U
NIVERSITEIT VAN
A
MSTERDAM
Attitudinal Loyalty and the Negative Price
Spiral – A Solution for a Fashion Brand
Master's Thesis
in partial fulfilment of the requirements for the degree of
MASTER OF SCIENCE (MSc)
in Business Studies
with specialisation in Marketing
Kim Christine Zanthoff
Student-No. 6262473
First Supervisor: Dr. ir. Mark A.A.M. Leenders
First draft completed: 17 July 2011
Final version: 19 July 2011
Abstract
Customer loyalty is a major concern for companies that want to achieve a consistent customer base. To achieve long-term customer loyalty companies use loyalty programmes triggering the attitudinal as well as behavioural loyalty of a customer. Theory provides antecedents of these loyalty stages that help measuring the loyalty levels. The drivers, however, that form loyalty and bear implementations for practice are yet unknown.
This study investigates the individual’s background characteristics as drivers of the attitudinal and behavioural loyalty in combination with the willingness to pay. The model is tested with data of 3,800 participants of one fashion brand’s loyalty programme across Germany and the Netherlands. This study examines the direct and mediated effect of ten individual background characteristics with attitudinal loyalty as mediator.
The research revealed that all background characteristics are significantly impacting the loyalty concept and that attitudinal loyalty functions partially as mediator. Tested for the first time, social network brand-fanship was found to be a significant part of the loyalty concept drivers. Fashion involvement, card level and membership duration were found to be the key characteristics for the addressed brand to improve its loyalty programme.
TABLE OF CONTENTS
1 Introduction ... 1
2 The Role of Customer Loyalty in Customer Relationship Management ... 5
2.1 Diverse Aspects of Customer Loyalty ... 7
2.1.1 The Term Customer Loyalty... 7
2.1.2 Customer Loyalty and its Dimensions ... 8
2.1.3 Customer Loyalty and Customer Equity Management ... 8
2.1.4 Customer Loyalty and the Consumer Behaviour Theory ... 9
2.2 Former Loyalty Models... 11
2.3 Customer loyalty model ... 14
2.3.1 Attitudinal Loyalty ... 15
2.3.1 Behavioural Loyalty ... 17
2.3.3 Willingness to Pay ... 17
2.3.4 Individual Background Characteristics ... 18
3 The Company Context ... 24
3.1 Apparel Market Characteristics ... 25
3.2 Competitive Environment ... 29
3.3 Loyalty Programmes ... 31
3.4 Mexx Connect... 34
4 Methodology ... 36
4.1 Design of the Study ... 36
4.2 Sample and Data Collection ... 36
4.3 Measurements ... 37 4.3.1 Mediating Variable ... 37 4.3.2 Dependent variables ... 38 4.3.3 Independent variables ... 38 4.3.4 Data Analysis ... 39 5 Results... 40 5.1 General findings... 40
5.2 Background Characteristics and Their Effects ... 43
6 Discussion and Implications ... 51
6.1 Discussion of Findings ... 51
6.2 Potential of Social Networks ... 54
6.3 Managerial Implications ... 55
6.3 Limitations of the Study and Scope of Future Research ... 58
7 Conclusion ... 59
8 References ... 60
9 Appendix ... 70
TABLE OF FIGURES Figure 1: Loyalty Card System ... 6
Figure 2: Consumer Analysis Wheel ... 11
Figure 3: Loyalty Components ... 15
Figure 4: Conceptual Model ... 23
Figure 5: World Market Sizes ... 26
Figure 6: Market Size Apparel Industry ... 27
Figure 7: Market Size of Apparel Categories 2010 ... 27
Figure 8: German Apparel Market Statistics ... 28
Figure 9: Brand Positioning Map ... 31
TABLE OF TABLES Table 1: Descriptive Statistics and Inter Variable Correlations ... 42
Table 2: First Phase - Regression Results ... 44
Table 3: Second Phase - Regression Results in Two Steps For Behavioural Loyalty . 46 Table 4: Second Phase - Regression Results in Two Steps For Willingness to Pay ... 47
1 Introduction
With $450 billion sales revenues in 2010 the Western European fashion market is a prosperous market. Besides its rapidly changing environment and frequently changing trends, the apparel market is characterised by fierce competition putting pressure on companies to perform better than others. Hence, companies seek for a competitive advantage that helps them to bind their customers to their brand in order to outperform competitors and to build a reliable customer base. Diverse companies have found loyalty programmes to be the supposed solution.
Loyalty programmes shall help companies to maintain a consistent customer group that sticks to the brand. Furthermore, it shall create barriers to switch for the consumers on an attitudinal as well as conscious level by offering hard and soft benefits.
The success of loyalty programmes, however, is questionable. On the one hand, they are creating continuous sales and a customer bond (Uncles, Dowling & Hammond, 2003). On the other hand, they are expensive and evidence is missing that this expenditure is justifiable based on the achieved changes in the consumer behaviour. Even when a loyalty programme is implemented and running, a company faces further challenges. Maintaining a loyalty programme challenges the company not to provide too many hard benefits that cause artificial buying behaviour, as this can result in a vicious circle of never-ending reductions.
Regardless of the loyalty programmes, customer loyalty itself is already a severe and difficult topic. It is highly important for companies but hard to trigger on the consumer side. This relies on the fact that customer loyalty includes diverse dimensions; a company dimension that focuses on profit and regular sales and a personal dimension that includes psychological, behavioural and monetary factors.
To fully understand customer loyalty it is necessary to take in all aspects that contribute to customer loyalty. Former studies have rather focused on detailed fractions. Dick and Basu (1994), Bennett and Rundle-Thiele (2002), Chen et al.
(2009) as well as Cheung (2009) looked among others at attitudinal loyalty. Jacoby and Chesnut (1978), Bass (1974) as well as Jacoby and Kyner (1973) focused on behavioural loyalty. Meyer-Waarden and Benavent (2006) investigated the impact of loyalty programmes on repeat purchases and Evanschitzky and Wunderlich (2006) examined moderating effects on the four-stage loyalty model. This is just a fraction of the researchers and diverse studies concerned with customer loyalty.
All these researchers developed detailed models exploring a part of customer loyalty but no one developed a holistic model that thoroughly examines the diverse aspects of customer loyalty simultaneously. Studies that examined attitudinal drivers investigated the impact of what this thesis defines as antecedents of attitudinal loyalty. These antecedents form attitudinal loyalty but are not necessarily individual drivers, since they are a deriving from various psychological factors.
Taking into consideration that customer loyalty is a complex phenomenon, this thesis develops a holistic model investigating which individual’s background characteristics are real drivers of attitudinal loyalty or directly influence behavioural loyalty or willingness to pay.
In particular, this model is trying to find a solution for Mexx’ major problems. The fashion brand is currently facing two major challenges: a low rate of attitudinal loyalty and a negative price spiral.
The first problem, the low rate of attitudinal loyalty, is pointed out within a previous research on consumer loyalty of members of the company’s loyalty programme, which was conducted in November 2009 (Cheung 2009). This research focused on the examination of the four loyalty types of Dick and Basu’s model (1994) and the determination of the appropriate value of the company’s loyalty programme members.
Cheung’s research reveals that the great majority of the loyalty programme members (3/4) is behavioural loyal, whereas only 1/3 is attitudinal loyal and little less then 1/3 is truly loyal. Almost all members who are attitudinal loyal are found to be behavioural loyal, too. Cheung (2009) provides a potential explanation for the exceeding amount of behavioural loyalty. The loyalty programme provides monetary
rewards as incentives to stimulate purchase and, therefore, increases behavioural loyalty. Moreover, the research has shown that the majority of the participants belonged to the two highest levels out of the three existing levels within the loyalty programme. These members show higher interest and loyalty, since they exceeded the thresholds of the yearly purchases levels to be in the second or third category of the loyalty programme.
