Journal of Retailing and Consumer Services 7 (2000) 33 } 45

Store loyalty: its impact on retail revenue.

An empirical study of purchasing behaviour in the UK

Simon D. Knox*, Tim J. Denison

Institute for Advanced Research in Marketing, Cranxeld School of Management, Cranxeld University, Cranxeld, Bedford MK43 0AL, UK

Abstract

In this paper, we present some signi"cant empirical "ndings about store loyalty and consumer spending in the United Kingdom
across "ve retail sectors. Our "ndings are presented at two levels: Firstly, we compared loyalty levels across retail sectors in the UK
and identi"ed that home improvement stores generate the lowest levels of consumer loyalty. Secondly, by disaggregating the data by
loyalty types, we found that, while loyal shoppers tend to have smaller monthly budgets than switchers, they spend double the amount
in their &&"rst choice'' store. All our results highlight the importance of developing a corporate approach to managing customer loyalty
in retailing. ( 1999 Elsevier Science Ltd. All rights reserved.

1. Introduction e!orts to do just this are becoming increasingly com-

Manufacturers of fast moving consumer goods have
long been aware of the importance of customer loyalty to
their brands. This has been the focus of numerous aca-
demic and business models since the 1950s, in which links
between brand loyalty and indicators of market perfor-
mance, such as market share, have been established
(Ehrenberg et al., 1990). In contrast, retailers have tradi-
tionally placed less strategic importance on customer
loyalty (Wrigley and Dunn, 1984c).
However, even the most powerful of business enter-
prises cannot ignore the natural forces of change. In the
UK, there is little doubt that competition among major
retailers has intensi"ed (Knee and Walters, 1985; Duke,
1991). Despite this, their need is to raise sales volumes in
order to spread higher "xed cost investments, arising
from such factors as the acquisition of larger sites (typi-
cally, 30,000#ft2 of sales area for grocery superstores)
and the introduction of electronic checkout data and
stock control systems. Though store location remains the
keystone to gaining customers, there is growing belief in
the value of keeping them loyal. Retail management
* Corresponding author. Tel.: #44 (0)234 751122; fax: #44 (0)234
751806
E-mail address: s.knox@cran"eld.ac.uk (S.D. Knox)
mon-place in the UK through loyalty clubs, cards
and programmes, each designed to motivate the con-
sumer to spend more in one store group and less in
others. However, absolute customer loyalty at store
level is not a realistic proposition for retail marketers.
While a consumer, conceivably, may retain the services
of the same bank throughout his/her working life, pos-
sibly at the exclusion of all others, it is inconceivable
that they would show comparable loyalty to a grocery
supermarket or clothing chain. Research suggests
that most shoppers purchase on a portfolio basis,
switching from store to store at will (Kau and Ehrenberg,
1984). There would seem to be very few shoppers
that remain brand and store loyal and these are
generally light shoppers (Ehrenberg, 1993). For the
retailer, the challenge rests in raising the degree of
customer loyalty rather than winning over life-time
exclusivity.
Marketing investment in long-term customer relation-
ships is "nding favour across many industries, parti-
cularly within the service sector where, traditionally,
marketing e!ort has been concentrated on attracting new
customers rather than keeping existing ones. For
example, the wisdom of customer retention strategies in
the banking and insurance sectors is now beyond doubt;
the high initial costs borne in setting up new accounts are

0969-6989/99/$ - see front matter ( 1999 Elsevier Science Ltd. All rights reserved.
PII: S 0 9 6 9 - 6 9 8 9 ( 9 8 ) 0 0 0 3 3 - 2
34 S.D. Knox, T.J. Denison / Journal of Retailing and Consumer Services 7 (2000) 33}45
o!set through subsequent transactions over the life-time
of the relationship. Retaining customer accounts in these
circumstances is the key to pro"tability (Christopher
et al., 1991). Any increase in the life-time of the customer
relationship with the "rm can lead to substantial im-
provements in business performance. One US study
found that by reducing customer defections by ten per
cent, pro"tability of a credit card company rose by over
120% (Reichheld and Sasser, 1990). They also found that
a 5% cut in defections resulted in an 85% increase in
pro"ts for a bank's branch system and a 50% increase in
an insurance brokerage.
However, the relationship between customer loyalty
and business pro"tability in the retailing of fast
moving consumer goods or durables has not been widely
studied.
In this paper, we present some signi"cant "nd-
ings about store loyalty and consumer spending patterns
based upon an empirical study of shopping behaviour
among di!erent types of retail outlets in the UK.
We address two main issues. Firstly, we explore the
extent to which British consumers are loyal to particular
stores at a time when consumer mobility and store
choice are greater than ever before. Secondly, we
examine the relationship between the levels of store
loyalty and consumer spending across "ve retail sectors,
to establish whether or not they are linked in the retail-
ing of goods, as they appear to be in the retailing of
services.
2. Measuring store loyalty
Many past studies of consumer loyalty and buyer
behaviour have concentrated on the dual issues of
repeat purchase and brand choice (Chat"eld et al.,
1966; Ehrenberg, 1988; Goodhardt et al., 1984).
They re#ected the overriding power that manufacturers
enjoyed over retailers in facilitating consumer choice
during the 1960s and early 1970s. Consumer buying
behaviour was heavily in#uenced by the pull of manufac-
turers' proprietary brands rather than the push of any
retailer.
