179 10

Loyalty Programs: Design

and E ectiveness
10.1 What Is Loyalty? Behavioral Versus
Attitudinal Loyalty – 181
10.2 What Is a Loyalty Program? De nition
and Key Objectives – 182
10.2.1 Building True Loyalty – 182
10.2.2 E ciency Pro ts – 183
10.2.3 E ectiveness Pro ts – 183
10.2.4 Value Alignment – 184

10.3 Loyalty Programs: Increasing in Popularity – 184

10.3.1 Examples of Loyalty Programs – 187

10.4 Problems with Loyalty Programs – 188

10.5 Design Characteristics of Loyalty Programs – 189
10.5.1 Reward Mechanism: Transaction-Based
Versus Engagement-Based – 189
10.5.2 Reward Structure – 189
10.5.3 Participation Requirements – 191
10.5.4 Payment Function – 192
10.5.5 Sponsorship – 192
10.5.6 Cost and Revenues of LPs – 193

10.6 Drivers of Loyalty Program E ectiveness – 193

10.6.1 Loyalty Program Design Characteristics – 194
10.6.2 Customer Characteristics – 194
10.6.3 Firm Characteristics – 194
10.6.4 Achieving a Competitive Advantage – 195

10.7 Empirical Evidence on Loyalty Program

E ectiveness – 197

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

V. Kumar, W. Reinartz, Customer Relationship Management, Springer Texts in Business
and Economics, https://doi.org/10.1007/978-3-662-55381-7_10
10.8 Loyalty Programs, Shackle or Reward:
And to Whom? – 197
10.9 The Seven-Point Checklist for Successful LP
Design and Implementation – 197
References – 204
10.1 · What Is Loyalty? Behavioral Versus Attitudinal Loyalty
181 10

Overview The second part of this chapter then

To retain customers, many rms focus on deals with the effectiveness of loyalty pro-
increasing customer satisfaction levels. And grams. In the past two decades, many firms
the degree of customer satisfaction is a key have established some type of customer
measure. But the extent to which customer LP. Typically, these programs offer financial
satisfaction leads to loyalty and thus pro t- and/or relationship rewards to customers.
ability remains an important issue to be exam- In most cases, the aim is to increase sales
ined. Traditionally, customer satisfaction has revenue by increasing usage/purchase levels
been expected to increase retention or loyalty, or engaging in up- and cross-selling. Loyalty
thus leading to greater pro ts, as we intro- programs also promise stronger relationships
duced in 7 Chap. 2. Although customer satis- with customers. But they are not costless
faction and loyalty are key mediators of pro t, for the provider. Before any firm establishes
they cannot be taken as simple predictors an LP, it must ask: What is the cost effective-
of it. From a business standpoint, it is more ness of this program? What differentiates
important to identify and nurture relation- an effective LP from an ineffective one?
ships speci cally with pro table customers. What key drivers ensure the effectiveness
This is where loyalty programs come in. of loyalty programs? Understanding goals
Loyalty programs (LP) represent an impor- and design characteristics are critical means
tant CRM tool that can identify, reward, and to develop and implement effective loyalty
successfully retain pro table customers. We programs. It is equally, if not more, important
discuss the objectives and design of various to understand and monitor the features that
loyalty programs in 7 Sects. 10.1, 10.2, 10.3, make an LP effective; we suggest four such
10.4 and 10.5. We also illustrate LP failures to drivers. Therefore, after we present some
o er insights into what distinguishes a suc- empirical evidence about the performance of
cessful program from unsuccessful ones. By LPs across various industry segments, we use
reviewing LP characteristics, we also can sys- two case studies to reveal how firms can cre-
tematically investigate outcomes and deter- ate competitive advantages through loyalty
minants of LP success and provide guidelines programs that are geared to attaining profits
for designing optimal programs. The key and value alignment. With this information,
dimensions of LP design, such as reward and we derive a seven-point checklist for the suc-
sponsorship, are explained in detail and illus- cessful design and implementation of loyalty
trated using relevant case studies. programs.

10.1 What Is Loyalty? Behavioral as a contribution margin or net pro t. As a mar-

Versus Attitudinal Loyalty keting metric, customer value provides an impor-
tant decision aid, beyond its capability to evaluate
Loyal customers generate more repeat business, marketing e ectiveness. A rm can both measure
develop a larger tolerance to price increases, and and optimize its marketing e orts by incorporat-
are more pro table to the rm. is conventional ing the concept of customer value in the core of its
wisdom has long been accepted, but as we have decision-making processes.
shown, it is not always true. A very loyal customer Although customer loyalty to a product or
may consume an inordinate amount of rm service, manifested as repeat purchases, may be
resources by demanding services and discounts. due to natural satisfaction and preference for the
But marketers want to locate and entice new cus- products’ features and bene ts, loyalty also can be
tomers who are pro table, while also nding induced through marketing plans and programs.
appropriate strategies to identify and possibly For example, wireless cellular phone service
release unpro table customers. requires a 1–2-year contractual relationship with
In 7 Chap. 1, we noted the concept of customer the customer – an indirect way of ensuring repet-
value, de ned as the economic value ($-metric) of itive and pro table transactions for a predictable
the customer relationship to the rm, expressed period of time.
 182 Chapter 10 · Loyalty Programs: Design and Effectiveness

Whether contractual or motivated through consumers who enter an LP likely transact more
incentives, the success or failure of a LP depends with the focal company and give up some of the
ultimately on the pro tability of the customer. free choice they possess otherwise. In exchange
e longevity of the relationship also does not for concentrating their purchases and relational
automatically translate into tangible pro tability. interactions with the focal rm, they accumulate
Rather, various customer loyalty programs work assets (e.g., points), which they may exchange for
to identify, reward, and retain speci cally pro t- products and services, usually those associated
able customers. with the focal rm. Because of these characteris-
Before reviewing the structure of these various tics, LPs o er an important CRM tool that mar-
loyalty programs, it is important to understand keters use to identify, award, and retain pro table
the signi cant di erence between behavioral and customers.
attitudinal loyalty. Broadly speaking, behavioral is is not to suggest that they are new additions
loyalty refers to the observed actions that custom- in the relationship marketer’s toolkit. Sainsbury
ers have demonstrated toward a particular prod- (UK) archives show that in the 1970s, its managers
uct or service. Attitudinal loyalty instead refers to wrote to customers who had not made their usual
a customer’s perceptions and attitudes toward a shopping trips, in an e ort to encourage and main-
particular product or service. Ideally, there should tain their patronage. Later, the store used a Green
be a strong correlation between a customers’ atti- Stamps initiative, which customers enjoyed, despite
tudes and behaviors, though in some instances, the demand that they paste the stamps into many
customer behaviors di er radically from their atti- books before receiving any reward (Passingham,
tudinal perceptions about the product or service. 1998).
Overall, the key objectives of introducing LPs
10 consist of four categories:
A Case in Point 1. Building true (attitudinal and behavioral)
A frequent yer member of ABC airlines might loyalty
continue the relationship only because she has 2. E ciency pro ts
accrued many points and wants to redeem her
3. E ectiveness pro ts
miles. Although her attitudinal preference is to
travel with XYZ airlines, because of its superior 4. Value alignment
quality of service and experience, she feels
compelled to continue transacting with ABC. In Any loyalty program implemented by a rm may
this situation, her relationship with ABC re ects pursue all or only some of these goals at the same
strong behavioral loyalty, while her negative
time.
perceptions of it re ect poor attitudinal loyalty.
Attitudinal loyalty is extremely important;
customers who are not attitudinally loyal likely
terminate the relationship at the earliest available 10.2.1 Building True Loyalty
opportunity. As we will nd, not all loyalty
programs are interested in creating attitudinal
An LP aims to build greater customer commit-
loyalty with the target customers.
ment to the product or organization by garnering
true loyalty, which combines elements of both
attitudinal and behavioral loyalty. According to
10.2 What Is a Loyalty Program? this logic, customers exhibit behavioral loyalty
De nition and Key Objectives (i.e., purchase a product repeatedly) for several
reasons, including convenience or price, as well as
In recent years, many companies have introduced a sense of loyalty. Behavioral loyalty may result
loyalty programs (LPs), frequent reward pro- from attitudinal loyalty, but it can be driven by
grams, customer magazines, online communities other factors too.
and blogs, or customer clubs (Kreutzer, 2016). An Furthermore, though many LPs have the goal
LP comprises a marketing process that generates of «making customers more loyal,» the outcomes
rewards for customers, based on their repeat pur- of true loyalty – greater commitment, greater word
chases or engagement with the brand. As we use of mouth, and so on – are di cult to observe.
it, the term LP subsumes the many di erent forms Enforcing loyalty by enticing customers with
of reward programs. erefore, we recognize that rewards and bonuses is unlikely to create true loy-
10.2 · What Is a Loyalty Program? De nition and Key Objectives
183 10
alty, because true loyalty instead is a function of the Second, a goal of e ciency pro ts implies that
value provided to customers. It encompasses vari- the customer segment most likely to join the LP
ous factors: Degree of involvement in the product consists of those who are truly loyal anyway, so
category, visibility of product usage, or the value their business is already likely. In this case, the
expressive nature of the product, to name a few. question arises about whether LPs actually change
None of these aspects can be controlled by the rm. buying behavior. Perhaps they do not change
Take, for example, a low-involvement cate- behavior as much as they reinforce existing
gory – grocery shopping. Inducing true loyalty for behavior, but at a much higher cost to the rm.
grocery shoppers is a tough proposition, because For example, loyalty cards have been criticized for
their purchases are nearly always driven by tangi- rewarding heavy spending rather than true loy-
ble considerations, such as value for money. alty. e segments most interested in these plans
tend to be a uent groups who can a ord to build
up points, even if they hold cards from more than
10.2.2 E ciency Pro ts one store.2
Yet, despite the di culty associated with
E ciency pro ts result from a change in the cus- achieving e ciency pro ts, many LPs are intro-
tomer’s buying behavior, induced by the LP. is duced with just this goal in mind. However, the
change in behavior can be measured in several upcoming LP trend to reward customers for their
ways: engagement behavior with the brand and not only
5 Basket size purchase behavior, fosters attitudinal loyalty.
5 Purchase frequency acceleration
5 Price sensitivity
5 Share of category requirements (SCR) or 10.2.3 E ectiveness Pro ts
share of wallet
5 Retention E ectiveness pro ts refer to the medium- to long-
5 Lifetime duration term pro t consequences realized through the
development of better knowledge about customer
e most widely used measure of behavioral loy- preferences. e LP is designed to gather infor-
alty is SCR, which describes the extent of purchases mation about individuals, their behavior, and
in a category that are served by the focal brand or their preferences and then to derive knowledge
retailer. E ciency pro ts are net of LP cost. An LP from this information. is process of learning
that attempts to generate e ciency pro ts works allows the rm to improve its knowledge of cus-
on the assumption that customers build up switch- tomer preferences and to o er increasingly better-
ing costs when they accumulate loyalty-based tailored value propositions to various customers.
assets. is accumulation encourages them to e improvement in the value proposition comes
forgo their free choice, because the expected reward through e ective product and communication
makes this reduction appear worthwhile. o erings. E ectiveness pro ts – more than any
ere are two key criticisms of this viewpoint. other type of LP outcome – are likely to generate
First, for a customer to engage in an LP, the over- sustainable competitive advantages and yield the
all utility of being in the LP must be higher than highest pro ts in the long run.
the utility of not being in the LP. e cost for the
rm to entice the customer to change behavior Achieving E ectiveness Pro ts
accordingly may be higher than it would be with- in a Grocery Store
out the LP. Carlos Criado-Perez, the one-time E ectiveness pro ts require an information-based
CEO of Safeway (1999–2004), thus traded o the strategy that gathers and analyzes information
bene ts: «Scrapping Safeway’s (UK) ABC loyalty about every transaction. For example, in grocery
card scheme saves it £50 million this year, money retailing, the system must collect information
that will be invested in cutting prices.»1 about every item purchased, down to the color of