Furthermore, Cheung (2009) finds the largest loyalty group to be spuriously loyal, showing little attitudinal loyalty and high behavioural loyalty. Main incentives for patronage are financial incentives such as discounts or coupons, saved points from previous purchases, convenience or relationships of the consumer with sales persons. This finding indicates the major problem the company is facing: little attitudinal loyalty.
Little attitudinal loyalty causes problems, since it is essential for the creation of true loyalty (Dick, & Basu, 1994). Furthermore, literature indicates that attitudinal loyalty is a necessary precondition for behavioural loyalty (Bennett, & Rundle-Thiele, 2002), which itself can impact customer expenditure (Vogel, Evanschitzky, & Ramaseshan, 2008). Considering this reasoning, the findings of Cheung (2009) that more members are behaviourally than attitudinally loyal are striking. To find out how to increase the significant attitudinal loyalty of the loyalty programme members, it is necessary to examine the different levels of attitudinal loyalty. By determining the different levels and its antecedents one can determine the problematic stages of loyalty. In addition, asking the consumer for improvements of the current loyalty programme and what he/she is missing will provide reasonable recommendations for improvements. Combined, the insight allows for a solution how to increase attitudinal loyalty in the long-term.
The second problem Mexx is facing is the negative price spiral in which consumers only buy the company’s clothes if they achieve an additional benefit for it such as reduced prices in sales. Mexx on its side throws in one price reduction after another, increasing the hard benefits of the programme and causing a vicious circle, since the loyalty programme members get used to the continuity in reduced prices. As pointed out by the head of CRM department, the loyalty programme members are only
behavioural loyal in the short term, responding directly to offered vouchers and price reductions. The company’s goal, however, is to create a long-term relationship and long-term loyalty.
Referring to different studies within the field of attitudinal and behavioural loyalty a connection is drawn between the attitudinal loyalty and the prices that consumers are willing to pay for a product (Bennett, & Rundle-Thiele, 2002; Chadhuri, & Holbrook 2001; Schramm-Klein, Morschett, & Swobada, 2008; Yen-Chun, Yung-Cheng, & Shuling, 2009). Attitudinal loyalty can have a direct impact on the consumers’ willingness to pay and, thus, could be able to end the negative price spiral. To find out if this reasoning is true, this thesis will examine the potential impact of the determined drivers of attitudinal loyalty on the consumers’ behavioural loyalty and willingness to pay.
The following research questions result out of the problem statement: • What are the antecedents of attitudinal loyalty?
• What are the consumers’ background characteristics related to attitudinal loyalty?
• To what extend is behavioural loyalty influenced by attitudinal loyalty? • To what extend is the willingness to pay influenced by attitudinal loyalty? Managerial questions raised in this thesis:
• How can Mexx improve the effectiveness of its loyalty programme? • What is the potential development arising around social networks?
Chapters one to five will answer the above stated research questions. At first this paper concentrates on the theoretical framework of the role of customer loyalty in combination with the willingness to pay, developing hypothesis. In the third chapter, this thesis describes the company context, including market information, general information on the German and Dutch fashion industry as well as particular information on Mexx itself. The fourth chapter describes the method used for the scientific research, followed by the results in chapter five. Chapter six contains the discussion and limitations. In the end, chapter seven provides the answer to the managerial question and information on management implications.
2 The Role of Customer Loyalty in Customer Relationship Management
Today’s retailers are facing a dynamic and competitive retail environment. Seeking for competitive advantage, retailers have discovered the impact customer relationship management (CRM) can have on a company’s performance (Anderson, Jolly & Fairhurst, 2007). CRM is defined as a strategy and not a technology that aims at a continuous dialogue with a company’s customers. It concentrates on a personalised treatment of the most valuable customers, across all touch points at which the consumers have access to and can contact the company. CRM aims at increasing customer retention and effectiveness of marketing initiatives (Day & Vandenbulte, 2002; Fairhurst, 2000).
Within CRM technology is important, as it eases up data collection and analysis, enabling a thorough insight into customer behaviour, product and service offerings tailored to the customer, and real-time interactions with customers (Fairhurst, 2000). With the evolvement of the new media and the correspondingly ongoing technical as well as behavioural convergence (Wirtz, 2006), CRM now includes also electronic channels (eCRM). According to Fairhurst (2000) eCRM includes opportunities as well as challenges for the CRM of a company. The new e-world channels require a 24/7 accessibility of a firm. However, the most favourable way of CRM includes data mining and smart cards or rather loyalty programmes in particular. Loyalty programmes are highly valuable within CRM, since they enable the company a 360° view of their customers (Figure 1) and since they enable the determination of recency, frequency and monetary value (RFM) and customer lifetime value (CLV). These enable the determination of the most profitable as well as least profitable customers and, thus, make it possible to improve the profit per customer. In addition, loyalty programmes are ameliorating marketing measures making it possible to create personalised marketing measures to approach consumers directly, such as direct mailings or personalised e-mails. As a result, loyalty programmes increase the effectiveness of marketing activities and enhance customer loyalty.
Figure 1: Loyalty Card System
Source: Own illustration based on Fairhurst (2000).
The importance of customer loyalty itself has been discussed throughout the literature of the last three decades (Chadhuri and Holbrook, 2001), stressing the advantages and the outcomes of customer loyalty. Customer loyalty is considered an important part of strategic marketing, as it impacts a firm’s performance and as it can be used for obtaining competitive advantage (Dick & Basu, 1994; Heskett, Sasser & Schlesinger 1997; Kotler, 1997; Lam, Shankar & Erramilli 2004; Lee & Cunningham, 2001; Reinartz, Krafft and Hoyer, 2004; Rust, Zeithaml & Lemon, 2000; Sirdeshmukh, Singh & Sabol, 2002; Woodruff, 1997). Its role has been discussed within the brand equity process (Yoo, Donthu & Lee, 2000), indicating that brand loyalty leads to advantages in marketing with regard to costs, greater trade leverage and an increase in new customers (Aaker, 1991). In addition, Dick and Basu (1994) outline word of mouth and greater resistance among loyal customers to competitive strategies as further advantages related to loyalty. Furthermore, loyalty is addressed as long-term attachment to a firm linked to consumer based equity (Dick & Basu, 1994; Johnson, Herrmann and Huber, 2006; Schramm-Klein et al., 2008).
In short, a loyal customer buys more, is willing to spend more, is easier to reach, and acts as an enthusiastic advocate for the respective company, revealing customer loyalty as highly important for a company’s economic success (Harris & Goode, 2004). A clear conceptual understanding of customer loyalty however has not been
given throughout the diverse literature (Bandyopadhyay & Martell, 2006). Therefore, the following section explores the concept of customer loyalty in detail.
2.1 Diverse Aspects of Customer Loyalty
This section explores the diverse aspects of customer loyalty by providing an explanation of the term customer loyalty and of the different loyalty dimensions. In particular, it explains the relation of customer loyalty with customer equity management and consumer behaviour.
2.1.1 The Term Customer Loyalty
The term customer loyalty has developed throughout the time. From a pure understanding as repeat purchase behaviour (Bass 1974) in the seventies, over the emergence of a behavioural approach (Jacoby & Chesnut, 1978; Jacoby & Kyner, 1973) towards an explanation of purchasing patterns and psychological perspectives of loyalty (Evanschitzky & Wunderlich, 2006). However, the definition of customer loyalty itself is still not uniform. Zikmund, McLeod and Gilbert (2003, p. 69) define customer loyalty as
“a customer’s commitment or attachment to a brand store, manufacturer, service provider, or other entity based on favourable attitudes and behavioural responses, such as repeat purchase”.