Nowadays, this situation has reversed in the UK;
channel power clearly lies with retailers (Knox and
White, 1991). Nowhere is this more apparent than in the
British grocery sector, where signi"cant market concen-
tration has taken place over the last 26 years. In 1970,
British supermarket chains shared 44% of total national
grocery sales; this "gure had risen to 82% by 1996 (Min-
tel, 1997). Nowadays, it appears that consumer buying
behaviour is in#uenced at least as much by the retailer as
the manufacturer. A further indication of this is the
growing market share of retailer own-label brands. By
1995, approximately 39% of packaged grocery goods
sales were own-label brands (TNAGB, 1997). For this
reason, the topic of store loyalty and shopping protocol
has begun to attract research attention (Knox and de
Chernatony, 1990), though brand choice at point of sale
continues to be a dominant theme.
So what is meant by store loyalty? In essence, it
refers to the consumer's inclination to patronise a
given store or chain of stores over time. While expres-
sions of store loyalty and customer retention are often
used as a surrogate for buying behaviour patterns,
they are rarely measured and used more precisely. Since
consumers are very unlikely to show exclusive loyalty
to a store group, store loyalty is a relative term in
practice and so is more di$cult to measure precisely.
Many analysts choose to use the measure of repeat
store visits as a convenient expression for store loyalty,
despite the obvious shortcoming of the disregard for
the actual amount being spent in the store. Who is
the more loyal shopper? Is it the person who visits
the same store on seven out of every ten grocery shop-
ping trips or the person who only goes there every
fourth trip but on that occasion buys 80% of their
food?
No simple means of best measuring store loyalty has
been established. This is re#ected in the various measures
of store loyalty that have been used in past studies. Some
have been originally developed for assessing brand
loyalty (e.g. Jacoby and Kyner, 1973; Jacoby and Chest-
nut, 1978), others are more original and tailored to store
behaviour. In a sense, the fact that multiple measures
exist at all re#ects the lack of a coherent de"nition. We
have classi"ed the various measures into four categories
(see Fig. 1). Patronage Measures (P) focus on the number
of shopping visits made in one store relative to others
whilst the Switching Ratio (S) re#ects the degree of suc-
cessive visits made to the store and subsequent switching
patterns. Budget Measures (B) is the proportion of total
expenditure devoted to a preferred store and Composite
Measures (B-P-S), the fourth category of store loyalty,
Fig. 1. A typology of store loyalty measures.
 S.D. Knox, T.J. Denison / Journal of Retailing and Consumer Services 7 (2000) 33}45
combines P and S with B. Each category is explained in
more detail below:
2.1. Measure 1: the patronage ratio (P)
Store loyalty can be measured simply by comparing
the number of purchases made in one store for a particu-
lar product line relative to other stores (Kelley, 1967;
Thompson, 1967). Mathematically, it can be expressed as
n#1!p
P" i,
i m
where n is the number of stores available to the consumer
during the survey period, p the number of stores pa-
i B " i,
tronised during the survey period by the ith consumer
and m the number of stores in the market.
It is also the basis upon which store choice is con-
sidered in the stochastic models of buyer behaviour
which have come to dominate brand choice and repeat
buying studies (Jephcott, 1972; Wrigley, 1980; Wrigley
and Dunn, 1984a, b; Lamb and Goodhart, 1989). How-
ever, simply measuring store patronage over time fails to
capture any change of allegiance that may have taken
place during that time. For example, consumer A may
regularly shop interchangeably between stores 1 and 2,
say, over a six month period, showing little loyalty prefer-
ence between the two. Compare this to a situation in
which consumer B shops continually at store 1 for three
months and then becomes disillusioned with it, so aban-
doning it for store 2 during the remainder of the study
period. With regard to patronage measured over the full
six month period, both exhibit an equal level of loyalty,
but their behavioural patterns are very di!erent. These
di!erences ought to be re#ected in a true measure of
loyalty. This illustration demonstrates the problem of
any measure of store loyalty which is based upon fre-
quency of visit (or store patronage) alone. Clearly, this
weakness is more pronounced over longer study periods,
as consumers' long-term commitment to a particular
store diminishes and gives way to other preferences.
2.2. Measure 2: the switching ratio (S)
An alternative which re#ects the degree of &switching'
between favoured stores over time involves measuring
the number of successive visits or &runs' to the same store
or store chain:
k#1!s
S" i,
i m
where k is the number of opportunities to switch during
the study period, s the number of switches from the "rst
i i
choice store or chain of stores, to some other store during
the survey period by the ith consumer and m the number
of intervals, or buying occasions, in the survey period.
35
This has been preferred by some researchers (e.g.
Farley, 1968; Rao, 1969; Crouchley et al, 1982a, b) as it
overcomes one of the main weaknesses of the patronage
ratio, but su!ers from being less straightforward to
understand and enable quick conclusions to be drawn.
2.3. Measure 3: the budget ratio (B)
Other researchers have chosen to measure loyalty in
terms of the proportion of the consumer's total expendi-
ture on groceries made in the consumer's &&"rst choice''
store (Cunningham, 1956, 1961; Dunn and Wrigley,
1984).
e
i E
i
where e is the amount spent in target store, or store
i
chain, during survey period by the ith consumer and
E the total expenditure in all stores during survey period
i
by the ith consumer.
The great advantage of this measure is that it takes
into account the relative level of spending, whereas any
&&analysis by purchase occasion'' (using either patronage
or switching measures) does not di!erentiate between
&main' shopping trips and &top-up' trips.
To many analysts, expenditure patterns are the most
appealing single measure of store loyalty, but it is not
without its weaknesses. For example, were a consumer to
shop regularly for everyday clothes in store A but, occa-
sionally, buy expensive designer-wear elsewhere, an anal-
ysis by expenditure alone would not clearly establish
underlying loyalty to store A.