1 Interview with Carlos Criado-Perez, CEO Safeway (UK), 2 Interview with Richard Gaines, Retail Consultant with
on BBC News (May 4, 2000). Mintel Research UK (Spring 2001).
 184 Chapter 10 · Loyalty Programs: Design and Effectiveness

ink in a pen, along with the time of day, weather, di erentially expensive to serve. For example, if a
and even the checkout operator’s name. Such data provider of wireless services were to arrange its
mining can generate personalized promotions customers from highest to lowest value, it might
and recommendations so that a vegetarian never discover that its business users generate higher
receives a promotion for steaks. e knowledge phone bills than casual, occasional users. Likewise,
that a customer is a vegetarian might come from if it were to arrange the same customers according
either surveys or previous buying behavior. If the to the costs of serving them, it would nd some
store’s computer recognizes that a customer never customers easy to satisfy, whereas others exploit
buys meat, it can predict that the customer is a the customer service function constantly. If a rm
vegetarian, and not that she is buying her meat pursues value alignment, it simply attempts to
elsewhere. Although this assumption could be align the pro ts it receives from a given customer
wrong, a store would rather not bother a cus- with the cost incurred to serve that customer.
tomer with costly promotions for categories from Clearly, not every customer is treated equally – a
which that customer has never bought anything. notion some managers nd discomforting.
Implementing mobile loyalty programs pushes However, this di erentiation allows rms to
the information gathering process to a new era, ensure that their best customers get their best ser-
allowing for real-time two-way communica- vice. e goal of value alignment is particularly
tion. For example, by using new technologies i.e. critical when there is great heterogeneity in cus-
«geo-fencing» retailers can identify mobile LP tomers’ value and costs to serve, such as in the
members nearby the store and send personalized airline, hospitality, or nancial services industries.
promotions to drive store tra c and purchases.
Promotions of new products rely on an ideas Example
10 list, populated by both new launches and existing . Figure 10.1 illustrates an example of a rm with
products that the data mining algorithms suggest a highly heterogeneous customer base. It indi-
speci c customers might desire. For example, if a cates the pro tability of a bank, derived from
customer buys a lot of California Chardonnay, the three very di erent customer pro les: Tier A rep-
list might suggest that he is likely to try a white resents 31% of the customer base, whereas Tier B
Burgundy on special promotion, because it is made makes up 42%, and Tier C makes up the remain-
from the same grape. Staples or Safeway use their ing 27% of the customer base. More than one-
accumulated customers’ knowledge by targeting LP quarter of these customers are unpro table and
members with digital coupons and personalized must be subsidized by the highly pro table
deals. e strategy of using an LP to learn about ones – a condition not uncommon in banks.
customer preferences thus can result in value, as well
as impressive gains, for both customers and organi- If this bank were to institute an LP, it might pur-
zations. Customers get more of what they truly sue the four di erent LP goals. If it chooses a par-
want; rms avoid costly, mass marketing exercises. ticular goal, how can it achieve that outcome most
However, a learning strategy demands a relatively e ectively? Such an assessment requires a more
high process sophistication for its implementation. detailed understanding of the impact of the driv-
e collection of massive amounts of data may ers of LP success. at is, to reach the goals of an
have grown easier, but analyzing, learning about, LP, it seems useful to understand some of their
and implementing the conclusions obtained is characteristics, including the suitability of the
much more di cult. Few companies have mastered goal, cost structures, challenges involved, and the
this strategic capability to a satisfactory extent. degree of competitive advantage created, as sum-
marized in . Table 10.1.

10.2.4 Value Alignment

10.3 Loyalty Programs: Increasing
Finally, value alignment aims to match the cost to in Popularity
serve a particular customer with the value that the
person brings to the rm. e underlying concept Interest in loyalty programs exploded in the late
states that for any industry, customers have di er- 1990s. Building mainly on the premise that it is
ential monetary value to rms, and they also are cheaper to market to existing customers than to
10.3 · Loyalty Programs: Increasing in Popularity
185 10
. Fig. 10.1 Revenue and
pro tability of customers 1000
860
800

600
435 Revenue

(in $)
400
per year
Annual
200 161 159
profit
17
0
–67
-200 Tier A Tier B Tier C

. Table 10.1 Key characteristics of loyalty programs

Goal of LP Commitment, WOM, E ciency pro ts E ectiveness pro ts Value alignment

building communi-
ties (true loyalty)

Most suited All branded Many industries Firms with access to All industries with
for … products (though much information skewed customer value
larger brands have distributions. Within
more di culty Firms that communi- this class, industries
uniquely di erenti- cate directly with with product perish-
ating their brand end users ability (airlines,
and managing hospitality, rental cars)
customer interac- are particularly well
tions) suited

Cost of LP – Contributions from Contributions from Low marginal cost of

may be manufacturers manufacturers rewards
mitigated (promotions) (promotions)
by Coalitions with
other LP partners

Key Providing meaning- Providing accept- Capability to handle, Implementing the

challenges ful value to create able incentives to analyze, learn from, customer di erentia-
di erentiation in customers while and deploy tion scheme (deploy-
consumers’ minds also controlling knowledge from ment automation)
costs large databases

Brand building Program di erentia- Integration of new Having fair and

tion technology platforms equitable relationships
that allow better but ensuring that best
internal (between customers are treated
business divisions) best
and external (with LP
customers) exchange

Degree of High (a truly loyal Low (it is easy to High (capability of Low-medium (LPs have
competitive customer base is replicate bene ts, learning from become standard
advantage hard and costly to and program costs customer behavior industry practice)
replicate, because it create major and using it is very
can only be built challenges) di cult to copy and
over time) unique to a
company’s context)
 186 Chapter 10 · Loyalty Programs: Design and Effectiveness