Dick and Basu (1994, p. 99) define customer loyalty as “the strength of the relationship between an individual’s relative attitude and their repeat patronage”. This thesis however will consider and built upon Jacoby and Kyner’s (1973, p. 2) definition of loyalty. It is expressed by six necessary and collectively sufficient conditions including the diverse dimensions customer loyalty is dealing with. These are that
“brand loyalty is (1) the biased (i.e., nonrandom), (2) behavioral response (i.e., purchase), (3) expressed over time, (4) by some decision-making unit, (5) with respect to one or more alternative brands out of a set of such brands, and (6) is a function of psychological (decision-making, evaluative) processes”. These dimensions demonstrate the complexity of customer loyalty and shall be kept in mind for the following exploration.
2.1.2 Customer Loyalty and its Dimensions
Customer loyalty is a severe topic for firms due to the fact that it can increase loyalty itself and company profits in the long-term given that marketers understand its diverse measures and dimensions (Rundle-Thiele, 2005). The difficulty lies in understanding customer loyalty, as it becomes highly complex regarding its underlying levels and antecedents. Customer loyalty is linked to the theory of consumer based equity management outlining the company-based view as well as to the theory of consumer behaviour outlining the personal-based view. Thus, customer loyalty is linked to psychological patterns, including highly dynamic and changing drivers as well as an individual’s background characteristics. The interrelation of these different fields results in the high complexity of customer loyalty.
2.1.3 Customer Loyalty and Customer Equity Management
The long-term value of a company is, according to Rust et al. (2000), mainly determined by the value of its customer relationships. The framework of Customer Equity, which describes “the total of discounted lifetime values of all its customers” (Rust et al., 2000, p. 4), yields powerful insight for businesses to increase its customer base’s value. The key components of Customer Equity are value equity, brand equity and relationship equity (Rust et al., 2000; Rust, Lemon, & Narayandas, 2004a; Rust, Lemon, & Zeithaml, 2004b; Vogel, Evanschitzky, & Ramaseshan, 2008). The first, value equity, is defined as “the customer’s objective assessment of the utility of a brand, based on perceptions of what is given up for what is received” (Rust et al., 2000, p. 24). It is determined by quality, price and convenience. The second, brand equity, is “the customer’s subjective and intangible assessment of the brand, above and beyond its objectively perceived value” (Rust et al., 2000, p. 24). It contains brand awareness, brand attitude and corporate ethics as main drivers. The third, relationship equity, is defined as “the tendency of the customer to stick with the brand, above and beyond the customer’s objective and subjective assessments of the brand” (Rust et al., 2000, p. 25). Its key components are loyalty programmes, affinity programmes and community-building programmes.
A combination of these three components is seen as the new framework that leads to powerful and customer-based marketing programmes, which are financially accountable and measurable (Lemon, Rust, & Zeithaml 2001). Rust et al. (2004a) argue that the customer equity drivers have an impact on the customer’s switching matrix, which influences CLV and Customer Equity. In addition, Vogel et al. (2008) examine the link between customer equity drivers and future sales as they directly impact loyalty intentions, which in turn have a direct effect on future sales. For consumer loyalty the retention management is especially important, as it addresses the direct consumer relation with the company and contains, for instance, consumer loyalty programmes.
Diverse authors of this field have argued that the drivers of loyalty are dynamic and complex and are considerably varying over time (Johnson, Hermann, and Huber 2006; Vogel et al., 2008). The consumer behaviour theory outlines these characteristics, too, and provides an explanation for this complex dynamic.
2.1.4 Customer Loyalty and the Consumer Behaviour Theory
The theory of consumer behaviour addresses an individual’s affect and cognition behaviour in combination with the individual’s environment as the basis for the individual’s exchange aspects of their lives (Peter & Olson, 2002). Consumer affect, on the one hand, is related to the individual’s intense emotions, less strong feeling states, general moods, and milder overall attitudes. These are expressed, for instance, with love, anger, satisfaction, frustration, boredom, relaxation, and liking or disliking respectively (Peter & Olson, 2002; Solomon, Bamossy, Askegaard & Hogg, 2006).
Cognition, on the other hand, is referring to an individual’s thoughts and beliefs about a particular brand or product. It is related to the mental structures and processes included in thinking, understanding and interpreting stimuli or events. Cognition includes the individual’s knowledge, believes, and meanings that the individual derives from experiences and memories. In addition, it is concerned with understanding and remembering of stimuli and events, creating evaluations, and making purchase decisions or choices. Most of the cognition aspects are consciously
done in a thinking process, whilst some aspects are automatically processed (Peter & Olson, 2002; Solomon et al., 2006).
Consumer behaviour is defined by Peter and Olson (2002, p. 23) as the “the physical actions of consumers that can be directly observed and measured by others”. For the purpose of clarity of this type of behaviour the authors call it overt behaviour in order to differentiate it from the mental activities. This distinction is important, since sales can only be made physically and thus are the only way to achieve profit.
The consumer environment is described as everything that is external to the consumers and influencing their thoughts, feelings and actions. These can either be social stimuli influenced by the actions of others in cultures, subcultures, social classes, reference groups and families respectively or physical stimuli represented by signs changing consumer’s thoughts, feelings as well as actions and advertisements (Peter & Olson, 2002).
All of these aspects are interrelated with each other and are thus essential for the understanding of consumer behaviour, as demonstrated in the consumer analysis wheel (Figure 2). Peter and Olson (2002) suggest that this system is reciprocal, since each of these four elements, consumer affect, consumer cognition, consumer overt behaviour and consumer environment, can be either a cause or an effect of a change in another element. Moreover, they outline the consumer process as highly dynamic, due to the fact that consumers are able to change any or all of these elements hardly, completely and frequently. Furthermore, the authors describe this system as interactive, since one element can influence another (Peter & Olson, 2002).
Figure 2: Consumer Analysis Wheel
Source: Own illustration based on Peter and Olson (2002).
In addition, consumer behaviour and thus also consumer loyalty include attitudes of the individual (Anderson and Conner, 2003). This renders consumer behaviour even more complex, as it also includes the psychological, personal dimension of every individual. Former research found out that attitude formation is strongly linked to cognition (Fishbein & Middlestadt, 1995; Kim, Lim & Bhargava, 1998). Armitage and Christian (2003, p. 188) consider attitude strength a key moderator variable within the attitude-behaviour relationship, based on their argumentation that “stronger attitudes are likely to be more predictive of people’s behaviour than are weak attitudes”.
Having examined these dimensions the question remains how important these attributes and outlined characteristics are within the model of customer loyalty. For a thorough examination and an appropriate development for a suiting customer loyalty model it is essential to bear these dimensions in mind.
2.2 Former Loyalty Models
A variety of researchers have developed different loyalty models over the time. Two models stick out as they build the basis for almost every loyalty model developed throughout the time.
Marketing Strategy Consumer Behaviour Consumer Environment Consumer Affect and Cognition
First, there is the loyalty model of Dick and Basu (1994). The core of this model consists of the loyalty relationship between relative attitude and repeat patronage. The relative attitude consists of cognitive, affective and conative antecedents (for an explanation see subchapter 2.3.1 Attitudinal loyalty). In addition, Dick and Basu (1994) test the mediator effects of social norm and situational influence on the loyalty relationship; having consequences of this loyalty relationship as dependent variable within the model (containing search motivation, resistance to counter persuasion and word-of-mouth). The loyalty relationship is determined in detail by the creation of two matrices: attitude strength to attitude differentiation matrix and a repeat patronage to relative attitude matrix. The latter determines if customers show no loyalty, spurious loyalty, latent loyalty or pure loyalty. Within this loyalty model, attitudinal and behavioural loyalties play the major role.