2.4. Measure 4: composite measures (B-P-S)
Recognising the shortcomings of the single measure,
composite indices have also been used to measure store
loyalty, principally involving the number of stores visited
and the proportion spent at the &&"rst choice'' store (Tate,
1961; Carmen, 1970; Enis and Paul, 1970).
The Enis and Paul measure is one such composite,
which consists of an unweighted, geometric mean of
patronage, switching and budget measures applied to the
&&"rst choice'' store or chain of stores (Burford et al.,
1971).
The loyalty, ¸, of the ith consumer towards a particu-
lar store is expressed by their formula
C D
b (k#1!s ) (n#1!p )
¸ "100 i i i 1/3,
i m m
where b is the fraction of the budget allocated to the
i
store during the survey period by the ith consumer, s the
number of switches from the favoured store to other
stores during the survey period by the ith consumer,
p the number of stores patronised by the ith consumer
i
36 S.D. Knox, T.J. Denison / Journal of Retailing and Consumer Services 7 (2000) 33}45
during the survey period, m the number of total store
visits during the survey period, k (or m-1) the number of
opportunities to switch and n number of stores available
to the consumer to purchase product category goods
during the survey period.
Their measure is calculated as a percentage "gure with
a theoretical upper limit of 100%, indicating exclusive
purchasing at one store throughout the study period. In
practice, values will rarely fall below 5% since the
measure is applied to the store in which the consumer
spends most over the study period (i.e. &&"rst choice''
store). Measures made around this lower level indicate
complete indi!erence between stores and characterise
continuous switching from one store to another.
Enis and Paul de"ned &&"rst choice'' store preference by
budget. However, one could just as easily de"ne &&"rst
choice'' on a patronage basis, that is to say measuring
loyalty to the store one visits the most frequently, rather
than the one in which most money is spent. In some
cases, therefore, this could mean that the consumer's
&&"rst choice'' store may di!er according to how &&"rst
choice'' is gauged. Since the theme of our research was
concerned with revenue measures, we, like Enis and Paul
before us, decided to anchor the index against budget
preferences and not patronage.
Though the multidimensional measure o!ers a more
balanced model of loyal behaviour, it is also less straight-
forward to interpret directly than the single measures.
Consumers who are deemed 60% loyal to their &&"rst
choice'' store, using an expenditure measure, means they
spend 60% of their budgets in that store. However, using
a composite measure no such direct conclusions can be
drawn. A high loyalty rating is generally indicative of
a high budget percentage spend in the &&"rst choice'' store,
patronage of relatively few stores and infrequent switch-
ing. Nevertheless, in theory, a very high value for one of
these measures can o!set a low value of another, as Fig. 2
illustrates.
It has been argued that the value of any single or
composite loyalty measure rests on its usefulness in ap-
plication (Charlton, 1973). Given that our research objec-
tive was to provide a comparative measure of store
loyalty levels across "ve retail sectors with very di!erent
Fig. 2. Characteristics of the Enis-Paul measure.
patterns of consumer expenditure, choice and frequency
of visit, the Enis and Paul Index seemed to us the most
enabling in these circumstances. Our full research ration-
ale and design is discussed in the next section.
3. Research design and methodology
Leaving aside this problem of loyalty de"nition and
measurement, there seemed to us a number of compelling
reasons why we should carry out this new, empirical
study at this time.
Firstly, it is now nearly 15 years since the last UK
study of its kind was conducted (Dunn and Wrigley,
1984). British retailing has evolved considerably during
this period. On the one hand, consumers contrive to
become more mobile and better informed, which discour-
ages strong loyalty to individual stores. On the other
hand, major retailers, in general, have invested heavily in
site location and image building in order to di!erentiate
themselves from competing stores and to target consu-
mer groups more e!ectively (de Chernatony et al., 1992).
The physical shopping environment also continues to
change; away from inconvenient town-centre locations
towards planned and specialised shopping malls de-
signed to encourage more pedestrian #ow between the
stores. It is unclear what overall impact these develop-
ments have had on store loyalty levels.
In our research design, we decided to measure store
loyalty at ten major shopping malls to re#ect contempor-
ary UK shopping behaviour, based around the car-borne
shopper.
Secondly, in most previous studies the researchers
have focused on grocery retailing in the USA or UK. It
struck us that there was a real need to broaden the scope
of existing knowledge by examining store loyalty across
a range of retail sectors, if only to con"rm that the
conclusions reached from grocery-based studies apply
equally to other forms of retailing. So we designed our
research to cover stores across the retail sectors, namely:
f Gasolene ,lling station companies (e.g. Texaco, Esso,
Shell).
f Grocery retailers (e.g. Safeway, Sainsbury, Tesco,
ASDA).
f Home improvement stores (known in the UK as Do-It-
Yourself or &&DIY'', i.e. stores specialising in goods for
consumers who want to make their own repairs and
alterations around the home and garden. UK retailers
of this type include B and Q, Homebase and Do-It-
All).
f Mixed retail stores (i.e. stemming from specialist-store
origins but which now cover an extensive portfolio of
products, e.g. Boots, originally a drug store, but now
selling such diverse product lines as kitchen utensils,
electrical goods and CDs).