acquire new ones, rms across a multitude of 5 e French retailer E. Leclerc spends approxi-
industries raced to implement some form of loy- mately $23.5 million each year for LP market-
alty schemes. us the growth in LP usage has ing and management (Meyer-Waarden, 2007).3
been staggering. In 2012, U.S. loyalty programs 5 According to VSS Communications Indus-
exceeded 2.65 billion, increasing by 26.7% since try Forecast, U.S. companies devoted $2.18
2010 (Berry, 2013) and the average U.S. house- billion to loyalty programs in 2008 (Odell,
hold holds 22 loyalty program cards, actively 2009). Just a few years ago, in 2003, Gartner
using 10 of those memberships (BCG, 2014). analyst Adam Sarner declared that U.S. com-
Some quantitative examples and the summa- panies spent more than $1.2 billion on cus-
ries attest to this growth: tomer loyalty programs (Young & Stepanek,
5 In 2015, «PAYBACK», Germany’s largest loy- 2003). is enormous growth re ects the
alty program and couponing platform, docu- great popularity of loyalty programs.
mented 28 million membership accounts and 5 A er changing the loyalty program in 2015
10 million mobile app downloads. Eight out the Wyndham Hotel Group denotes 7 million
of ten Germans know the brand Payback. people joining the reward program, which
5 By 2002, there were more than 120 million re ects an increase of 17 percent in member-
airline frequent yers worldwide, with most ship. LP members receive a reward bonus of
residing in the United States (74 million), 13.6 percent on their spending level (McCart-
Europe (24 million), and Asia (21 million) ney, 2016).
(Web yer, 2011). From 2002 to 2006 the num- 5 Amazon developed as the gold standard
ber airline frequent yers increased by 60 mil- in ecommerce. With its loyalty program
lion users worldwide. e 180 users denote 10 Amazon Prime the online retailer provides
10 trillion outstanding miles (Web yer, 2016). valuable bene ts to its consumer by deliver-
5 «American Advantage» is the largest frequent ing the products fast and free. Besides these
yer program in the world. As of December major bene ts, Amazon o ers a range of
2009, its membership rolls boasted more than bene ts such as streaming services of movies
64 million members (AMR Corporation, and music, cloud services, and early access to
2009). selected deals. In turn these customers drive
5 With 56 million members globally, who con- bene ts to the company as well. A prime cus-
tribute $6.5 billion in room revenue, IHG’s tomer spends 150 percent more on Amazon
(InterContinental Hotels Group) «Priority a er becoming prime member (Tuttle, 2013).
Club» Rewards is one of the rst, largest, and
fastest growing guest loyalty program in the e most well-known examples of loyalty pro-
hotel industry. e program adds 600,000 grams remain frequent yer programs. American
members monthly and o ers points for stays Airlines was the rst, establishing its «Advantage»
in 4300 hotels in nearly 100 countries world- program in 1981. During the 1990s, supermarket
wide. Members can redeem points for future chains and general merchandise retailers followed
hotel stays, airline miles on more than 40 suit and established loyalty programs, such as the
partner airlines, car rentals, gi certi cates, or «Carte de Fidélité» program o ered by the French
hundreds of products available in a rewards retail chain Carrefour or the «Club-Card» at
catalog (IHG, 2010). Tesco. e latest form of loyalty programs involves
5 In the highly competitive U.K. retail industry, point collection schemes initiated by third parties
Tesco has managed to double its earnings (e.g., Webmiles, PAYBACK), where users collect
by taking market share from rivals such as points across a network of member companies.
Sainsbury’s. Its success has been credited to e collection procedure is facilitated by mobile
its popular customer loyalty program, which LP applications, which provide additional features
enables shoppers to earn points and redeem (i.e., payment function, digital coupons) enhanc-
them on future visits or with airlines (ABC, ing the LP’s value for the customer.
2003). Tesco gained the position as market
leader - with more than 30 percent market 3 Based on a conversion rate of 1 Euro = 1.305 USD, as
share (Ruddick, 2014). of February 1, 2005.
10.3 · Loyalty Programs: Increasing in Popularity
187 10

CRM at Work 10.1 conceptually: bargain-hunting Therefore, Southwest relaunched

Frequent-Flyer Programs customers tend to be loyal to its frequent yer program as the
In the airline industry, ve main nding a bargain than to a reward «All-New Rapid Rewards» in March
factors drive customers’ choices of card program or a speci c airline. 2011, basing the rewards on
providers: market coverage, price, By increasing the rewards granted dollars spent on ights by
schedule, frequent yer programs, to passengers who are willing to customers. Similar to other airline
and product attributes. For many pay more per seat than the average programs, this LP takes di erent
years, the common belief in the passenger, the airlines maximize fare types into account. It also
airline industry was that loyal the bene ts for their most allows passengers to earn points
customers were more pro table, pro table customers while minimiz- with partners in the retailing,
so by rewarding customers based ing rewards for bargain hunters. lodging, dining, rental car, and
on the miles they ew, the airline Consider Southwest Airline’s banking industries.
could increase their loyalty. But reward program. It initially was Finally, the new program
there were some serious shortcom- based on the number of ights features a four-tier system that
ings in this approach. By rewarding each passenger took, and eight distinguishes Standard, A-List,
all passengers equally, the airline round-trip ights earned the person A-List Preferred, and Companion
failed to maximize the value for its a free round-trip ight. In terms of Status customers. To reach A-List
most pro table customers. Seat rewards, a ight from Providence, Status, a yer must take 25
class and fare types were ignored Rhode Island, to Baltimore, qualifying one-way ights or earn
in the reward system. When it Maryland, was worth the same as a 35,000 Tier Qualifying Points in a
realized this aw, the airline ight from Baltimore to Las Vegas, calendar year. These members
industry moved away from basing Nevada – despite the great then enjoy bene ts such as priority
rewards on miles own; Airlines, di erence in distance. On a boarding, 25% earning bonus, and
United, Continental, and USAir all conceptual level, it might make an A-List dedicated phone line for
multiply the miles own by a sense, because the cost of customer service. Companion
customer by a coe cient derived operating a plane is largely Status (reached with 100
from the type of seat class the independent of the distance own; qualifying one-way ights or
customer paid to receive. ight crew, airport desks, and 110,000 Tier Qualifying Points in a
Passengers willing to pay to luggage handling costs are all calendar year) allows the member
upgrade to business or rst class constant. But customers who y to designate a companion and
thus earn more miles and get longer distances tend to pay more, receive a free ticket for that
rewarded sooner and more often. because fares re ect distances. This companion on every ight the
In contrast, customers who hunt for extra revenue gets o set by the member takes during the year.
bargains and purchase deeply cost of the extra fuel used during With this revision, Southwest
discounted tickets far in advance or the ight and the fewer per-day attracts the business of high-value
at the last minute earn far fewer ights for a plane on a longer route. customers who tend to y at least
miles than those who pay the full But the conceptual argument once a week.
fare. This practice makes sense was not su ciently convincing. Source: Southwest (2011).

Although LPs have become immensely pop- sandwich free, a er they garner nine stamps
ular, it is far from clear whether they actually from previous purchases. e purpose is to
help rms engender greater customer loyalty increase both sandwich consumption and
and higher pro ts, partly because of the consid- customer retention. Stores such as BigY,
erable cost associated with managing an LP, and Kroger, and CVS o er discounts on certain
partly because their management can be so com- store merchandise to cardholders, to ensure
plex. their loyalty and retention.
5 Volkswagen Club and Card: e Volkswagen
Club and Card concept attempts to establish a
10.3.1 Examples of Loyalty Programs direct relationship with end customers.
Customers collect points when Volkswagen
5 Frequent buyer programs: e simplest (VW) services their car or if they buy VW
initiatives are based on punch-cards that o er accessories, as well as from partners, such as
a free complimentary product. City Bagels, a car rental companies and tour operators. e
sandwich retail chain, o ers customers a tenth points can be redeemed for dealer services,
 188 Chapter 10 · Loyalty Programs: Design and Effectiveness

price reductions on car purchases, or catalog 10.4 Problems with Loyalty

merchandise. e purpose is to establish a Programs
better communication between VW dealers
and customers, to bind them more closely to Although LPs have become widespread and popu-
the brand. lar, the bene ts are not always clear. On the one
5 Star Alliance Frequent Flyer Program: e side, many companies, such as ANZ Bank, invest
Star Alliance is a group of 28 airlines across millions of dollars into this CRM tool, only to nd
all continents that cross-list ights, share that it sucks up great resources without any obvious
facilities, and recognize their respective return. On the other side, according to Hlavinka &
frequent yer programs. Any ight on any Sullivan (2011) 85 percent of customers that joined
Star Alliance airline counts toward a a loyalty program have not been contacted by the
member’s frequent yer program. With company anymore. From consumer perspective,
more than 1300 airports in 190 countries the length of time and amount of points needed for
worldwide, the Star Alliance has become reward redemption is one of the reasons to aban-
one of the largest airline network in the don loyalty programs (Bond Loyalty Report, 2016).
world. Examples such as this may mark the begin-
5 Starbucks Rewards Plus: Starbucks revolu- ning of a trend, in which large corporations that
tionized how customers interact with have spent millions of marketing dollars on LPs
companies by integrating the LP into a closely evaluate their costs and tailor reward pro-
mobile application, customer can nd stores grams more accurately to achieve better pro t-
nearby, pay for their purchases and collect ability.
bonus points for their purchases and store Most companies need to revisit their business
10 visits. e transactions made by the mobile model, not only to re ect on the impact of loyalty
app account for more than 20 percent programs on their bottom line, but also to deter-
(PYMNTS, 2016). mine how customer service initiatives add value
5 Payback: Germany’s largest loyalty program and ensure future revenue streams. For some
and couponing platform, introduced the companies, this reassessment leads to the decision
mobile payment app. The app is not only a to eliminate any further investments in loyalty
digital loyalty card, but its payment func- programs.
tion generates additional value for Payback e LP test run by the U.K. chain ASDA
cardholders by higher transactional Supermarkets (purchased by Walmart in 1999)
convenience level. The app has been cost £8 million in 1 year. e company chose not
downloaded by 8.5 million members and to invest in a full rollout, which would have cost
generates 3.5 million transactions per day £60 million (Direct Marketing, 2011). According
(Fuchs, 2016). to a spokesperson for ASDA, «We decided we
5 Neiman Marcus: A luxury retailer based in didn’t have to invest in points and plastic to make
Dallas, Texas, Neiman Marcus o ers its our customers loyal.» And this assessment seems
«InCircle» LP to all its customers. Using a accurate: At the time it tested its pilot LP, ASDA’s
shopping card, customers accumulate points market share was 17.2%. A year later, it had risen
that can be redeemed for exclusive rewards. to 17.6%.