Second, there exists a four level loyalty approach. Jacoby and Chesnut (1978) developed the basis for this model, which Oliver (1999) successfully developed further. This model describes a sequential process, implying causality between the different stages. Cognitive loyalty is the first phase which is directly leading to affective loyalty, the second phase. Affective loyalty itself is a precondition for conative loyalty, the third phase. Conative loyalty in turn enhances active loyalty, the fourth and last phase of this loyalty model.
These two loyalty models provide the basis for numerous researches. As a result, various variations of these have been developed. Bandyopadhyay and Martell (2007) state that Dick and Basu (1994) established an attitude behaviour relationship model from a casual perspective, identifying antecedents of loyalty only by offering a purely theoretical framework. Extending the basic model, Bandyopadhyay and Martell (2007) offer a renewed way to measure attitudinal loyalty, demonstrating that behavioural loyalty is influenced by attitudinal loyalty within a special category across different brands.
Chaudhuri and Holbrook (2001) examine attitudinal loyalty and purchase loyalty as the two aspects of brand loyalty, linking brand trust and brand affect over attitudinal and purchase loyalty to brand performance (market share and relative price). They found that attitudinal loyalty is related to the relative price but not to market share.
In addition, Chen, Shen and Liao (2009) investigate the impact of outcome quality, interaction and environmental quality over attitudinal and behavioural loyalty on customer expenditure in the retailing industry. Finding that outcome quality, environmental quality and print advertisements significantly influence attitudinal loyalty. Furthermore, they supported that attitudinal loyalty affects behavioural loyalty and that behavioural loyalty affects customer expenditure.
Moreover, Evanschitzky and Wunderlich (2006) supported the four-stage loyalty model and developed it further within their own study. They tested the moderation effect of personal characteristics (gender, age, income and education) on the adjacent stages in the loyalty model and of situational characteristics (expertise, price orientation, critical incident recovery and loyalty card membership) on the appropriate relation between the stages. Results suggest that the examined moderators exert an influence on the different stages of the loyalty model. Last, Lewis and Soureli (2006) researched consumer loyalty within the banking sector with particular attention to the measurement and assessment of loyalty antecedents.
All loyalty models that have evolved over time have one thing in common: they include a behavioural and attitudinal level. Oliver’s (1997, p. 392) definition of loyalty includes attitudinal as well as behavioural aspects that are merging over time. Customer loyalty is a function of consumer learning that consists of two major schools of thought: the cognitive approach and the behavioural approach (Chen et al., 2009; Schiffman & Kanuk, 2003). Indeed, Bandyopadhyay and Martell (2007, p. 37) state that “the need of the inclusion of attitude along with behaviour to define brand loyalty has been felt by many researchers”. Moreover, they outline the development of the view on loyalty. Earlier, a distinct view on loyalty was common. Researchers believed that behavioural loyalty on its own could capture the consumer’s loyalty towards a brand, since it captures the repeat purchasing of a consumer (Kahn, Kalwani, & Morrison, 1986; Ehrenberg, Goodhardt & Barwise, 1990; Ehrenberg, 2000). Behavioural measures of loyalty, however, were after a while understood as inadequate to take in all underlying factors of brand loyal purchasing behaviour. As a result, the behavioural definitions were considered insufficient for explaining why and how brand loyalty develops (Amine, 1998; Baldinger and Rubinson, 1996; Chaudhuri
and Holbrook, 2001). Instead, the focus switched to attitudinal loyalty to determine the reasons of loyalty behaviour.
The importance of a combination of both loyalty dimensions, behavioural and attitudinal, within one model is stressed by Bennet and Rundle-Thiele (2002). In addition, Rundle-Thiele (2005) outlines the importance of combining both views by providing insight into why and how consumers are loyal, determining multiple loyalty dimensions, attitudinal loyalty and complaining behaviour. Furthermore, Chen et al. (2009) determine a gap within customer loyalty research describing that studies addressing attitudinal and behavioural loyalties in a single model are lacking. Only few empirical studies have been conducted that take in both views simultaneously (Bandyopadhyay & Martell, 2007; Chadhuri & Holbrook, 2001; Chen et al., 2009; Evanschitzky & Wunderlich, 2006; Harris & Goode, 2004).
In short, today it is considered necessary to measure both behavioural and attitudinal loyalty together to ensure a thorough understanding of customer loyalty towards a specific brand. Uncles et al. (2003) provide an accurate understanding of existing loyalty concepts, adding a third dimension to attitudinal and behavioural loyalty. They combine three concepts:
1) loyalty as an attitude, which results in a relationship with the brand, 2) loyalty that is mainly addressed in terms of observable behaviour, and 3) loyalty formed by the characteristics, circumstances, and/or
purchase situation of the individual.
2.3 Customer loyalty model
This thesis creates a new loyalty model out of the already existing ones, concentrating on four main dimensions: customer background characteristics, attitudinal loyalty, behavioural loyalty and willingness to pay. The basic model is created by taking the three concepts of Uncles et al. (2003), combining them in one model and adding the willingness to pay as another dimension. Further, this thesis pays attention to the four-stage loyalty model of Jacoby and Chestnut (1978) as well as it adds parts of other studies, too, which will be thoroughly explained hereafter.
2.3.1 Attitudinal Loyalty
Attitudinal loyalty includes a degree of dispositional commitment by some unique value, which is associated with the brand (Chaudhuri & Holbrook, 2001). According to Rundle-Thiele (2005), attitudinal loyalty measures contain preference, intention to repurchase and commitment. Moreover, these measures are seen as predispositions and are linked to psychological processes. Indeed, a combination of the cognitive, affective and conative levels is the best predictor of attitudinal loyalty (Back & Parcks, 2003; Evanschitzky, Iyer, Plassmann, Niessing & Meffert, 2006; Oliver, 1997; Pedersen & Nysveen, 2001), since it covers all aspects that were diversely mentioned throughout the vast literature. These three levels can be seen as three categories structuring the various antecedents of attitudinal loyalty (Figure 3).
Figure 3: Loyalty Components
Own illustration based on McMullan & Gilmore (2003) and Oliver (1999).
Cognitive loyalty refers to the existence of beliefs that one brand is preferable to its alternatives. It is referred to as loyalty based on brand beliefs and is determined by information of the offering, such as price, quality and so forth (Back & Parks, 2003; Dick & Basu, 1994; Evanschitzky & Wunderlich, 2006; Harris & Goode 2004; Lewis & Soureli, 2006; Oliver, 1999; Powell & Childerhouse, 2010; Yang & Peterson,
2004). As shown in Figure 3, the antecedents of cognitive loyalty are accessibility, confidence, centrality and clarity of an attitude. Cognitive loyalty is sustained by cost, benefit, and quality; it is the first stage of loyalty (Oliver, 1999).