 S.D. Knox, T.J. Denison / Journal of Retailing and Consumer Services 7 (2000) 33}45 37

f Department stores (i.e. traditional variety stores, all f Home furnishings

anchored by clothing but also o!ering an extensive f Clothing
range of other product categories from sports equip- f Food/confectionery.
ment to home furnishings, e.g. John Lewis and House
of Fraser). These categories were determined according to the
most common line items purchases surveyed in the pilot
Thirdly, previous empirical studies have generally been
exercise.
based in one geographic location, such as the work carried
By measuring loyalty in terms of category purchases,
out by Wrigley and Dunn (1984a) in Cardi!, Wales. There
we were very careful to ensure that the comparisons were
were sound methodological reasons for their narrow
based on all like purchases, irrespective of store type, to
geographic focus, not least of which must have been the
re#ect actual shopping behaviour. After all, stores do not
logistics of monitoring and recoding behavioural data.
compete on a neat, &&sector-by-sector'' basis. For instance,
Nevertheless, there is also a very strong case for drawing
multiple grocery retailers now compete head-to-head
a sample from the national population to override any
with the likes of newsagents, #orists and clothing stores.
local factors that might disguise general trends.
Using the experience of our pilot study, we designed
Accordingly, we set out to design a study that would
a structured questionnaire that was intended for use as
allow us to reach some wider conclusions about cus-
shoppers left the retail store. The logic was to use that
tomer loyalty to retail stores and to overcome many of
particular store purchase as a benchmark for recalling
the limitations of previous studies.
where, when and how often they had shopped for the
To study store loyalty on a less geographically con-
product type at each named store chain during the course
"ned basis across di!ering retail sectors, we favoured
of the last month. The questionnaire also asked questions
using a broadcast survey, by conducting personal inter-
to apportion expenditure in the named stores chains over
views with shoppers as they exited the various store
the same time period. It included questions to check and
types. Our main concern with this approach was whether
cross-validate answers previously given. For example, we
or not respondents would be able to recall their shopping
asked respondents to estimate how much they had spent
behaviour with any degree of accuracy. To address this
in a particular store chain over the previous month, only
concern, we carried out a pilot exercise, by interviewing
to ask them subsequently about how much they tended
80 shoppers in two town centre locations. Using a semi-
to spend on a typical visit to the store and how many
structure questionnaire, we asked respondents to work
times they had visited the store over the previous four
backwards from the present and to tell us chronologi-
weeks. In the case of department and mixed retail stores,
cally where and when they had shopped for goods in two
we restricted the questioning to the buying behaviour
of our "ve retail sectors. Guided by their responses, we
relating to one of the "ve speci"ed product categories,
determined that memory fatigue and inaccuracies quick-
dependent upon what exiting shoppers had just bought.
ly set in when consumers are asked to recall the details of
Store loyalty was assigned on this basis rather than
their purchasing behaviours for longer than the previous
typical shopping basket values. This was due to the
month. Additionally, we found that asking about shop-
extreme variability of expenditure within these two retail
ping activities in more than one retail sector at a time is
sectors cited by individual respondents (e.g. a T.V. one
generally too demanding on their memory and goodwill.
visit, followed by a tube of toothpaste the next, as we
In exploring the shopping protocol of department and
discussed earlier). We did not interview consumers who
mixed retail stores, our pilot study revealed that measur-
visited a store without purchasing from any of our
ing store loyalty is altogether a more di!use task than it
chosen categories.
is in other sectors where product lines are more homo-
A second pilot survey was then carried out to check the
geneous (such as groceries or gasolene). For some prod-
viability of our protocol and questionnaire design. This
uct lines, such as cosmetics, respondents might be
involved interviewing a further 80 shoppers in the same
relatively loyal to a department store, but for many other
two shopping centres. In each instance the required data
lines sold there, they may be no more than occasional
was collected without any ambiguity or evident fatigue
buyers. In these types of stores, we concluded, therefore,
on the shopper's part. Satis"ed that the pilot studies had
that it was less meaningful to consider store loyalty, per
served their purpose of developing a survey method that
se, and more appropriate to consider loyalty concomi-
would provide us with reliable and accurate information,
tant with the purchase of products within particular
we then proceeded to the main "eldwork with a 25-item
categories. For reasons of simplicity of research manage-
questionnaire.
ment and analysis, we decided to limit the measurement
In our attempt to develop a nationally-representative
of store loyalty in these two sectors to "ve categories.
pattern of store loyalty, 750 consumers were interviewed
They were:
across ten major shopping centre sites in Britain. Prior to
f Personal care products this, managers at the main shopping malls in each of the
f Leisure goods ten retail regions were identi"ed and contacted. The "nal
38 S.D. Knox, T.J. Denison / Journal of Retailing and Consumer Services 7 (2000) 33}45
Table 1
UK Shopping mall interview locations
1. Liberty II, Lakeside, Thurrock
2. Milton Keynes Shopping Centre
3. Queensgate, Peterborough
4. Fosse-Park, Haymarket, Leicester
5. Broadmead, Bristol
6. St Davids, Cardi!
7. Merry Hill, Dudley
8. Metro Centre, Gateshead
9. Arndale, Manchester
10. Plaza, East Kilbride
interview location in each region was dependent upon
willingness of these managers to co-operate. In the event,
seven of the shopping malls in the sample constituted the
principal site in the region and the remaining three were
second ranking by turnover in their respective regions
(Table 1). Twenty-two of the consumer interviews were
subsequently rejected for lack of consistency in shopping
information provided by the respondents (based on the
cross-validation questioning).
Sampling of individual consumers was conducted on
a quota basis; the target quota speci"cations related to
location, (75 respondents per site), retail sector (150 re-
spondents per sector) and socio-economic grouping1 (A:
minimum of 100 respondents; B: minimum of 100 respon-
dents; C : minimum of 150 respondents; C : minimum of
1 2
150 respondents; D and E: minimum of 100 respondents).