CRM at Work 10.2 card transactions (Moneymanager, price hikes was to stem losses
Example: ANZ Bank 2011). Speci cally, ANZ Bank incurred by the cost of running
In May 2003, ANZ Bank (Australia’s planned to raise fees on credit card credit card related reward
third-largest bank) increased its holders who paid their balance programs. The costs had risen to
annual fees by $50 on credit cards monthly (taking advantage of the the point that the programs no
linked to its reward programs. This interest-free period). This was a longer were sustainable. Therefore,
increase was primarily due to the wake-up call for corporations that the bank needed to choose: reduce
increased point acquisition by had invested their marketing reward program bene ts or
frequent yers and the potential dollars in LPs (Kjellerup, 2003), increase annual fees to pass some
fee reduction for inter-bank credit because the primary reason for the of the costs on to customers.
10.5 · Design Characteristics of Loyalty Programs
189 10
Safeway terminated its LP in April 2000, which 5 Open versus closed LP
saved the company approximately $85 million in 5 Automatic or manual point accumulation
annual LP costs.4 is chain’s rationale was that 5 Payment function
«People have lost interest in (loyalty card) points 5 Sponsorship (existence of partner network,
and don’t think they give value. What they really network externalities)
appreciate are straightforward product o ers at 5 Single versus multiform LP
great prices,» according to the CEO Carlos Criado- 5 Within- versus across-sector LP
Perez in May 2000. 5 Ownership (focal rm versus other rm)
A few years ago, Continental Airlines down- 5 Cost and revenues of LPs
graded its liberal upgrading policy because it was
too expensive. e company estimated a $100
million loss in revenue from upset frequent yers. 10.5.1 Reward Mechanism:
A class action suit also followed. What initially Transaction-Based Versus
was designed to be a customer LP turned out to be Engagement-Based
a disappointing failure.
Despite their immense popularity, the aspects Reward mechanisms induce consumers to actively
that distinguish a successful LP from an unsuccess- engage with the brand. Predominantly, reward
ful one remain unclear. Our discussion in the next mechanisms are transaction-based awarding con-
section therefore reviews several LP characteristics sumers for purchases. However, with the increase
to investigate the outcomes and determinants of of the digital transformation consumers receive
LP success systematically, and thus to provide rewards based on their engagement-behavior.
guidelines for designing optimal programs. Engagement-based rewarding does not require
the consumer to nalize a transaction, but award
the consumer due to his engagement in writing
10.5 Design Characteristics reviews, downloading the mobile LP app, com-
of Loyalty Programs municating in social media, or in-store check-ins
(Taylor, Buvat, Nambiar, Singh, & Radhakrishnan,
e multitudes of LPs attest to the various discre- 2015). For example, Walgreens introduced «Balance
tionary choices that arise for designers of such pro- Rewards», incentivizing consumers for connecting
grams. Furthermore, LPs di er substantially both Walgreens mobile app with a digital health tracker.
within and across industries. Managers can exer- For each healthy lifestyle activity loyalty program
cise discretion regarding the composition and the members are awarded points. Lancôme rewards is
choice of dimensions to include in their LP design, customers not only for their purchases, but also for
as well as the corresponding weights assigned to connecting with Lancôme and sharing content.
each dimension. In this sense, we characterize LPs
along the following key dimensions, which must
be de ned when designing a program: 10.5.2 Reward Structure
5 Reward mechanism
5 Reward structure e principal motivation for consumers to enroll
5 Hard versus so rewards in LPs is to accrue bene ts from rewards from
5 Product proposition support (choice of their purchase transactions over time. From a con-
rewards) sumer’s perspective, the rewards attained through
5 Aspirational value of reward an LP membership are the key design bene t.
5 Rate of rewards
5 Tiering of rewards Hard Versus Soft Rewards
5 Timing of rewards Financial or tangible rewards (hard) di er from
5 Rewards based on speci c criteria those based on psychological or emotional bene ts
5 Participation requirements (so ). Hard rewards run the gamut from price
5 Voluntary or automatic enrollment reductions to promotions and free products to pre-
ferred treatment. For example, a member of KLM’s
4 Based on 1 British Pound = 1.7 USD, as of November «Flying Dutchman» frequent yer program may
25, 2003. receive a free airline ticket for travel within Europe
 190 Chapter 10 · Loyalty Programs: Design and Effectiveness

a er collecting 20,000 miles – a hard reward. So more to a buyer (at least perceptually) than vouch-
rewards instead are linked to special recognition of ers for the local supermarket, even if they have the
the buyer, which o ers the psychological bene t of same face value. Companies try to di erentiate
being treated in a special way or having special sta- their LPs by highlighting the inspirational or
tus. For example, many frequent travelers with hedonic value of their rewards. For example, the
Silver or Gold status consider their membership in Marriott hotel rewards its loyal customers by
the category something special (o en called the o ering a wide array of cultural events to choose
badge e ect). Of course, the psychological recogni- from. LP members can be rewarded by receiving
tion of loyalty status o en comes with tangible tickets for the top Broadway shows. Mercedes-
bene ts, such as preferred customer service (e.g., Benz’s LP makes it possible to transform points
special service phone number). into a ight in a MIG 29 combat aircra . e
luxury retailer Neiman Marcus catalogs a list of
Product Proposition Support «wow and cool» rewards each year – such as hav-
e rewards from a loyalty program may be linked ing a world-famous photographer visit the cus-
to the company’s product o ering or be entirely tomer’s home to take family pictures.
unrelated. e U.S. bagel franchise Finagle-A-
Bagel operates an LP that allows participants to Rate of Rewards
redeem their accumulated bonus points only for e rate of rewards refers to the ratio of reward value
the rm’s own products – sandwiches and drinks. to transaction volume (both in monetary terms). In
e reward thus directly supports the rm’s prod- other words, it tells you how much a consumer gets
uct proposition. Other LPs allow members to in return for concentrating his or her purchases.
redeem points for products completely unrelated Consumers prefer higher reward rates, but reward
10 to the focal rm’s o ering, such as BP’s program, redemptions are a key cost factor for rms that run
in which users can redeem points earned from LPs. Rate of rewards is one of the, if not the primary,
gasoline-related purchases for merchandise such drivers of LP enrollment and active usage.
as rst-aid kits, co ee mugs, or Barbie dolls.
Tiering of Rewards
Aspirational Value of Reward Rewards follow an asset accumulation response
From time to time, consumers engage in hedonic function, which describes how assets or rewards get
consumption of products that are mainly associ- accumulated as a function of spending behavior.
ated with pleasure and fun. Research in consumer Tiered rewards programs might follow constant,
psychology reveals that consumers prefer hedonic hierarchical, o er-related, or cyclical functions.
goods rather than utilitarian ones when receiving With constant rewards, customers receive endur-
a gi . Consumers indulge more easily in luxury ing, stable incentives (See case 1, . Fig. 10.2), but
consumption when they get «something for noth- hierarchical or graded rewards increase with greater
ing,» as in the case of a gi or LP reward. A free spending levels (case 2). In the case of o er-related
ight to an exotic destination thus might be worth assets, customers receive rewards that are exclusive

Case 1 Case 2
Asset accumulation per

Asset accumulation per

$ spent

$ spent

Cumulative $ spendings Cumulative $ spendings

. Fig. 10.2 Change in cumulative spending for two response functions

10.5 · Design Characteristics of Loyalty Programs
191 10

CRM at Work 10.3 reimbursed for Nordstrom altera- more than $10,000 each year and
Nordstorm’s Rewards Plus tions. thus are exclusively o ered some
Program The second tier, «Level 2» of the very best rewards, includ-
Nordstrom’s Rewards program con- is reserved for members who ing exclusive VIP bene ts: a spa
sists of four tiers whose levels of spend more than $2000 annually. experience or a dining experience
rewards to customers vary accord- These customers receive the same for Level 4 members and a guest.
ing to their annual spending level. rewards as Level 1 members, as Level 4 members and their guests
Regardless of spending levels, well as an invitation to a private also have exclusive access to a pri-
all members with a Nordstrom’s holiday shopping party. vate fall-fashion shopping event.
credit or debit card receive the The third tier, «Level 3» By o ering this di erentiated
benefits of the «Level 1» program: benefits cardholders that spend rewards program, Nordstrom seeks
earn Nordstrom notes, earn more more than $5000 annually with to distribute the greatest rewards
points for purchases during spe- extraordinary experiences twice to its best customers. The rebate
cial bonus point events, get anni- per year. system e ectively pays for itself by
versary sale early access, receive The pinnacle is the «Level 4» generating revenue from customers
personal triple points day(s), be cardholder. These customers spend who carry a balance on their card.

to a particular special o er, such as PAYBACK’s Rewards Based on Speci c Criteria

10-times points coupons that can be used only dur- Rewards can be designed to t certain param-
ing a speci c time period. Finally, cyclical rewards eters, such as the time period, person, catego-
encourage a certain consistency in behavior, such as ries/brands, and distribution channels. When
when LP providers use special occasions such as rewards refer to a speci c time period, retailers
Christmas or the customer’s birthday to express pursue two main goals: generating additional
appreciation in the form of a reward. revenue and increasing sales during weak sales
. Figure 10.2 depicts two di erent response periods. O ering rewards targeted to a speci c
functions. In case 1 on the le , the buyer receives group of card holders, such as customers whose
the same amount of rewards per dollar spent last transaction was long ago, can help to activate
regardless of spending level. In case 2 on the right, «sleeping» customers. Furthermore, some com-
the buyer receives more rewards per dollar spent panies tie rewards to speci c categories, brands,
as his or her spending level increases. e pro- or distribution channels to boost sales in these
gram in case 2 thus is relatively more attractive for areas.
high spenders; many airline programs, as well as
Bloomingdale’s, follow this pattern.