Affective loyalty is a liking or attitude towards the brand which has developed on the basis of cumulatively satisfying usage occasions. It refers to feelings, moods or emotional responses and contains involvement, liking and caring (Back & Parks, 2003; Dick & Basu, 1994; Evanschitzky & Wunderlich, 2006; Harris & Goode 2004; Oliver, 1999). Its antecedents are emotions, moods, primary affect, and satisfactions. The latter is one of the most frequently linked items with attitudinal loyalty (Ganesh, 2000; Gómez, Arranz, Cillan, 2006; Gustafsson, Johnson & Roos, 2005; Ranaweera & Prabhu, 2003; Taylor & Hunter, 2002; Yang & Peterson, 2004; Yu & Dean, 2001). This loyalty stage includes trust (Delgado-Ballester & Munuera-Alemán, 2001; Garbarino & Johnson, 1999; Sirdesmukh, Sing & Sabol, 2002), word of mouth (Chiou, Droge & Hanvanich, 2002; Ranaweera & Prabhu, 2003) and corporate image (Lewis & Soureli, 2006). Affective loyalty is sustained by satisfaction, involvement, affective liking preference and cognitive consistency (Figure 3).
Conative loyalty includes behavioural intention or willingness to act. It is a desire to intend an action, for example repurchase a particular brand, and implies a brand-specific deep level of commitment (Back & Parks, 2003; Dick & Basu, 1994; Evanschitzky & Wunderlich, 2006; Harris & Goode 2004; Oliver, 1999). Referring to Figure 3, its antecedents are switching costs, sunk costs and expectations. Switching costs are highly important for loyalty programmes, since they create a high barrier that is hard to destroy and bind the consumer to a specific brand. Switching costs are popularly linked with attitudinal loyalty (Fullerton, 2003; Gustafasson, Johnson & Roos, 2005; Lam et al., 2004; Lewis & Soureli, 2006; Taylor, Hunter & Longfellow, 2006; Yang & Peterson, 2004). Conative loyalty is sustained by commitment and cognitive consistency.
Together these three stages provide a thorough insight into attitudinal loyalty, which is needed to provide a reasonable answer to the managerial question (chapter 6). Combined to attitudinal loyalty these three stages enhance action loyalty, which is described as behavioural loyalty in this thesis. Previous researches have proven an
impact of attitudinal loyalty on behavioural loyalty (Bandyopadhyay & Martell, 2006; Dick & Basu, 1994). Indeed, attitudinal loyalty is seen as necessary precondition of behavioural loyalty.
2.3.1 Behavioural Loyalty
Behavioural loyalty is defined as the repeat purchase behaviour such as amount of purchases, frequency of purchases and frequency of brand switching. In this research it is approached out of the action loyalty perspective. Action loyalty is the conversion of intentions to do something into action, accompanied by a willingness to overcome impediments to such action. It means that the intention in the previous loyalty state is transformed into readiness to act (Back & Parks, 2003; Evanschitzky & Wunderlich, 2006; Harris & Goode 2004; Lewis & Soureli, 2006; Oliver, 1999; Yi & La, 2004). Action loyalty is characterised by inertia and sunk costs and is sustained by persuasion and trial (McMullan & Gilmore, 2003). It is the stage in which the consumer takes action based on the achieved contentment with a product or service diminishing the need for information seeking of substitutes. Thus, sunk costs are an important factor in accomplishing inertia. Persuasion and trial remain, challenging the loyalty of the consumer and future development (McMullan & Gilmore, 2003). Behavioural loyalty is one of the two dependent variables in this model.
2.3.3 Willingness to Pay
The second dependent variable is the customers’ willingness to pay. Various literatures have investigated the relationship between loyalty and future expenditure (Chaudhuri & Holbrook, 2001; Dick & Basu, 1994; Fullerton, 2003; Garbarino & Johnson, 1999; Oliver, 1999; Yi & La, 2004).
Vogel, Evanschitzky and Ramaseshan (2008) link the three areas of customer equity, value, brand and relationship equity, to loyalty intentions and future sales. In their view, loyalty intentions may result in a readiness to buy and willingness to search for favourite offerings overcoming any efforts. Their study supports the assumptions of Nacif (2003) and Kamakura, Mittal, de Rosa and Mazzon (2002) that purchase intentions have a positive influence on actual customer retention and proves that
future sales are directly influenced by loyalty intentions, past sales, value equity, brand equity and relationship equity.
In addition, the consumers’ acceptance of price increases is a popular topic amongst customer relationship studies. However, the understanding to which extend consumers are willing to pay more for benefits that emerge from a relationship is yet limited. Fullerton (2003) has shown that, within the service sector, affective commitment has a positive effect on the consumer’s willingness to pay and, more importantly, to accept price increases. Furthermore, Chaudhuri and Holbrook (2001) have proven that the relative price increases when attitudinal loyalty increases. Their research supports the theory of Keller (1993) that a strong, favourable brand attitude or in this case attitudinal loyalty should lead to a willingness to pay premium prices for the valued brand.
For Mexx it is especially important to investigate whether a deep level of commitment or rather loyalty has an impact on consumers’ acceptance of price increases, as it is their first priority to stop the vicious circle of ongoing price reductions.
2.3.4 Individual Background Characteristics
The customer’s background characteristics are included as independent variables within this research model, since they are taken as an individual’s drivers influencing attitudinal loyalty.
Lewis and Soureli (2006) investigated the antecedents of consumer loyalty within the retail-banking sector. They determine customer characteristics, including personality, demographics as well as social and economic variables, as loyalty drivers that form and develop loyalty. Moreover, Ball, Coelho and Machás (2004) have split up the antecedents of loyalty into four main characteristics; the characteristics of the environment, the dyadic relationship, the consumer and the consumer’s perceptions of the relationship with the marketing firm. The characteristics of the consumer include relationship tendency, deal proneness and category involvement. Evanshitzky and Wunderlich (2006) included age, gender, education and income as personal characteristics for loyalty and loyalty card membership as situational characteristics.
Hence, this thesis includes personal characteristics such as gender, age, income, education, loyalty card level, duration of loyalty membership, fashion involvement as well as primary brand and loyalty programme usage as background characteristics. In addition, this thesis extends these characteristics by adapting to modern times and adding social media brand-fanship, via Facebook as well as twitter, to the background characteristics. All of these form the independent variables of the research model.
The influence of gender on customer loyalty and on fashion related products have been investigated in recent studies. Evanshitzky and Wunderlich (2006) examined the impact of gender as a moderator on the different stages of the loyalty model, not able to prove a significant impact. The mediating effect of gender has yet only been investigated on fashion fanship (Pentecost & Andrews, 2010). It was shown that women have a significantly higher level of fashion fanship than men and that women have a more positive attitude towards fashion than men. However, a direct impact of gender on customer loyalty has not yet been investigated.
H1: The gender has an impact on attitudinal loyalty; female consumers will show a stronger attitudinal loyalty than male consumers.
Similar to gender, the moderating impact of age on the different levels of the four-stage loyalty model has been investigated by Evanshitzky and Wunderlich (2006). The assumption is that the older respondents are, the higher is their loyalty towards a brand, due to the assumption that the older generations are used to purchase the same brand over a couple of years whereas the younger generations are valuing a broad assortment and diversity in their lives. This hypothesis is based on the gender differences (Howe & Strauss, 2000; Palfrey & Gasser, 2008; Strauss & Howe, 1997; Trapscott, 2009).
H2: Age has a positive impact on attitudinal loyalty; specifically, the impact will be stronger for older consumers than for younger consumers.
In combination with loyalty, income has been examined as mediating variable by Evanschitzky and Wunderlich (2006) and as control variable by Shankar, Smith and Rangswamy (2003). Allenby (1996) investigated the effect of personal disposable
income on consumer confidence in retail sales. The direct effect of income on loyalty, however, was not yet been investigated. The assumption is that lower income customers tend to pay more attention to price levels and to the price-value ratio; as a result they are less loyal to a specific brand.
