Smith, K. 2013. 10 Mind-blowing facts about Amazon. Business Insider. [Online] Available

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Wilson, J., 2014. Essentials of Business Research. 2nd Edition. London: SAGE Publications Ltd. Zhang, X., Fang, Y., Wei, K-K., Ramsey, E. and McCole, P., Chen, H., 2011. Repurchase intention in B2C e-commerce—A relationship quality perspective. Information and Management. [e-journal] Vol.48(6), p.192. Available through: Anglia Ruskin University Library website <http://libweb.anglia.ac.uk/> [Accessed 20.02.2015] 8. Appendix Explanation fo Srinivasan et al. (2002) 8C’s of customer loyalty.

Customization

The ability of an e-retailer to tailor products, services, and the transactional

environment to individual customers (Srinivasan et al., 2002).

Customization increases the probability that customers will find something that they

wish to buy (Srinivasan et al., 2002). According to Ostrom & Iacabucci (1995; cited

in Srinivasan et al., 2002) customization can signal high quality and lead to a better

match between customer and product. Easier it is for a customer to find what they

are looking for, and not spend time browsing through entire product assortment, the

more likely they will visit the site again in the future (Srinivasan et al., 2002).

Contact interactivity

The dynamic nature of the engagement that occurs between an e-retailer and its

customers through its website (Srinivasan et al., 200). Interactivity plays a

significant role in gaining customer loyalty (Srinivasan et al., 2002).

Interactivity enables a search process that can quickly locate a desired product or

service, thereby replacing dependence on detailed customer memory (Alba et al.,

1997, cited in Srinivasan et al., 2002).

Care

The attention that an e-retailer pays to all the pre- and post purchase customer

interface activities designed to facilitate both short-term transactions and long-term

customer relationships. (Srinivasan et al., 2002). Care is especially important in the

modern Internet world as Poleretzky (1999, p. 76, cited in Srinivasan et al., 2002)

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points out: “In the physical world, if I make a customer unhappy, they will tell five

friends, on the Internet they will tell 5,000.”3

Srinivasan et al. (2002) presents that the level of care that a company exercises to

minimize disruptions in customer service will lead to higher e-loyalty.

Community

A virtual community is an online social entity comprised of existing and potential

customers that is organised and maintained by an e-retailer to facilitate the

exchange of opinions and information regarding offered products and services

(Srinivasan et al., 2002).

Nowadays communities are very much tied to sites such as Linkedin, Twitter,

Facebook and Instagram. NikePlus an excellent example of company’s own

community.

Some customers may remain loyal because they value the input of other community

members, and others may be loyal because they enjoy the process of providing

such input to the community (Srinivasan et al., 2002).

Convenience

The extent to which a customer feels that the web site is simple, intuitive, and user

friendly (Srinivasan et al., 2002). Quality of the website is crucial for e-retailers. It

might be the only interface with the marketplace (Srinivasan et al., 2002).

Schaffer (2000, cited in Srinivasan et al., 2000) claims that 30% of the customers

who leave website without purchasing anything do so because they are unable to

find their way through the site. Difficulties and frustration may cause customers not

to return to the website (Cameron, 1999, cited in Srinivasan et al., 2000).

Cultivation

The extent to which an e-retailer provides relevant information and incentives to its

customers in order to extend the breadth and depth of their purchase over time

(Srinivasan et al., 2002).

According to Berger (1998, cited in Srinivasan et al., 2002) companies need to use

their databases effectively to cultivate customers.

Choice

3 In 2010’s the number is more likely to be closer to tens of thousands or even more.

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E-retailer is typically able to provide much wider range of product categories and

variety of products compared to a typical retailer (Srinivasan et al., 2002).

Character

Creative website design can help an e-retailer build a positive reputation and

characterization for itself in the minds of consumers (Srinivasan et al., 2000).

9. Supervisor contact log Student Number:

1208196 Degree Programme: BA (Hons) Business Management Proposed Dissertation Title (as submitted via turnitin):

The Evaluation of E-Commerce Revolution on Management of Marks and Spencer and Stockmann Agreed Title (as agreed with supervisor):

Achieving Customer Loyalty in e-Commerce: How does KPMG and PwC approach customer loyalty in 21st century business environment? Supervisor’s Signature: Date:

Date and time of meeting

Notes Supervisor’s initials

15.12.2014 - 14.00 General discussion about the chosen subject 13.03.2015 - 11.00 Going through the first literature review

draft.

21.04.2015 - 14.00 Discussing about the literature review and methodologies and possible improvements on them.