Timing of Rewards 10.5.3 Participation Requirements

e timing of reward redemption is an important
Another important characteristic of LPs are the
design feature. It is more attractive for the rm to
requirements for becoming a member and the
create redemption rules that favor long accumula-
way points get collected.
tion periods, to ensure customer retention over
time. is e ect is also called lock-in. Customers
build up assets over time, which function as Voluntary or Automatic Enrollment
switching costs for them. Customers instead favor When designing a loyalty program, companies
immediate rewards or short accumulation peri- must choose between voluntary and automatic
ods. Managers must determine how long it takes enrollment. With automatic enrollment, the
to accumulate assets for a representative reward, company deliberately enrolls all of its customers
given a certain buying pattern (e.g., average inter- in the LP without di erentiation. Voluntary
purchase time). e timing of rewards should be programs are more common, because they allow
determined by the minimum redemption rules, consumers to self-select if they want to join.
type of reward given, and reward rate. e longer However, automatic enrollment is an appealing
it takes to build up a certain reward level, the option if the company wants to track all con-
greater the breakage, or the amount of rewards sumers’ transaction data (e.g., banks, credit
never redeemed. cards).
 192 Chapter 10 · Loyalty Programs: Design and Effectiveness

function. Paying with a loyalty card can facilitate a

. Table 10.2 Open versus closed loyalty
programs
comfortable purchase process for customers, and
companies bene t as well because it is easier to gen-
Open loyalty program Closed loyalty erate purchase statistics at the individual customer
program level. In the United States, approximately 60% of all
consumers own reward-based credit cards. e rel-
Reach critical numbers Concentrated target
in the loyalty program group due to access
evance of combining rewards with credit cards
faster restrictions o ered by retailers is strongly evidenced by Visa
Claims reward cards, which now make up more
More comprehensive Database mainly holds
than half of all credit cards and about 80% of money
database members with high
interest in the spent on credit (Woolsey & Schulz, 2011).
assortment Retailers o er two types of loyalty cards that
include payment functions. If the transactions
Simpli ed acquisition/ Allows for more
address of potential new e ective communica- aim to debit the customer’s account and credit the
customers and tion due to clearly retailer’s account, the card must involve a banking
customers of competi- de ned member partner (open loop). If instead the transactions do
tors group not actually pay for the purchase but rather grant
Greater e ciency of the Membership the retailer access to an existing customer account
LP due to larger conditions (e.g., fee) (e.g., automatic debit transfer systems), no bank-
customer base limit number of ing partner has to participate. e latter form is
members and called a closed loop.
associated costs

10 Conveys feeling of
exclusivity to program 10.5.5 Sponsorship
members

e sponsorship function refers to supply-side

features that describe the LP owner.
Open Versus Closed Loyalty Programs
Open LPs are accessible to anyone; closed LPs are Single- Versus Multi-Firm LP
deliberately restricted to a particular group of Organizations may establish LPs that include only
users, usually through the requirement of a mem- transactions with their own customers. For exam-
bership fee. Both types of programs o er several ple, BP France accepts only transactions by mem-
advantages, as listed in . Table 10.2. bers made at BP stations in France. In contrast,
members of Tesco’s «ClubCard» accumulate
Automatic or Manual Point points by purchasing from the energy provider
Accumulation E.ON or members of Lu hansa’s «Miles and
Most loyalty programs automatically record points, More» program collect and redeem miles from
once the issued loyalty card is o ered at checkout or purchases at the menswear out tters Ansons’s.
the card number is entered in Internet transactions. Such alliances with partners are a major growth
Some programs such as «My Coke Rewards» or axis in LP design. e advantage of bringing in
the German «Genusspunkte-Programm» (Nescafé partners is the increased attraction of LP mem-
Dolce Gusto Club) instead require online consum- bers, who have additional opportunities to accu-
ers to enter a code that can be found on products. mulate assets. However, the focal company also
Although consumers generally prefer automatic runs the risk that its LP loses meaning if it includes
point accumulations, for companies, a manual sys- too many partners. In this case, customer transac-
tem can be more cost e ective. tions with the focal vendor and asset accumula-
tion may become completely unrelated.

10.5.4 Payment Function Within/Across Sectors

Another supply-side dimension that is speci c to
For some LP providers, it has become common multi- rm LP designs is the degree of cross-sector
practice to endow loyalty cards with a payment partners. at is, do customers accumulate assets
10.6 · Drivers of Loyalty Program E ectiveness
193 10
within the same sector or across di erent sectors? maintenance of a service center, administration of
For example, the Star Alliance includes SAS, the customer database, and (if applicable) inven-
Lu hansa, United Airlines, Varig, and various tory costs for the rewards themselves. Finally,
other airlines, so this LP structure covers the same variable expenses include discounts, rewards,
sector. However, the LP maintained by AOL and sales costs (packaging, shipping), and communi-
American Airlines, with more than 2000 partners, cation, which determine the total cost of a loyalty
spans many industries. program.
Compared with the evaluation of costs, the
Ownership calculation of revenues turns out to be far more
In multi- rm LPs, the ownership dimension di cult. Two sources of revenues (indirect and
reveals who owns the LP in the network. Is it the direct) exist. Assessments of direct revenues (e.g.,
focal rm, a partner rm, or a rm whose sole membership fees, sales of special editions) are
purpose is to manage the LP? An example of the rather straightforward, but indirect revenues,
latter case is Webmiles, an organization that draws which consist of the retention and development of
together a network of partners across many indus- existing customer relationships and the acquisi-
tries, with the sole purpose of LP management. tion of new customers, prove very complex and
di cult to estimate. LPs rewarding customers for
their engagement behavior and resulting revenues
10.5.6 Cost and Revenues of LPs are even harder to allocate.

In an empirical study, Leenheer, Bijmolt, Van

Heerde, and Smidts (2002) show that the costs 10.6 Drivers of Loyalty Program
related to four of the seven loyalty programs they E ectiveness
analyze are higher than the returns generated.
us, any evaluation of the bene ts of LPs must e factors that drive the e ectiveness of a loyalty
consider the various sources of both costs and program can be structured into three main cate-
revenues. gories:
Cost factors include set-up/implementation, 1. LP design characteristics
operating, and variable costs. e implementation 2. Customer characteristics
costs accrue during the phases dedicated to plan- 3. Firm characteristics
ning and introducing a loyalty program (e.g., buy-
ing hard- and so ware, external consultancy, e con guration and interaction of these drivers
personnel training, initial promotions). A er the determine whether an LP achieves its desired
LP has been launched, several expenses persist: objective(s).

CRM at Work 10.4 9.5 million ClubCard customers But in March 2009, Tesco stopped
Tesco’s Green ClubCard Points: now reuse their bags. These Green issuing Green ClubCard points for
Sustainability in Loyalty ClubCard points can be spent the recycled plastic and glass items, due
Programs same way as any other ClubCard to widespread misuse of the system.
Companies reward their custom- points. Then Tesco began to The grocer realized that customers
ers not only for purchasing but reward shoppers with points when were cutting up their plastic bottles
also for not purchasing. What do they recycled their cell phones and inserting the separate pieces in
we mean? Since August 2006, and printer inkjet cartridges. The the machines to get more points. Cur-
Tesco has granted customers one launch of recycling machines at rently recycling machines issue points
ClubCard point for every new car- Tesco stores, which issued the only for aluminum cans. The recycling
rier bag that they do NOT use. This Green ClubCard points to custom- units, installed at more than 40 stores
incentive aims to encourage shop- ers who used them, doubled the across England since their launch
pers to reuse their plastic shop- recycling rates at sites featuring in 2005, take in more than a million
ping bags. As a result, more than the machines. items per week, according to Tesco.
 194 Chapter 10 · Loyalty Programs: Design and Effectiveness

10.6.1 Loyalty Program Design 10.6.2 Customer Characteristics

Characteristics
e key customer characteristic relevant to the
e LP design characteristics, as we have noted, e ectiveness of LPs is the skewness of the cus-
can be classi ed according to their: tomer value distribution (or value heterogeneity).
5 Reward structure is skewness varies greatly across industries. In
5 Participation requirements some industries, the value of individual custom-
5 Payment function ers or accounts is widely similar, whereas in oth-
5 Sponsorship (existence of partner network, ers, these values diverge greatly. For example, in
network externalities) the gasoline industry, the average driver’s monthly
5 Cost and revenues consumption of gasoline varies only moderately.
However, in the nancial services or telecom
us three key questions must be answered to industries, usage patterns and customer pro t-
determine if a LP is e ective: ability are widely varied.
5 From the consumer’s perspective, are rewards How does this skewness determine the e ec-
attainable? tiveness of LPs? If an LP is designed to achieve
5 From the consumer’s perspective, are rewards value alignment, it can succeed best in an envi-
relevant? ronment where customers exhibit high value het-
5 From the rm’s perspective, is the LP design erogeneity. us, a value alignment goal is feasible
aligned with desired goal(s)? in industries such as airlines, hotels, rental cars,
pharmacies, telecom, and nancial services.
e rst question asks how attractive the payo is
10 to the consumer. If the LP does not provide su -
cient value (e.g., timing, rate of rewards), the cus- 10.6.3 Firm Characteristics
tomer cannot justify concentrating purchases,
and no change in behavior will follow. For exam- Factors relevant to LP e ectiveness in terms of
ple, a traveler can redeem miles for a free ight organizational characteristics include the:
a er attaining the minimum mileage necessary. 5 Perishability of a product.
e level at which the airline sets this minimum 5 Breadth and depth of the rm o ering the
mileage determines how many less frequent cus- product at the store/retail level.
tomers enroll in the program.
e second question pertains to whether the at is, the success of LPs depends on the charac-
LP is relevant, regardless of attainability of teristics of the product that the rm sells – and
rewards. It thus considers the degree to which an particularly whether that product is perishable.
accumulation of assets in the program is relevant is point is why LPs are so widespread in the air-
in terms of type of rewards (hard/so , aspira- line and hospitality industries. us a crucial fea-
tional). If a consumer cares little for recognition ture of hotel LPs is that frequent users can get
and only wants hard rewards, an LP program that upgrades to «better» rooms when those o erings
o ers few hard rewards will not be relevant. e are not already taken up by paying customers.
rm then must decide whether it wants to design In terms of the variety of products and brands
its program to align with the desired bene ts of a o ered at the retail level, an e ective LP attains
particular target segment. more opportunities for e ciency pro ts with
Finally, is the LP’s design aligned su ciently greater breadth and depth at the store level, for
with the rm’s goals? For example, if an LP o ers several reasons:
hard rewards and promotions that focus on 5 Buyers are more likely to be able to ful ll
changing short-term behavior, the LP likely will their needs.
have a greater impact on behavioral loyalty and 5 Buyers encounter more opportunities for
less of an in uence on attitudinal loyalty. If e ec- one-stop shopping (which increases time
tiveness pro ts are the declared goal, the LP savings).
instead must be designed to allow the rm to col- 5 Buyers have more opportunities for behav-
lect as much information as possible about the ioral loyalty (through more purchase occa-
customer. sions).
10.6 · Drivers of Loyalty Program E ectiveness
195 10