H3: Income has a positive impact on attitudinal loyalty; specifically the higher the income the stronger the impact on attitudinal loyalty.
Even though the four-stage loyalty model is a sequential process resulting in purchase, the purchase itself does not end the process. It should rather be seen as a never-ending circle, since the attitudinal loyalty does not end simply because the consumer has purchased an item. The attitudinal loyalty should stay at least the same after having purchased an item; more favourably, it is even stronger after that, since the consumer experiences post-purchase attitudes such as satisfaction (Anderson, Fornell and Lehmann, 1994; Henning-Thurau and Klee, 1997).
The Connect level reflects the purchasing behaviour of a customer. The higher the level, the more the customer spent at Mexx. Thus, it is a valid assumption that the attitudinal loyalty is higher for Connect members with a higher card level.
H4: The Connect level has a positive impact on attitudinal loyalty; the higher the level the stronger is the impact on attitudinal loyalty.
The Connect level does not equally reflect the duration of the membership. It is a common assumption that the longer the membership endures the higher is the possibility of belonging to a higher card level. However, this tendency is not always given, since the card level is determined by the value of purchases within a specific time period and not by the amount of time spent with the loyalty programme. Theory suggests that the membership duration bears the most affected customers, since these customers benefit the most from the loyalty programme. (Shankar et al., 2003). Hence, membership duration is assumed to affect attitudinal loyalty.
H5: Membership duration has a positive impact on attitudinal loyalty; the longer the membership endures the stronger is the impact on attitudinal loyalty.
Category or product involvement is seen as another indicator of the background characteristics (Ball et al. 2004; Schramm-Klein et al., 2008; Martin, 1998). Since
Mexx is a fashion brand, it is necessary to take a closer look on fashion involvement. Fashion involvement is the perceived personal interest or relevance from the consumer towards fashion clothing (Engel, Blackwell & Miniard, 2005; Vieira, 2009). When it comes to fashion more aspects must be taken into account, since it is related to complex psychological processes (Dholakia et al. 2010). Indeed, according to Pentecost and Andrews (2010), “fashion can be applied to all aspects of someone’s personal appearance that provide both hedonic and utilitarian value to the consumer”. Fashion from a scientific view includes symbolic consumption, concept, self-esteem, self-consistency, self-images, product-images, self-regulatory system, possible selves, negative possible selves and, among others, user stereotypes (Banister & Hogg, 2004). Hence, it becomes clear that a fashion product must be handled differently than a non-fashion product and that the symbolic as well as hedonic value of the product are as important as the utilitarian value. Indeed, Pentecost and Andrews (2010) partially support their hypothesis that fashion fanship will have a significant positive influence on fashion expenditure.
H6: Fashion involvement has a positive impact on attitudinal loyalty; the higher the fashion involvement the stronger will be the impact on attitudinal loyalty. Furthermore, Banyopadhyay and Martell (2007) examine the effects of single or multiple brand users on customer loyalty. Multiple brand users are the largest and most common group among consumers. These consumers are brand-switchers, having positive attitudes towards several brands and can be pictured as variety seekers. On the contrary, single brand users are displaying the highest form of loyalty. They can be truly loyal or purchase loyal with a weak attitudinal attitude, pictured as constraint buyers. Indeed, Pedersen and Nysveen (2001) identify non-switchers as more attitudinally loyal than switchers within the financial service provider. Especially loyalty programmes have an important influence on single-brand loyalty (Uncles et al. 2003). This thesis calls those customers single brand users, who use Mexx as preferred brand.
H7: Single brand usage has a positive impact on attitudinal loyalty; specifically this means setting Mexx as preferred brand has a positive impact on loyalty.
This thesis adapts the theory of single and multiple brand users to the usage of loyalty programmes and builds upon the findings of Gómez et al. (2006) that single loyalty programme users show greater behavioural loyalty to the retailer, a greater level of satisfaction, higher trust in the retailer and greater commitment to the retailer than non participants. In particular, this thesis argues that single loyalty programme members are more dedicated towards the brand than programme members who belong to several loyalty programmes in the fashion industry. Thus, single loyalty programme members will show a stronger attitudinal loyalty than multiple loyalty programme members using Mexx Connect as preferred loyalty programme.
H8: Being a single loyalty programme member has a strong positive impact on attitudinal loyalty.
According to Chen et al. (2009), a customers’ perception of interaction quality is positively related to attitudinal loyalty. Social Media functions as an extension of the customer relationship management and serves as additional channel for customer interaction (BVDW, 2009). Theory suggests that social media relies heavily on user generated content, is mainly driven by a many-to-many communication model and is enabling an improved one-to-one communication (BVDW, 2009; Franz, 2009; Jensen, 2010; Wiedmann, 2006). In general, social media is used to create additional value for companies through the selling of remaining stock and special offers and to indirectly support the classical distribution instruments within performance marketing (BVDW, 2009). Mexx is engaged in Facebook and twitter.
H9: Being a Facebook fan of the brand has a positive impact on Attitudinal loyalty.
H10: Being a follower of the brand on twitter has a positive impact on Attitudinal loyalty.
In general, this thesis suspects that the different background characteristics are drivers of attitudinal loyalty, as they are directly indicating an individual’s circumstances and, thus, build the framework for attitudinal loyalty. Furthermore, based on the findings concerning the four-stage loyalty model that the process of loyalty is sequential, this thesis assumes that the background characteristics influence the dependent variables
of the conceptual model indirectly through the attitudinal loyalty and that these indirect influences are differently strong.
H11: Background characteristics have a positive effect on behavioural loyalty. This effect is mediated by attitudinal loyalty.
H12: Background characteristics have a positive effect on the willingness to pay. This effect is mediated by attitudinal loyalty
For better imagination the hypothesis are depicted in the conceptual model (Figure 4).
Figure 4: Conceptual Model
3 The Company Context
Mexx Europe B.V. is a globally operating, multi-channel brand for fashion apparel and accessories. The company was founded in 1986 out of the former brands Moustache and Emanuelle. Mexx refers to its foundation as one brand with two roots that was ‘born with a kiss’. The new brand linked the men’s fashion of Moustache with the women’s fashion of Emanuelle with two kisses: M (oustache) + E (manuelle) + XX = Mexx (Mexx 2010a, 2011a-b).
Mexx has grown rapidly to a global brand and employs approximately 3,000 people. It operates today in 41 different countries, including Central and Eastern Europe, British Isles, Middle East as well as Northern and Central America. Moreover, Mexx upholds nearly 300 franchise stores and over 100 wholly owned branch stores (Smart Shop, Shop-in-Store and Partnership Store) as well as an e-shop. Overall, Mexx holds approximately 118 products and licenses. The product palette consists of clothes for women, men and children as well as licensing products. The latter range from exclusive fragrances, through shoes, glasses and bags to carpets and bed linen (Mexx, 2010a).
Throughout the years Mexx has continuously improved itself to keep up with the fast pacing fashion market and the demands of their consumers. In 1999, Mexx launched Mexx Connect, a loyalty programme to offer additional benefits to their consumers and simultaneously gain rich insight in their consumers’ buying behaviour. By now, the loyalty programme offers rich customer data of the last decade. The loyalty programme’s performance is continuously observed and analysed to ameliorate the programme offered and the consumer satisfaction, for instance Mexx Connect launched in March 2011 a new point system that is easier to understand and offers more advantages to the Connect member.
