An overview of customer loyalty programs- measuring the effectiveness of customer loyalty programs

Customer Loyalty ( or Customer Reward ) programs have been increasingly used in recent years as a marketing tool to increase profits through customer acquisition and increased purchase size or frequency, or, in a defensive mode, to limit customer defection and lost market share. There is increasing evidence of worldwide patterns of brand promiscuity. Marketers are turning to loyalty programs to 'tie' consumers to a brand, and to acquire consumers from competitors. Loyalty programs are widely used by airlines, cruise companies, credit card issuers, newspapers, petrol stations, supermarkets, and many other retailers, with varying degrees of sophistication and effectiveness, and indeed for different reasons. This study examines the limited literature covering 'loyalty marketing' and considers a number of measurement systems used to evaluate the outcomes of loyalty programs. The primary aim is to investigate these programs in terms of marketing effectiveness. The scene is set by discussing definitions of loyalty programs, the types of programs in operation, their nature and uses, consumer and operator motives for participation, considerations for program design and operation, and the arguments for the use of loyalty marketing instead of sales promotions and advertising. There have been few controlled experiments where loyalty programs might have been tested in one area and the results compared to normal patterns. The sizeable investment in research, promotion, collateral and systems necessary to launch and run these programs may be a factor militating against such testing. This action might reveal plans to competitors, prompting retaliatory action. The point is also made that it is very difficult to attribute outcomes solely to loyalty programs. Conventional advertising and other allied activities, and competitors' programs, are unlikely to cease for the duration of a loyalty program, and other variables, which are outlined in this paper, may also affect outcomes. Nevertheless, it is concluded that these programs, despite strong differences of opinion as to effectiveness, show enough merit to be considered a legitimate part of the marketing mix. Loyalty programs are arguably most effective in mature markets, where product differentiation is difficult to achieve through broad-brush advertising and sales promotion efforts. This paper examines the Sharp study into the effectiveness of the Fly Buys program. It is suggested that the results of a similar but larger on-going survey, interviewing both member and non-members of loyalty programs as to purchasing intentions would be of value, but would need to be combined with more tangible measures such as increased spend, attrition and acquisition statistics, to form a truer picture of program effectiveness.