LP Benefits for
Organization
Demand side: 1. Commitment
Attitudinal positive WOM1
loyalty community, true
loyalty

Demand side:
LP design 2. Efficiency
Behavioral
characteristice profits: Greater
loyalty
SCR2 or retention

3. Effectiveness
Supply sider:
profits: Better value
Customer characteristics Cost of loyalty
proposition through
Market characteristics program
learning
Firm characteristics

4. Value alignment

1WOM = Word of Mouth

2SCR = Share of Category Requirements

. Fig. 10.3 Drivers of e ectiveness

us, LPs generally should be more e ective in e evidence we have seen so far indicates that
terms of behavioral loyalty when the buying envi- LPs that aim to create e ciency pro ts actually
ronment features greater choice. In addition, provide the smallest basis for competitive advan-
there should be opportunities for e ectiveness tage. Once every major rm in the market matches
pro ts with greater breadth and depth of o erings the rst mover, all rms are back to square one,
at the store level, because the latitude of purchases except that every rm now has higher costs.
grants the rm more opportunities for learning Companies investing in LPs denote an average
about customer preferences and cross-selling increase in revenue by 4.4% whereas companies
products. . Figure 10.3 summarizes how the driv- having a lower loyalty focus grow by 5.5% in rev-
ers of LP e ectiveness a ect its outcomes. enue (McKinsey, 2013). us, the key challenge
when pursuing e ciency pro ts is to keep the
costs of the LP under control. For the supermar-
10.6.4 Achieving a Competitive ket industry, which operates on razor-thin mar-
Advantage gins, this is a huge challenge, and perhaps the
reason that most grocery LPs include manufac-
Any rm develops its LP to create competitive turer partners. Without manufacturers’ funding,
advantage, or the ability to operate more pro tably such as promotions and rebates, a supermarket
over a sustained period of time. In a 1999 survey LP could not o er decent or appealing rewards.
conducted by McKinsey & Co. with 1200 custom- Clearly then, organizations must be ingenious to
ers across 16 product categories, the e ect of LPs keep LP costs under control. But still, the value of
varied depending on the industry category. First, a participating in an LP must be greater than the
highly frequented category, like grocery stores, is value of not participating for customers – other-
more likely to attract members to its LP than less wise, there is no reason for customers to be inter-
frequent purchase categories, such as casual apparel ested. e emerging trend from single-vendor
stores. Second, a far larger percentage of customers LPs to partnership and mega-coalition LPs may
admitted to spending more as a result of the LP in contribute to e ciency pro ts by mutual sharing
the grocery stores than in casual apparel stores. of costs across partners (Breugelmans et al., 2015).
 196 Chapter 10 · Loyalty Programs: Design and Effectiveness

In contrast, LPs designed to create e ective- designing and deploying LPs remains challenging
ness pro ts have a good chance of creating com- though. Even with widely available, sophisticated
petitive advantages. E ectiveness pro ts probably technology, we still nd great di erences in rms’
have the greatest appeal to large rms, and the abilities to implement LPs that improve their
continuous developments in IT make information- e ectiveness pro ts. e challenge that companies
based strategies possible and even easy in some face is real-time customer interaction during and
cases. Especially mobile platforms and social before purchase (Breugelmans et al., 2015). is
media play an important role for LPs. In 2017, 450 requires integrated technology platforms with
million mobile payment users are expected gener- new data mining technologies, and higher organi-
ating US$721 billion (Breugelmans et al., 2015). zational collaboration that break down organiza-
Hence, linking LPs with mobile payment options tional silos (Shiliashki, 2013).
provides the opportunity for two-way communi- Finally, the goal of value alignment might
cation and is of one of the major challenges com- yield low-to-medium competitive advantages. In
panies face. e seamless connection of LP certain industries (e.g., airline, hotel), value align-
between o ine and online channels is a necessity ment is a necessary, standard industry practice.
to drive LP members overall customer experience. Little competitive advantage comes from the pro-
However, the implementation seems still chal- gram itself. However, industries such as nancial
lenging for most companies. e capability of services or telecom services can expect to reap
learning from customer behavior through con- competitive advantages if they pursue this goal,
tinuous monitoring, analyzing this information because execution matters, and rms di er in
appropriately, and using newly found insights for their ability to execute such programs.

10
CRM at Work 10.5 Over time, Tesco made more use of its sales data
Tesco: From Price Promotions to Marketing to target bene ts and steer customers into new
E ciency consumption areas. In addition, Tesco established a
The British supermarket chain Tesco successfully segmentation scheme to determine which customers
implemented an LP aimed at achieving e ectiveness it should aim to serve primarily. The LP re ects this
pro ts. In 1997, Tesco was ranked third among grocery segmentation; it o ers speci c cards to students, fami-
retailers in the United Kingdom, operating on a tradi- lies, top customers, and seniors. Within its LP, Tesco
tional model of promotion- and price-based competi- also found ways to provide value for special groups,
tion. Data about customers’ purchase behavior were, such as families with babies. In Tesco’s Baby Club, par-
in principle, available from scanner checkout data, ents can meet, obtain information about infant health
but the data were collected only at the store level, not and food, enroll in courses, and get special rebates on
for individual customers. In February 1995, Tesco had baby-related products. Thus, Tesco tries to align its LP
launched the rst LP in the British supermarket indus- o erings with each member’s needs, as opposed to
try, initially relying mainly on its incentive aspect. In o ering general incentives.
time Tesco realized that it could capture both market Its knowledge about individual customers’ and
share and share-of-category, though some debate segments’ preferences comes from its extensive
continues about whether these gains came from the analyses of the data gathered within the LP. In addi-
expansion of its sales areas, improved service, or its LP. tion, Tesco merges customer transaction information
gleaned from its website with point-of-sale data
U.K. Supermarket Market Share in Percentages (e.g., products, which store, time of the day, basket
size). Thus Tesco can customize its product offerings
1996 2000 2006 2010 and communications based on specific customer
needs, as well as each customer’s economic value.
Tesco 20.9 25.0 30.6 30.8 Tesco’s segmentation is so precise that it sends
80 different versions of its promotion mailings to
Sainsbury 19.0 17.9 16.3 16.1
members and publishes four versions of its ClubCard
ASDA 12.1 14.1 16.6 16.9 magazine.
(Walmart) As a result, Tesco’s loyalty program now displays
few of the incentive scheme characteristics it o ered
Safeway’s 9.5 10.4 11.1 11.6 when the idea started. Today, it is all about increasing
(Morrisons) the e ciency of Tesco’s marketing e orts – which
leads to happier consumers and more pro tability for
Source: TNS Worldpanel; Kantar Worldpanel the grocer.
10.9 · The Seven-Point Checklist for Successful LP Design and Implementation
197 10
10.7 Empirical Evidence on Loyalty such as unbooked hotel rooms or unrented cars.
Program E ectiveness Costly rewards, on top of the razor-thin margins
in the grocery industry, hardly seem sustain-
More and more empirical evidence in markets able in the medium to long run. Surviving LPs
indicates how successful LPs really are in achiev- thus will be those that save companies money by
ing their stated goals. But limited empirical evi- replacing other communication tools, rather than
dence details the success or failure of speci c just draining their resources. Designed properly,
loyalty programs. It is particularly di cult to get an LP can gather data that ultimately improve
unbiased information about the performance of the e ciency and e ectiveness of the marketing
rm-speci c LPs, because proper metrics rarely function.
are in place, and few rms are likely to admit to e LPs that are most likely to provide sus-
their poor performance. Appendix 1 lists a few tainable competitive advantages are those that
studies that have examined LP outcomes, each of leverage data obtained from consumers into more
which covers only selected industries. In addition, e ective marketing decisions, such that they result
the small number of studies limits our ability to in true value creation for customers and thus the
make strong empirical generalizations. However, company. Loyalty is likely to follow in these cases
we can draw a few conclusions from these pub- (Reinartz & Kumar, 2002). Furthermore, rms
lished studies: with admirable levels of true customer loyalty,
5 Published evidence that LPs create attitudinal such as Harley-Davidson, o er no loyalty pro-
loyalty is rare, though rms might have more grams. For them, LPs and being loyal do not go
proprietary information on this point. hand in hand, because true loyalty does not need
5 e evidence regarding the relationship hard incentives; it is based on attitudes.
between loyalty programs and behavioral
loyalty measures, such as share-of-wallet, is
mixed. Some studies attest to a positive e ect 10.9 The Seven-Point Checklist
of LPs on behavioral loyalty (to varying for Successful LP Design
degrees), but other empirical research fails to and Implementation
identify such an impact.
5 ere is very little information on the cost We o er a checklist for developing, designing,
e ciency of LPs. Companies may not have and implementing a successful LP, with seven key
the knowledge themselves, due to a lack of points:
proper accounting or a reluctance to reveal it. 5 Clearly determine your LP’s goals: Is its goal
Individual cases (e.g., Safeway, ASDA) compatible with your marketing strategy and
suggest the great expense of managing LPs. the positioning of your organization in the
5 Using LPs as a value alignment tool seems market?
viable. 5 Align the design of your LP with the
characteristics of your market, your
customer base, and your rm: Knowing the
10.8 Loyalty Programs, Shackle or customer base is important, because seg-
Reward: And to Whom? ments’ preferences for LP bene ts vary. For
example, senior citizens may not value the
Convincing evidence indicates that loyalty pro- long-term accumulation of redeemable points
grams, as they exist today, fall short in terms of as much as immediate price discounts on a
creating attitudinal loyalty. However, the new LP product.
approach to reward customers for their engage- 5 Manage the costs of LPs: LPs are expensive,
ment behavior with the brand may be the rst step so cost management will always be a critical
towards building up attitudinal loyalty. e name component. Consider all the costs involved
LP is a misnomer in that sense. Furthermore, (e.g., opportunity cost of the time of the
programs that focus on incentives, deals, and pro- managers involved). Can these costs be
motions are o en costly for the rm – unless it mitigated by marginal cost rewards or
can o er mainly underutilized, perishable assets, contributions from manufacturers?
 198 Chapter 10 · Loyalty Programs: Design and Effectiveness