In all other respects, the survey comprised a representa-
tive cross-section of shoppers vis-à-vis their character-
istics (e.g. gender, age, family size) and their shopping
routines. Interviews, which lasted approximately 15 min,
were conducted from Monday to Saturday and through-
out the course of the day, which included late night
openings. The interview team consisted of the authors
and three ex-students each with an MSc in Marketing
from Cran"eld University.
Our "ndings from the survey are outlined in the fol-
lowing sections.
4. How loyal are consumers in the 1990s?
The Enis and Paul Index was used to calculate
a loyalty level for each of the 728 survey respondents,
based on their &&"rst choice'' store (in budgetary terms).
Part of the appeal of using the Enis and Paul Index lay in
the fact that it was constructed around three separate
inputs, each calculated from independent strings of ques-
tions collected during the interview. Had a single
1In the UK, the population is grouped according to "ve socio-
economic classi"cations: A"top professionals, B"professionals,
C "white-collar workers, C "skilled manual workers, D"semi-
1 2
skilled workers, and E"unemployed and senior citizens.
measure been chosen, we would have become dependent
on a small number of di!erent inputs which would have
signi"cantly increased the risk of inaccurate measure-
ment. We subsequently tested the association and con-
vergent validity of the three measures which proved to be
highly satisfactory: a high score with one measure was
met by high scores using the other two measures. The
mean loyalty level of shoppers towards their &&"rst
choice'' store was calculated to be 60.4% with a standard
deviation of the 16.1%. Like in the original Enis and Paul
study, our spread of loyalty values approximate to a nor-
mal distribution. Therefore, we are able to con"rm that
the Enis and Paul Index can reasonably discriminate
various degrees of store loyalty among shoppers.
It is interesting to make a brief comparison between
the original Enis and Paul results from the US in 1970
and our own data from the UK. Their study of grocery
retailing produced an average loyalty rating of 70.1%
and a standard deviation of 16.2%, a remarkably similar
spread of values to our own (SD"16.1%). At the disag-
gregate level, the 161 shoppers in our study who were
questioned about their grocery shopping behaviour, the
average loyalty level to their &&"rst choice'' food store was
found to be 60.7%. However, it would be improper to
make any categorical inferences from the comparison
between the two studies since there are important
methodological di!erences between research designs:
Enis and Paul calculated store loyalty levels over a ten
week period from diary panel data, while our ad hoc
survey data recalled shopping behaviour over the last
four weeks. Further, previous research has found that
store loyalty decreases over time (Wrigley and Dunn,
1984b). They found an 11% reduction in loyalty to
grocery stores over a six week period compared to their
one week measure and a 15% di!erence over 24 weeks.
So, although their research suggests that the rate of
loyalty decline stabilises, we can only surmise that, were
we to have measured store loyalty over the same time
period as Enis and Paul, our average store loyalty "gure
would have been still lower, indicating an even wider
temporal drift in loyalty behaviour. We can fairly readily
begin to rationalise why it might be that UK grocery
shoppers in the 1990s appear less loyal to their &&"rst
choice'' store than were their American counterparts
during the 1960s. Despite the e!orts by UK retail man-
agement to engender loyalty among their customers,
greater choice of store, higher mobility levels and, per-
haps, even the transition to impersonal, self-service sys-
tems may have encouraged consumers to become more
"ckle in their shopping behaviour.
4.1. Are shoppers more loyal to stores in some
retail sectors than others?
Whilst our study design prevented us from establishing
whether individuals have di!ering loyalty pro"les across
 S.D. Knox, T.J. Denison / Journal of Retailing and Consumer Services 7 (2000) 33}45
Fig. 3. Store loyalty by retail sector.
retail sectors, we have been able to make comparisons
across sectors at an aggregate level.
Our survey shows that store loyalty levels in the UK
across the grocery, mixed retail and gasolene sectors are
very similar and do not vary signi"cantly (see Fig. 3).
t-tests showed no signi"cant di!erences from the overall
mean. Why this might be so is very intriguing in itself. In
all three sectors, consumers visit these stores regularly
and, in doing so, they are developing habit-forming pur-
chase patterns. Over time, they conceivably become con-
ditioned to the outlets they frequent. By contrast, British
consumers visit home improvement and department
stores less often. Interestingly, it is in these two sectors
that loyalty levels are signi"cantly di!erent (with asso-
ciated probability levels of 0.001 and 0.05 respectively).
Loyalty among consumers towards their &&"rst choice''
home improvement stores is signi"cantly lower than
for the other sectors. It would seem that UK retailers
in this sector are struggling to gain any competitive
advantage over one another, and failing to di!erentiate
themselves.
We can suggest two primary reasons for this. Firstly,
the 1970s were boom years in the home improvement
market in the UK. This encouraged rapid and wide-
spread construction of home improvement superstores,
located in out-of-town developments, with competitors
clustered in close geographical proximity. This has gener-
ally minimised the opportunity for site advantages be-
tween retailers within the sector. Location has long been
recognised as a key ingredient to retailing success and
closely associated with repeat buying behaviour (Brown
1991). The absence of any signi"cant locational suprem-
39
acy could have had a dulling e!ect on consumer loyalty
to individual home improvement stores in the UK.
Secondly, home improvement retailers have also been
failing to di!erentiate themselves through store image
and perceived value. During our interviews, consumers
commented that they were not usually conscious of the
particular home improvement store they were in; all the
retailers appeared to share very similar merchandising
practices which failed to create in-store individuality.
Judging by their recent television advertising campaigns,
these retailers seem content to compete on &&bleeding
edge'', price-slashing tactics, rather than by creating
a &&value added'' proposition. On the evidence of our
research, it would appear that this approach fails to
create strong loyalty ties with consumers. It seems some-
what ironic to acknowledge that retailers in this sector
have also been pioneers of store loyalty cards in the UK.