In 2001, Mexx became a part of the Liz Claiborne group, a multi-brand business that is listed on the New York stock exchange and makes international fashion, design, accessories and perfume. Liz Claiborne Inc. lists own brands like Juicy Couture, Lucky Brand Jeans, Kate Spade, partner brands such as DKNY Jeans, Kensie, Kensie Girl, Dana Buchmann or, among others, Trifari (Liz Claiborne, 2011).
Finally, Mexx renewed its corporate identity, including its logo, brand strategy as well as mission and vision statement, to comply with the modern lifestyle of their consumers (Mexx, 2010a):
“WE ARE MEXX. WE ARE METROPOLITAN CASUAL.
Mexx makes fashion – fashion that is a little bit different. Inspired by life in the big city, influenced by its energy, style and trends. We call this look metropolitan casual. It is smart and classy, not too expensive and not too cheap, always self-confident and casual. In short: Mexx makes fashion for men, women and children who know what they want: something special.
Style – designed to eXXcite.
Mexx is designed to eXXcite. Everything that Mexx designs, does and undertakes aspires to be in some way unique. Because at the end of the day, it is precisely that individuality that people want from an outfit. Every pair of pants, every shirt, every coat gives them an opportunity to emphasize their personality. Every individual item of fashion is a chance to say:
“That’s me + XX factor. Me+XX. Mexx.””
The new spirit of Mexx is perceptible throughout the whole company from the first drafts over the design of the new collections to the new advertising campaigns. The focus is on the personality: Me + XX.
3.1 Apparel Market Characteristics
When taking a look at the fashion industry and its market, it becomes clear that it is a prosperous and highly competitive market that faced major problems in recent years due to the ongoing recession. According to Euromonitor (2011), 2010 has been a comparatively good year for the apparel industry after the economic downfall and poor performances in 2008 and 2009. In 2010, companies faced increasing cotton prices and an increase in overall wages. Nevertheless, the industry’s value sales grew by 4%. It is obvious that consumers start to spend more money again. However, it is a more moderate pace for the apparel items than for other products. Taking into account the slow recovery for the apparel market in contrast to a faster recovery for beauty and personal care (Figure 5), it becomes clear that consumer attitudes shifted away from the desire based purchasing to value conscious needs. Further development of consumer behaviour depends on the ongoing price increases for cotton and the resulting consumer responses. This is a delicate topic for the second half of 2011, since the consumer confidence is still fragile and further price increases might cause
decreasing purchase volumes or shift consumer behaviour towards shopping sales only (Euromonitor, 2011).
Figure 5: World Market Sizes
Source: Own illustration based on Euromonitor (2011).
Over the years, the Asian Pacific region grew to the largest player in the apparel industry. In 2010, Asia Pacific (slightly more than $450 billion) took over Western Europe (slightly less than $450 billion) and Northern America (slightly more than $350 billion) (Figure 6). Euromonitor (2011) expects the Asian Pacific region to continue growing in 2011 and outpace Western Europe by 35% till 2015 with 50% of its sales in China. Furthermore, Euromonitor (2011) points out that for some categories a different distribution exists; Western Europe will still lead women’s outerwear and footwear, whereas Northern America stays the lead in children’s wear (Figure 7).
Figure 6: Market Size Apparel Industry
Source: Own illustration based on Euromonitor (2011).
Figure 7: Market Size of Apparel Categories 2010
Source: Own illustration based on Euromonitor (2011).
The overall apparel industry forecast for 2010 - 2015 predicts an industry value of $250 billion based on two major reasons. First, heavy government cuts are expected in various countries, which are expected to erode many consumers’ disposable income levels in the upcoming year 2012. Second, consumers are expected to be still cautious with spending money and thus the announced price increases might negatively increase sales volume (Euromonitor, 2011).
Having examined the overall apparel industry, it is crucial to take a closer look at the two countries addressed in this research, Germany and the Netherlands. In specific, Germany is Europe’s largest consumer goods market with retailing trade as Germany’s second biggest revenue generator with round about 82 million inhabitants. Its total annual retailing sales volume amounts to roughly €398 billion. Thus, the German retailing market belongs to the top three in Europe with round about 14% of the total European retail market (Horn, 2011). The category fashion, textile and shoes makes up 11% of the German consumer products.
In addition, the German share of the overall European apparel retailing industry amounts to 19% with women’s wear being the main apparel segment (turnover of €29 billion) and generating almost 19% of the total market share right after Italy. Men’s wear is the second largest segment (€15 billion), followed by children’s wear (€3 billion) (Figure 8).
Figure 8: German Apparel Market Statistics
The Netherlands have a population of 16.6 million (Eurostat, 2011) with an annual retail sales volume of €93 billion (Figure 8). The Dutch women’s wear market generated total revenues of approximately $8.7 billion in 2008 whilst the men’s wear market generated $4.7 billion in 2008 (Datamonitor, 2010). In 2009, according to Euromonitor (2011), the Dutch retailing market faced a poor performance. Large chains are the winners in most areas of the Dutch retailing market, pushing away the smaller ones by creating markets, binding customers and competing with manufacturers with their private labels. Retailers such as IKEA, C&A and Ahold were able to increase their growth in 2009. In 2010, women’s wear sales amount to approximately €2 billion, men’s wear to approximately €1.25 billion and children’s wear to approximately €0.5 billion in the Benelux countries (GfK, 2010). GfK (2010) also pointed out that consumer behaviour changed as the consumer loyalty towards a specific brand or store decreased.
Having examined the characteristics of the apparel market it becomes clear that the apparel industry is huge in terms of sales, product categories and among others competing companies. Thus, it becomes obvious that Germany as well as the Netherlands are two highly important markets for the apparel industry. It is reasonable that these two belong to Mexx Europe’s key markets. The next section of this thesis investigates the competitive environment of Mexx.
3.2 Competitive Environment
This section explores Mexx’ competitors defining the direct and indirect competitors, taking a look at the market shares measured by the sales volume of the companies, followed by Mexx’ view on competitors based on a brand positioning map.
First, it needs to be clarified who is considered a competitor of Mexx. In the broadest sense everyone who produces women’s, men’s, children’s wear or any other product that Mexx offers, is a competitor. This, however, is a very broad spectrum, too broad to gain rich insight. In general, determining just the few most important competitors for Mexx is a difficult task based on the fact that every country Mexx operates in is a different market and contains differing competitors. To narrow the group of competitors down to a useful size the concept of direct and indirect competitors is
used. Direct competitors are the ones offering a product that functions alike and fulfils the same consumer needs whereas indirect competitors are a much broader term, including all companies that are comparable and indirectly competing with the key company (Porter, 2008). Based on the previously explained characteristics of Mexx, a direct competitor is a fashion brand who (a) operates mostly in the same countries (most important is Mexx’ key market: Western Europe) (b) offers the same product lines, (c) has women’s wear as key category, (d) aims at the same/similar target group, and (e) has a comparable price level. According to this Mexx’ direct competitors are brands like Esprit, s.Oliver, WE, Marc O’Polo and among others Tom Tailor.
Second, taking a look at the market share is another way of determining the main competitors. Since Mexx Europe BV is a Dutch company, the Dutch market shares are considered only. Mexx Europe BV upholds a company share, market share that is measured by the sales volume of the company, in clothing and footwear of 0.7% in the Netherlands in 2009. In the same year the top five of the Dutch retailing market are C&A Nederland BV with the highest market share (8.2%), followed by second Hennes & Mauritz Nederlands BV (7.2%), third Macintosh Retail Group NV (5.1%), fourth Euretco BV (3.8%) and fifth Maxeda BV (3.7%). Other retailing competitors with a higher market share than Mexx are among others Zeeman textielSupers BV (3.1%), WE International BV (2%) and Esprit Holdings Ltd (0.8%). Inditex Group, to which ZARA belongs, holds less company share than Mexx with only 0.3% (Euromonitor, 2010).