5 Measure the predicted bene ts of the LP faults will not only result in losses but haunt
for your organization: Although it is di cult you later, in the form of customer dissatis-
to specify these bene ts accurately, you faction.
should attempt to conduct a trade-o analysis 5 Design the LP to achieve maximum e ec-
between the cost and gains of the LP. Also tiveness in marketing operations: is goal
consider the time horizon (short versus long can be achieved by learning customer
term). preferences and responding to these prefer-
5 Avoid withdrawing an existing LP, which ences with the o ering.
can have negative consequences in the 5 Ensure that your rm has the necessary
form of customer dissatisfaction and capabilities to manage its LP e ectively:
defection: Customers do not like it when ese capabilities include data storage, data
LPs are withdrawn, once they have grown analysis, and empowerment of employees,
accustomed to the bene ts. us, design among others.

Minicase 10.1 never expire, and Starwood does left alone – or at least have control
Loyalty Program Management at not impose any so-called black-out over the kind of information the
Starwood Hotels dates (i.e., dates when custom- company uses. Second, though
Starwood is one of the world’s larg- ers cannot use their points for roughly seven million Starwood
est hotel and leisure companies. redemption). customers are members of the
The company’s services range from Despite these program loyalty program, another six mil-
exclusive hotels, such as the St. advantages compared with major lion customers are not. Thus, the
10 Regis and the Luxury Collection,
to ve-star Sheraton and Westin
competitors, the company is strug-
gling to exploit the full potential of
company has very little knowledge
about nearly half of its customer
hotels, down to the moderately the program and address several base. Third, the company targets
priced Four Points hotel chain. challenges. First, though it col- existing program members with
With approximately 1000 proper- lects information on individual customized o erings and commu-
ties, Starwood functions in most customer behavior (movie watch- nications, but it yet has to gure
major markets worldwide. The ing, minibar use, room service out how much customers are will-
company also operates a customer use, restaurant use), it is not clear ing to be bothered by such com-
loyalty program, «Starwood Pre- how it can use that information. munications. Although Starwood
ferred Guest» (SPG), which allows Some customers like that the wants to maximize its cross-selling
customers to accumulate points company learns about their prefer- and up-selling opportunities, it
for staying and spending with ences, but many others remain recognizes that some customers
Starwood. The program is unique concerned about possible privacy will react negatively if they get too
in the industry, in that its points invasions and simply want to be many o erings.

? Questions on Minicase 10.1 program or nd out more about the

1. How can a large company such as Star- behavior and preferences of this large
wood exploit customer data while still safe- group?
guarding and respecting customer privacy? 3. How far should Starwood push its direct
2. What should Starwood do to attract o erings to its program members? How
loyalty program nonusers into the can it discover the boundary?

Summary ability. Although empirical studies concentrate

The satisfaction-loyalty-pro t chain (SPC) is on aggregate, rm-level results, this chain
based on the idea that improving product and needs to be implemented at a disaggregated
service attributes leads to better customer or individual level.
satisfaction, which then produces greater cus- Improving customer satisfaction comes at
tomer loyalty, which means increased pro t- a cost, and it may not even deliver the antici-
10.9 · The Seven-Point Checklist for Successful LP Design and Implementation
199 10

pated business results. There is an optimum or failure of a loyalty program, whether

satisfaction level for any rm, beyond which contractual or incentive-based, depends on
increasing satisfaction does not pay o . To the pro tability gained from the customers.
nd this level, rms must conduct longitudi- Furthermore, LPs o er an important CRM tool
nal satisfaction studies and nd changes in that marketers can use to identify, award, and
customer satisfaction over time, linking them retain pro table customers.
to improvements in their o ering. By focusing The key objectives of introducing LPs
on customer retention, managers can move include building true (attitudinal and behav-
closer to the ultimate dependent variable: ioral) loyalty, e ciency pro ts, e ectiveness
pro ts. Graphical representations of data pro ts, and value alignment. True loyalty is
reveal that the link between satisfaction and a function of the true value provided to the
retention is asymmetric (i.e., dissatisfaction customers. E ciency pro ts, which are net
has a greater impact on retention than does of LP cost, are the pro ts that result from a
satisfaction). It is also nonlinear, such that the change in customers’ buying behavior due
impact of satisfaction on retention is greater to the LP. The most widely used measure of
at the extremes, with a at part in the middle behavioral loyalty is share of category require-
of the curve called the zone of indi erence. ments or share of wallet, though LPs might
According to a hypothesis proposed not change behavior as much as they reinforce
by Frederick F. Reichheld (2000), long-term existing behavior – at a much higher cost to
customers spend more per period over time, the rm. E ectiveness pro ts are the medium-
cost less to serve, have greater propensity to to long-term consequences realized through
generate word-of- mouth, and pay a premium better learning about customer preferences,
price compared with that paid by short-term which are more likely to generate sustain-
customers. However, Reinartz & Kumar (2002) able competitive advantages and produce
have tested this hypothesis and demonstrated higher pro ts in the long run. Value alignment
that across rms, a segment of customers is aims to match the cost to serve a particular
loyal but not very pro table (because they customer with the value he or she provides
use up excessive rm resources), and another the rm. It becomes particularly critical when
segment generates very high pro ts despite there is great heterogeneity in customers’
its short tenure with the rm. Considering value and costs to serve. Across these goals,
that these short-term customers can be very LPs may not be truly e ective in helping rms
pro table, loyalty cannot be the only path to engender greater customer loyalty and higher
pro tability. This nding points to the impor- pro ts, considering the costs and special chal-
tance of remembering the ultimate end of the lenges posed by managing an LP. Most com-
satisfaction–pro t chain: Customer pro ts ulti- panies need to revisit their business model,
mately are required to demonstrate the value not only to re ect on the impact of LPs on
of good marketing decisions. their bottom line but also to determine how
The ndings also suggest the need to customer service initiatives add value to future
understand di erent forms of loyalty. Behav- revenue streams.
ioral loyalty refers to observed actions by From customers’ perspective, rewards are
customers; attitudinal loyalty entails their per- the key design bene t of LPs. Hard rewards
ceptions and attitudes. Customers who are not o er price reductions, promotions, free
attitudinally loyal are likely to end the relation- products, or preferred treatment, whereas
ship at the earliest available opportunity, but a soft rewards provide psychological recogni-
loyalty program aims to keep them by o ering tion. Regardless of their type, rewards can be
rewards to customers for their repeat pur- directly or indirectly linked to the company’s
chasing. In exchange for concentrating their product o ering. Consumers also prefer
purchases with the focal rm, customers can hedonic goods over utilitarian goods when
accumulate assets (e.g., points) and exchange receiving a gift, so companies work to dif-
them for products or services. The success ferentiate their LPs on the basis of their inspi-
 200 Chapter 10 · Loyalty Programs: Design and Effectiveness