It remains to be seen whether their use of this devise at
a tactical level (it has to be viewed separately and as
a slightly dissonant activity to the overall discount strat-
egy), will be su$cient to instill customer loyalty to the
store over any signi"cant length of time.
By contrast, department stores attracted stronger
loyalty among respondents than any other retail sector.
This "nding is intuitively appealing since shopping
in department stores has certain elitist and psycho-
social qualities, rather like a &&lifestyle badge'' that con-
sumers are proud to wear. We associate this more with
consumer socio-economic and psychological character-
istics than with either environmental or marketing reasons.
Department stores tend to sell many leading brand
lines, and resist own-label derivatives. Whether this is
40 S.D. Knox, T.J. Denison / Journal of Retailing and Consumer Services 7 (2000) 33}45
a contributing factor in helping them achieve higher
loyalty levels is a moot point and one which justi"es
future exploration. Interestingly, it was the one retail
sector where respondents did not list location as being
the driving force for shopping at one department store in
preference to another. It appears that convenience
(through location) is not a consumer priority in this
context, which challenges Reilly's long standing law or
retail gravitation (1929) as being too simplistic, as other
researchers have also done in the past (Thompson, 1971).
Re-analysis of our database by product category across
department and mixed retail stores, shows that store
loyalty levels do not di!er markedly when calculated on
clothing, leisure goods and home furnishings purchases
(Fig. 4).
In the case of personal care products, respondents were
noticeably more store-loyal in their buying habits. Per-
haps people tend to frequent the stores in which they
know particular brands are sold or specialist advice can
be sought. Whatever the root-causes may be (on which
there is no known research), personal care products seem
to be a store loyalty generator among mixed retail and
department stores.
For those buying food/confectionery from mixed retail
and department stores, loyalty to their &&"rst choice'' store
was particularly low. Nevertheless, there was noticeably
more spread around the mean loyalty level. A possible
explanation can be o!ered from unstructured customer
responses during interview: some, it appeared, bought
food there as an occasional treat or as an emergency
fall-back, but not as part of their regular routine. Others
favoured such stores as a matter of course, attracted as
Fig. 4. Store loyalty in department and mixed retail stores by product class.
much by elitist values, perhaps, as the promise of quality
produce. Other loyalties lay in between these
dichotomous extremes.
In this section we have re-a$rmed the value of the Enis
and Paul Index as a means of measuring store loyalty
and of discriminating consumers' shopping habits. We
have demonstrated that store loyalty levels do di!er
between certain retail sectors and product categories. We
have also shown that shoppers are particularly prone to
switching between stores in the home improvement sec-
tor and between mixed retail/department stores when
buying food. In contrast, loyalty to department stores is
particularly high with regard to certain product catego-
ries, such as personal care products.
Our main purpose has been to establish whether store
loyalty levels do di!er among retail sectors rather than to
explain why levels might di!er. The why of loyalty is
a topic which has been addressed in the literature (e.g.
Goldman, 1977) and is deserving of more discussion than
we are able to devote to it in this paper. However, it is
perhaps appropriate to refer to the principal factors that
Enis and Paul (1970) identi"ed as being the main deter-
minants of store loyalty which also seem to have validity
in this study. These are: environmental conditions; con-
sumer socio-economic characteristics; consumer psycho-
logical characteristics; and retailer marketing strategies.
In the next section where we discuss patterns of expen-
diture by consumer loyalty types, we are constrained by
the same limitations in our methodology. Consequently,
we also seek to quantify and post signi"cant di!erences
in behaviours rather than to qualitatively explain our
observations.
 S.D. Knox, T.J. Denison / Journal of Retailing and Consumer Services 7 (2000) 33}45
5. Are loyal shoppers more pro5table to the retailer?
In other industries, particularly in the services sector,
a clear link has been made between the gearing e!ect of
customer loyalty and account pro"tability, where modest
improvements in customer retention can signi"cantly
improve business pro"tability (Reichheld and Sasser, 1990;
Buchanan and Gillies, 1990, Reichheld, 1996).
We set out to establish whether similar conclusions
can be reached in retailing. Given that the Enis and Paul
Index includes a budget ratio input, we would expect
loyal shoppers to spend relatively more of their budget
(%) in their &&"rst choice'' store than those less loyal.
However, whether these consumers spend more in
absolute terms (C) depends on the size of their C budget
(i.e. the total amount they have to spend across all stores
or by store category). Previous studies have found that
store loyalty is seemingly independent of the total
amount consumers have to spend. However, in each case,
these studies have been con"ned to the grocery sector
(Cunningham, 1961; Enis and Paul, 1970). In the past,
researchers have expressed surprise at this "nding (Dunn
and Wrigley, 1984) and, like them, we reasoned that one
might reasonably expect store loyalty and total expendi-
ture to be related.
5.1. Store loyalty and monthly spending levels
In direct contrast to these historical "ndings, for the
"rst time we are able to report data which show an
association between store loyalty and the allocated
monthly budget within a retail sector. Across the sample
as a whole, the linear correlation co-e$cient is low
(r"!0.103) but, nonetheless, statistically signi"cant (at
the 0.05 level). If the total sample is broken down into the
"ve retail sectors, the same inverse association is found
within four of the sectors, being strongest and most
signi"cant in mixed retail (r"!0.295) and home im-
provement shopping (r"!0.303). Since the correlation
co-e$cient is negative, it signi"es that the higher the
consumer's monthly budget (C) for the sector becomes,
the lower the level of loyalty attached to his/her &&"rst
choice'' store.