Third, the brand positioning-map outlines where the metropolitan casual Mexx positions itself (Figure 9). The map depicts Mexx main competitors (direct and indirect) Esprit, Marc O’Polo, S.Oliver, H&M, Zara, WE and among others Tommy Hilfiger according to pricing and style; distinguishing high versus low price and casual style versus smart/city, as Mexx’ new brand identity aims at the smart city look that can also be casual at the same time. The depicted positioning is therefore in unison with the new metropolitan casual Mexx’ mission and vision.
Figure 9: Brand Positioning Map
Source: Mexx Marketing Presentation (2010b).
3.3 Loyalty Programmes
As part of the retention equity loyalty programmes strive for building customer relations to trigger customer satisfaction, loyalty and retention. On the one hand, loyalty programmes aim at maintaining a customer base by building a bond between the customers and the brand. On the other hand, these programmes aim at increasing purchase levels, frequency or product diversity to grow sales revenues (Uncles et al., 2003). A loyalty programme is defined as
“any institutionalized incentive system that attempts to enhance consumers’ consumption behavior over time beyond the direct effects of changes to the price or the ore offering” (Henderson, Beck & Palmatier, 2011, p. 3).
Precisely, loyalty programmes aim at increasing sales revenues by raising purchase levels and range of products bought as well as establishing a close consumer-bond. Uncles et al. (2003, p. 303) characterise loyalty programmes from the consumer’s point of view as vehicles that are used to
“increase single-brand loyalty, decrease price sensitivity, induce greater consumer resistance to counter offers or counter arguments (from advertising
or sales-people), dampen the desire to consider alternative brands, encourage word-of-mouth support and endorsement, attract a larger pool of customers, and/or increase the amount of products bought”.
In short, loyalty programmes are used as a marketing strategy that is based on offering incentives or rewards with the aim of ensuring customer loyalty for a retailer (Gómez et al., 2006). Furthermore, it needs to be considered that loyalty programmes are full of contrasts, since they address the firm and its consumers contemporaneously, which makes the design of a successful loyalty programme difficult.
Diverse researchers argued about the effectiveness of loyalty programmes over time without reaching a consensus (Fairhurst 2000; Henderson et al., 2011; Meyer-Waarden, 2007; Uncles et al., 2003; Ziliani & Belini, 2003). On the one hand, it is assumed that loyalty programmes carry major advantages for companies. Uncles et al. (2003) argue that, thanks to the benefits of the programmes, consumers who show no loyalty at all can be converted into single-brand loyal users. Furthermore, it is assumed that if the benefits are sufficiently appealing, consumers are tempted to switch brands leading to a new group of single-brand loyal consumers or add the brand to their group of acceptable brands resulting in polygamous brand buying. Another advantage is that loyalty programmes provide thorough insight for the company as they provide customer identification, enable the opportunity to gain learning experience with new promotional tools or the fine-tuning of mechanisms, make it possible to render the top management’s attitude towards micro-marketing, and offer programme-related partnership opportunities (Ziliani & Belini, 2003). The gathered data is tailored to every company’s wishes and needs. All in all, companies gain the opportunity to achieve a rich 360° view of their customers enabling among others a customised micro-marketing tailored to every customer (Fairhurst, 2000).
On the other hand, previous research also addresses the disadvantages of customer loyalty programmes. First of all, the financial expenses related to loyalty programmes, setting it up as well as maintaining, are tremendous and only rarely meet the involved expectations (Henderson et al., 2011; Uncles et al., 2003). Moreover, the addressed loyalty, attitudinal as well as behavioural, is passive and resembles a habit rather than serious commitment (Uncles et al., 2003). In addition, loyalty programmes themselves are not sufficient for driving a retailer’s transition to micro-marketing (Ziliani &
Bellini, 2003). Last and most important, there is little or no evidence at all that loyalty programmes are working; some researchers report an impact on purchasing or attitudes whilst others prove the absence of any effect or question the efficiency of these programmes (Gómez et al., 2006; Uncles et al, 2003). Therefore, the effects of loyalty programmes are rendered questionable.
Non-regarding the current discussions about the effectiveness, loyalty programmes experienced a rapid growth since the 1990s and are now a common strategy in European retailing (Ziliani & Bellini, 2003). Loyalty programmes became popular, since they offer benefits to the consumers and are thus appealing to both the company itself and its clients (De Wulf, Oderken-Schröder, Canniére and Van Oppen, 2004). In specific, they contain soft and hard benefits. The former, are exclusive member benefits, which are generally not of an economic nature and go beyond financial components (Gable, Fiorito & Topol, 2008). They provide product information or additional information for consumers (Ziliani & Bellini, 2003). The latter, are generally economic and describe tangible benefits that can either be given immediately or with delay, such as pricing or gift incentives (Gable et al., 2008; De Wulf et al. 2004). Hard benefits are easier for the customers to evaluate but also easily copied by competitors whilst soft benefits are more difficult to implement for the company and accordingly difficult to copy from competitors (Gable et al., 2008). Thus, literature suggests that a combination of hard and soft benefits results in the best loyalty programme available. De Wulf et al. (2004) demonstrated that consumers prefer receiving immediate hard benefits in combination with additional information about other programme benefits.
Choosing a benchmark is complicated, since typical measurements compare the conditions prevailing the programme introduction with the achievements after the introduction. Unfortunately this common measurement is not sufficient, as the money that has been invested into the loyalty programme would have been invested in another way to achieve higher sales, for instance establishing a policy of everyday low pricing, new product introduction, or among others brand extensions. Therefore, such measurement does not enable a valid comparison. As a result a true efficiency measurement of loyalty programmes cannot be achieved (Uncles et al., 2003). In general, Mexx takes a look on a number of competitors to learn a little from all of
them. A selection of three best in practice loyalty programmes across all industries is provided in Appendix 1.
The competition within the fashion industry concerning loyalty programmes is fierce due to the fact that a variety of firms offer loyalty programmes. Mexx Connect faces the competition of Esprit, s.Oliver, and among others Inditex. In the following paragraphs, two programmes are given as best-practice examples.
First, there is Esprit. This brand operates a loyalty programme that consists of two levels and offers hard as well as soft benefits to consumers. The standard Esprit club membership grants 3% on every purchase, exclusive offers, free membership, free service hotline, personal account overview, invitations to private sale and a birthday surprise. The platinum level, the second, offers all previous mentioned benefits plus VIP invitations to Esprit events, free alteration service and an exclusive platinum hotline (Esprit, 2011).
Second, there is Vroom & Dreesmann (V&D). It offers a customer card, which provides the customer with 10% reduction on every item, 22 days for payment without interest, the possibility to send the chosen articles to the home with 20% reduction, 10% extra-reduction on fragrances, a newsletter, extra offers each month, and 10% air miles for card holders on every purchase. In addition, V&D offers the V&D VIP card, a cooperative loyalty card of V&D and air miles. Every customer of V&D who has an air miles card can register for it. Benefits offered are free membership, exclusive offers, private sales, saving air miles and redeeming of 20% reductions (V&D, 2011a-b). Furthermore, V&D has a V&D VIP betaalkart which functions as a credit card. With a combination of air miles and their normal offerings V&D created a loyalty programme where soft benefits prevail although hard benefits also take a big share.
3.4 Mexx Connect
The loyalty programme of Mexx is called Mexx Connect. It is a key marketing tool with which Mexx aims to get customer insights. The insights are used to set up a communication plan and communication program that binds customers to the brand
