Brand Loyalty Programs: Are They Shams?

Abstract

Brand loyalty and the more modern topics of computing customer lifetime value and structuring loyalty programs remain the focal point for a remarkable number of research articles. At first, this research appears consistent with firm practices. However, close scrutiny reveals disaffirming evidence. Many current so-called loyalty programs appear unrelated to the cultivation of customer brand loyalty and the creation of customer assets. True investments are up-front expenditures that produce much greater future returns. In contrast, many so-called loyalty programs are shams because they produce liabilities (e.g., promises of future rewards or deferred rebates) rather than assets. These programs produce short-term revenue from customers while producing substantial future obligations to those customers. Rather than showing trust by committing to the customer, the firm asks the customer to trust the firm—that is, trust that future rewards are indeed forthcoming. The entire idea is antithetical to the concept of a customer asset. Many modern loyalty programs resemble old-fashioned trading stamps or deferred rebates that promise future benefits for current patronage. A true loyalty program invests in the customer (e.g., provides free up-front training, allows familiarization or customization) with the expectation of greater future revenue. Alternative motives for extant programs are discussed.so-called loyalty programs, reward programs, customer assets, customer liabilities, deferred rebates, customer lifetime value

Customer–company identification and the effectiveness of loyalty programs

“…In Canada, 92% of consumers enroll in at least one loyalty program, with an average of 6.4 cards each (Maritz, 2012) and in Brazil, 33% of upper-and middle-income consumers (approximately 20 million) maintain loyalty program memberships (Hlavinka & Sullivan, 2012). Despite the popularity of loyalty programs, their effectiveness may be questionable in terms of profitability (e.g., see Gandomi & Zolfaghari, 2013;Shugan, 2005) and enhancing customer loyalty (e.g., Leenheer, van Heerde, Bijmolt, & Smidts, 2007;O'Brien & Jones, 1995;Wagner, Hennig-Thurau, & Rudolph, 2009). …”

Do Customer Loyalty Programs Really Work in Airlines Business?—A Study on Air Berlin

“…If the consumer views a particular loyalty reward program to be more attractive than competing programs, it seems reasonable to assume that s/he is more likely to participate in that program, even if that customer is a member of several loyalty reward programs. Most reward systems are based on volume (e.g., your 10th sandwich is free), thus inducing heavy users to remain loyal to the company [30]. To maintain the customer loyalty, top bonus program is a specific program adopted by Air Berlin.…”

Celebrity Endorsement and Customer Loyalty in the Telecommunications Industry in Port Harcourt

“…the implementation of loyalty programs and other marketing policies that will encourage and lure customers to try out the product can lead to brand loyalty overtime (Bolton, Kannan and Bramlett, 2000). A true customer is one who is brand loyal and can stay with the company for profitably longer period of time, being an enduring asset and not a looming liability (Shugan, 2005).…”