In the one remaining sector, the grocery sector, we found
the relationship to be positive and signi,cant (r"0.239) for
grocery shopping, bucking the general trend found across
all other retail sectors. Here, the greater the consumer's
monthly budget for groceries, the more loyal they are
likely to be towards their &&"rst choice'' store. This dispar-
ate association helps explain the relatively low negative
correlation co-e$cient for the sample as a whole.
In order to explore how &&"rst choice'' store loyalty and
spending level varies by shopping behaviour, we sub-
divided the sample into three loyalty bands. Each of these
bands contained approximately equal numbers of re-
spondents as there were no natural break points in the
41
Fig. 5. Monthly sector spending levels for loyal and switcher shoppers.
distribution of loyalty values. We then labeled the top
third as &&loyal'' shoppers and the bottom third as
&&switchers'' and compared their monthly sector spending
levels. We found that loyal shoppers have approximately
seven per cent less to spend per month on average (across
the sample of 728) whilst switchers had thirteen percent
more (Fig. 5). A t-test indicates the di!erence to be signi"-
cant (p"0.05).
When our data are disaggregated across retail sectors
and product categories, this pattern is generally repeated;
a signi"cant di!erence in monthly spending level (C)
between loyal shoppers and switchers is found in all but
the gasolene retail sector where little di!erence was detec-
ted. This pattern of spending was found to be most
noticeable in mixed retail stores where switchers spent
three times as much as loyal shoppers each month.
In direct contrast to this general trend and as the
"ndings from the correlation analysis suggest, loyal
grocery shoppers are found to spend signi"cantly more
per month than the switchers. On average, they spend
50% more on grocery products!
5.2. Store loyalty and budget allocation
While we have shown that generally loyal shoppers
tend to have smaller monthly budgets, by all expendi-
ture-based measures of loyalty we might expect loyal
shoppers to spend proportionately more of their budget
(%) in their &&"rst choice'' store than switchers. Not only
did we "nd this to be the case in this research, we also
found that the degree of di!erence was surprisingly large,
which is in line with Enis and Paul's observations of
shopping behaviour in the 1960s. Across the two groups,
loyal shoppers allocate over twice as much of their
monthly budget (%) than switchers to their &&"rst choice''
store, as Fig. 6 indicates. Although the general trend is
not unexpected, we were surprised at the magnitude of
disparity. Whilst we can only speculate as to why loyals
devote ninety percent of their monthly spend to a store
chain, it is likely to be due to a psychological predisposi-
tion, conditioned by location, store atmospherics, range,
42 S.D. Knox, T.J. Denison / Journal of Retailing and Consumer Services 7 (2000) 33}45
Fig. 6. Percentage of monthly spend in &&"rst choice'' store for loyal and switcher shoppers.
Fig. 7. Monthly spending levels in &&"rst choice'' stores for loyal and
switcher shoppers.
service and value for money. In other words, the intan-
gible bene"ts associated with store selection have a sig-
ni"cant part to play in building loyalty for some
shoppers.
This scale of di!erence was sustained across all "ve
retail sectors and product categories without exception.
So we have been able to establish that loyal shoppers
tend to spend less in total (C) over the course of a month
by sector (with the important exception of grocery store
shopping), but allocate more of their budget (%) to their
&&"rst choice'' store. Combining these two contra-trends,
we are able to conclude that loyal shoppers generally
spend more per month in absolute terms (C) as well as
relatively (% of budget allocated) in their &&"rst choice''
stores (Fig. 7).
In fact, our study shows that loyal shoppers tend to
spend twice as much as switchers in their &&"rst choice''
store chain. It is our belief that this "nding is of great
strategic importance to retailers in general and grocery
retailers (and manufacturers) in particular. In the latter
case, the loyalty bene"t is leveraged further due to the
fact that loyal grocery shoppers, as we pointed out
earlier, tend to have larger monthly budgets than fellow
shoppers, not smaller budgets as we found in the other
Fig. 8. The double indemnity e!ect in grocery retailing.
sectors. Rather than counter each other, the two trends,
therefore, work in partnership: larger budgets and larger
proportions of budgets are spent by store-loyal cus-
tomers in the grocery sector. This double leveraging
e!ect in grocery retailing we have termed the double
indemnity e+ect. It signi"es that customers loyal to a par-
ticular grocery store tend to spend up to four times as
much in this store as switchers (see Fig. 8). Why grocery
retailing should stand out in this way may be due to their
success in market positioning and customer segmenta-
tion practices. Generally speaking, they deploy very
sophisticated marketing techniques which may give them
the edge on other retailers in targeting and serving cus-
tomers, thus giving them less reason to shop around.
6. Implications for retailers
Although our "ndings are substantially more conclu-
sive and broader ranging than those of the Enis and Paul
 S.D. Knox, T.J. Denison / Journal of Retailing and Consumer Services 7 (2000) 33}45
study in certain respects, we are bound by the same
observation which seems both timeless and acultural:
loyal customers spend substantially more money in their
"rst choice stores than do switchers. Furthermore, as
these loyal customers are likely to be no more expensive
to serve, we can realistically conclude that loyal custo-
mers are potentially more pro"table to retailers. On the
evidence of this research, British retailers are fully justi-
"ed in their attempts to increase customer loyalty in their
stores. Quite how successful card schemes are in en-
couraging store loyalty is quite a separate issue and one
which is beyond the scope of this paper.