rational or hedonic value. The rate of rewards bottom line, which reduces the economic
(i.e., ratio of reward value to transaction viability of an LP. Greater breadth and depth of
volume) is a key driver of LP enrollment and o erings at the store level means the latitude
use; it depends on the chosen asset accumula- of purchases allows the rm more opportuni-
tion response function. For example, a tiered ties for learning customer preferences and
structure o ers di erent levels of rewards and cross-selling products.
privileges to customers in di ering tiers. The No published evidence shows that LPs
timing of reward redemption instead is deter- create attitudinal loyalty, though there is evi-
mined by the minimum redemption rules, dence of an impact of LPs on behavioral loy-
type of reward, and reward rate. alty. Moreover, we nd very little information
Sponsorship refers to supply-side features, about the cost e ciency of LPs, though using
such as the introduction of partners – a grow- LPs as a value alignment tool seems viable.
ing trend in LP designs. If LP members can A rm develops an LP to create a competitive
accumulate assets at organizations associated advantage and operate more pro tably over a
with the focal rm, the design also must con- sustained period of time. Thus a key challenge is
sider the degree of cross-sector partnerships. keeping the costs of managing the LP under
Do customers want to accumulate assets control. The LPs designed to create e ectiveness
within the same sector, or across divergent, pro ts have the highest chance of creating
di erent sectors? competitive advantage; the e ectiveness pro t
These design factors drive the e ective- goal thus has great appeal for most (large) rms.
ness of an LP, together with customer and rm Value alignment instead should yield low to
10 characteristics. The con guration and interac- medium competitive advantages. It may be
tion of these drivers determine whether an LP necessary in certain industries such as the airline
achieves its desired objective(s). This e ective- or hotel industry, where value alignment has
ness thus depends on the attractiveness of become a standard industry practice. However,
the LP from the consumer’s perspective, the industries such as nancial services or telecom
degree to which asset accumulation is relevant can expect to reap competitive advantage when
to the consumer, and whether the LP design pursuing this goal since execution matters and
aligns with the rm’s goals. It also re ects the rms di er in their ability to execute the
skewness of customer value distribution (value programs well.
heterogeneity). Finally, on the organizational Loyalty programs, as they exist today, appear
level, the perishability of the product and the to be falling short in terms of creating attitudinal
breadth and depth of the rm o ering in u- loyalty. Instead, perhaps LP managers need to
ence LP e ectiveness. When a rm cannot emphasize its promise as a method to gather
capitalize on the perishability of its products, data to improve the e ciency and e ectiveness
the reward expenses come directly from its of the marketing function.

? International Perspectives: Did You dynamic. Topaz, Ireland’s largest fuel

Know? provider, introduces gami cation to their
1. Loyalty programs, in order to stay attrac- loyalty program, called «Play or Park». The
tive in the future, need to be joyful, loyalty game, allows customers to col-
bene ciary and easy-to-use, while o er- lect points for their refuel or purchase at
ing relevant, personalized and instant Topaz stores. Customers can «play» a spe-
rewards (CaptainUp, 2016). The next ci c amount of points to win a fantastic
generation of loyalty programs aims at experience of a lifetime, which changes
integrating gami cation elements into every month. Or customers can «park»
the reward structure. Loyalty programs their LP points to wait for a better chance
need to move away from static rewards next months. Every time playing custom-
towards incentives that are smarter and ers are guaranteed getting a free Topaz
Appendix 1: Key Studies of LPs with Notable Empirical Findings
201 10
treat, which is independent of winning ? Exercise Questions
the lifetime experience. 1. Explain the di erence between behav-
2. In order to facilitate customers’ LP reward ioral and attitudinal loyalty. Provide an
management for multiple providers and to example of each.
ensure customer engagement in reward 2. What are the key objectives of loyalty
redemption, sophisticated interaction programs? Which of these objectives
across LPs is required. Amongst other provide the strongest competitive advan-
suppliers, IBM and Loyyal are building a tages?
loyalty network in the internet by the use 3. You are a consultant to a credit card orga-
of blockchain providing high transaction nization that wants to establish a loyalty
standard (Harvard Business Review, 2015). program. The CEO has just read about
The underlying idea of a blockchain- how most loyalty programs result in
based network is to trade rewards across money-losing propositions. How do you
programs, vendors, and industries and alleviate the CEO’s concerns?
thus, should serve three major features: 4. Do companies pro t by introducing
(1) Providing loyalty network platform, loyalty programs? Is the success of a com-
(2) enabling rewards applications (3) pany’s loyalty program dependent on its
transforming the value of rewards into industry category?
loyalty tokens. A loyalty network platform 5. How can you measure loyalty? How does
facilitates the conversion and exchange loyalty relate to the pro tability of a com-
of loyalty points across industries and pany?
LP network participants. The application 6. Would low-ticket items (coffee, candy,
of reward is based on a digital loyalty sodas) benefit from loyalty programs?
reward wallet, which stores value for the What kind of incentives might work
collected LP points in the form of loyalty best?
tokens (digital currency), which assure 7. Design a loyalty program for your
loyalty transaction either in form of issu- neighborhood gas station. Describe the
ance, redemption, or exchange across the incentives. Determine the cost structure.
network. A blockchain-based network Set benchmarks, and evaluate the pro t-
creates value for customer and companies ability of the program across possible
in multiple ways, i.e. increasing customer scenarios.
experience, facilitating multiple reward 8. What are the ethical issues that surround
membership management by a single wal- loyalty programs? Should the gaming
let platform and providing more insights industry be allowed to use loyalty instru-
in consumer behavior (Deloitte, 2016). ments for example?

Appendix 1: Key Studies of LPs with Notable Empirical Findings

Year Authors Data source Industry Findings

2016 Steinho & – Cross-sector LP can have negative e ects on bystander

Palmatier customers, observing other’s preferential
treatment.

LP e ectiveness is in uenced by reward delivery

(rule clarity, reward exclusivity, reward visibility).

2016 Wang et al. Major hotel Service LP goal attainment positively impacts post-
chain industry promotion purchases, whereas goal failure
signi cantly reduces post-purchases.

2014 Dorotic – – Redemption of LP rewards positively impacts LP

et al. members’ behavior before and after redeeming a
reward.
 202 Chapter 10 · Loyalty Programs: Design and Effectiveness

Year Authors Data source Industry Findings

2012 Kopalle Major hotel Service LP design characteristics (frequency of rewards

et al. chain industry and customer tier component) generate
incremental sales without cannibalizing each
other.

2009 Liu & Yang – Airline Only high-share rms experienced sales lifts from
industry their loyalty programs.

Because high-share rms tend to possess

complementary product and customer resources,
they are more likely to gain from their loyalty
programs than rms with a smaller market share.

2008 Demoulin & – Grocery Customers satis ed with the rewards of LPs are
Zidda industry more loyal to the store and allocate a higher
proportion of their budget and patronage
frequency to the store than unsatis ed
customers.

2008 Bridson Health and Retailing LP was a signi cant predictor of store loyalty, in
et al. beauty support of the contention that loyalty programs
provider are capable of engendering loyalty.

2007 Meyer- Supermarkets Retailing LP have a positive e ect on customer lifetime

Waarden and and share of customer expenditures at the store
hypermarkets level.
10 2007 Hennig- — Experimen- Restaurant LP can lead to counter-productive results by
Thurau & tal setting decreasing customer retention.
Paul

2007 Liu Convenience Retailing Positive in uence of LP on consumers’ purchase

store chain frequency and transaction size holds only for
light and moderate buyers.

2007 Leenheer Albert Heijn, Dutch Small, positive, yet signi cant e ect of loyalty
et al. super de Boer, supermarket program membership on share-of-wallet.
Edah, Integro, industry
Konmar, In terms of pro tability, each program generates
COOP, Jan more additional revenues than additional costs in
Linders terms of saving and discount rewards.

2006 Kivetz et al. – Co ee and LP induces purchase acceleration through the

music on progress toward a goal.
internet

2006 Gómez Spanish Grocery LP members are more behavioral and a ectively
et al. supermarket loyal than other participants.
chain Few customers change purchase behavior after
joining the program.

2005 Taylor & – U. S. grocery LP increases sales through «point pressure»

Neslin (short-term) and «rewarded behaviors»
(long-term).

2004 Lewis Online vendor Grocery and LP are successful in increasing repeat-purchase
drugstore rates.
items
Appendix 1: Key Studies of LPs with Notable Empirical Findings
203 10

Year Authors Data source Industry Findings

2003 Reinartz & – Grocery Being a LP member does not modify purchase
Kumar industry in behavior.
France
Events and promotions associated with LP seem
to have clear e ects on purchase behavior (e.g.,
purchase acceleration).

The e ects of LP are mostly short rather than

long term. Thus, they seem to work as
promotional tools rather than a means to
induce loyalty.

2003 Verhoef Dutch Financial LP that provide economic bene t have a positive
nancial services e ect on customer retention and customer share
services development.
company

2003 Mägi 35 grocery Retailing Loyalty cards have mixed e ects on consumer
stores (four behavior (share of purchase and share of visits).
chains and a
few indepen-
dent stores)

2001 Rajiv U.S. direct General LP membership is associated with the longer
marketing merchandise duration of customer– rm relationships.
rm
No information on cost-e ciency.

2001 Meyer- – U.S. grocery LP is operationalized as a shocker program (e.g.

Waarden & industry turkey bucks), not a traditional long-term card
Benavent program, so it can better be described as a long
promotion.

There is signi cant increase in spending (market

basket).

LPs seem to a ect «cherry-pickers» most.

Program is pro table.

2000 Bolton et al. Six partner General retail LP has hardly any e ect on repeat purchase
companies patterns (behavioral loyalty).
of the FlyBuy
program in
Australia

2000 Deighton & Credit card Credit cards LP members are more likely to overlook negative
Shoemaker rms (single experiences with the focal company.
rms) in three
European LP members have higher usage levels and higher
countries retention.

2000 Crié et al. Single rm Hospitality 20% of member stays are because of LP.
Strategy of using LP as a value alignment tool is
successful.

LP is pro table.
 204 Chapter 10 · Loyalty Programs: Design and Effectiveness

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