Since our study suggests that loyal customers are more
pro"table, retailers would bene"t from developing their
marketing strategy around either converting more of
their shoppers into loyal customers or concentrating
their e!orts on satisfying the needs and wants of their
loyal customers. Such a loyalty-reward strategy would,
nevertheless, only be of strategic interest if loyal custo-
mers were to comprise a substantial segment of the cus-
tomer base and share common traits to make them
accessible beyond their in-store behaviour. For instance,
whether loyal shoppers share similar socio-graphic char-
acteristics and shopping protocols. In the absence of such
an analysis, customer retention strategy is likely to be
developed around loyalty programmes and frequent
shopper promotions. While both these tools are currently
enjoying considerable interest at an operational level in
the UK, the strategic approach to customer retention,
based on di!erentiation through behavioural segmenta-
tion, is really only being explored by grocery retailers.
The opportunity to communicate directly with con-
sumers using this type of swipe-card mechanism enables
the development of one-to-one relationships between
retailer and customer. We strongly believe that this
approach has the potential to be a far more cost-e!ective
means of engendering store loyalty, rather than continu-
ing to use mass-media advertising campaigns which are
inherently less selective.
7. Limitations
While we are con"dent about the conclusions we
have drawn and what their implications are for UK
retailers, our work has many limitations that have
to be recognised. Firstly, we have rather arti"cially desig-
nated the loyalty label without exploring salient determi-
nants. Secondly, our data were dependent upon
the accuracy of shopping behaviour recall by consumers
rather than from diary panels adopted by the previous
researchers cited. Nonetheless, after testing the
accuracy of recall during the pilot stages and by
incorporating a cross-validation mechanism into the
main study, we are of the belief that the data accu-
rately recorded buying behaviour patterns. Thirdly,
43
we made no attempt to address the temporal nature of
loyalty in this study. Loyalty seems to diminish over
time, but the actual dynamics of store loyalty erosion
remains completely unexplored here. Fourthly, we have
not even begun to address individual consumer loyalty
pro"les across retail sectors, nor by site location.
With regard to the "rst two limitations cited, we be-
lieve that the data are signi"cantly robust to warrant
further analysis and, consequently, will be the subject of
future communications. Both the other limitations we
have mentioned highlight the frailty of our study and
o!er signi"cant challenges to the research community at
large.
8. Summary conclusions and future research directions
In this paper we have discussed two main issues arising
from our empirical study of store loyalty and spending
patterns in the UK. Firstly, we have found that loyalty
levels are surprisingly similar across a number of retail
sectors in the UK and any top-league British retailer in
the grocery, gasolene or mixed retail sector can expect to
enjoy a 60% loyalty level across a composite measure of
budget, patronage and switching factors. We have con-
cluded from comparisons with previous studies, that
store loyalty levels have fallen somewhat over the last 25
years and highlight greater mobility, store choice
and awareness as possible root-causes. The one sector
in the UK to su!er from particularly low levels of
store loyalty is home improvement retailing. These
retail marketers resort to price discounting on the
one hand, to try and secure competitive advantage,
while on the other, they are using loyalty schemes which
are unlikely to be triggered primarily on the basis of
price cues.
The second issue addressed in this paper is the rela-
tionship between store loyalty and customer expenditure
which our study identi"es for the "rst time to be signi"-
cantly associated. Thus, while we have found that loyal
shoppers generally spend less in total per month (C) by
sector than switchers, they do, however, spend more of it
} about twice as much } in their &&"rst choice'' store. This
is particularly true in gasolene and home improvement
retailing.
In grocery retailing, not only do loyal shoppers
allocate proportionally more of their budget to their
&&"rst choice'' store (%), as in other sectors, but they also
spend more on groceries (C) per se than their fellow
shoppers. In practice, the combined e!ect means that
loyal shoppers can spend up to four times as much (C) in
their &&"rst choice'' store as their switcher counterparts.
We have designated this anomaly the double indemnity
e!ect.
These loyalty-spending "ndings lead us to the inevi-
table conclusion that loyal consumers represent the most
44 S.D. Knox, T.J. Denison / Journal of Retailing and Consumer Services 7 (2000) 33}45
pro"table core of shoppers in Britain, a fact that has
been established already in industry sectors outside
retailing.
Though this paper is based upon an empirical study of
shopping behaviour in the UK, we believe that many of
the patterns, associations and underlying conclusions
drawn have wider applicability. In other service sectors,
such as banking and direct retailing, the pro"tability
gains from reallocating resources to improve marginal
customer retention and loyalty are considered universal
(Reichheld, 1996).
Less certain is whether the similarities and di!erences
we have found in loyalty levels across di+erent retail
sectors in the UK can be transposed to other countries
where competition and market structures are di!erent.
Further research into loyalty patterns across a larger
number of retail sectors in other geographical settings
will help resolve this issue.
Our study clearly provides retailers with an incentive
to re-examine ways to make loyal customers more loyal
to their stores. The research imperatives must be, "rstly,
to explore the exact nature of the loyalty/pro"tability
relationship, in order to appreciate the gearing e!ect that
a marginal change in store loyalty can bring to pro"tabil-
ity. Secondly, we must establish the means to access loyal
customers at the strategic level to in#uence the &&"rst
choice'' decision, thereby acting synergistically with
loyalty programmes that operate at store level. This
means exploring new consumer segmentation ap-
proaches based upon purchasing behaviours and prefer-
ences on a portfolio basis across retail sectors and within
product categories. The developments in data fusion and
information warehousing across retail markets will make
this a realistic research goal for academics and retail
management alike.
Despite our limitations, we believe the paper makes
a timely contribution to knowledge by underlining the
importance of loyal customers in the retailing of fast
moving consumer goods and durables. It has been based
on a substantial, British empirical study and brings atten-
tion to a subject that we believe will continue to be the
battleground of retailing throughout the 1990s both in
Europe and North America.
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