Do VIP programs always work well? The moderating role of loyalty

Abstract

Recent years have witnessed a steep increase in company investments in customer relationship management (CRM) strategies. This is reflective of the corporate need to identify potentially profitable customers, acquire and retain them, and, in the long run, continuously increase their lifetime value to the company. While numerous types of CRM programs are being deployed by companies, loyalty (or VIP) programs, which are marketing programs that provide "special" treatment to loyal (VIP) customers, have been among the most frequently used forms of CRM efforts in many industries. Despite such interest in CRM from the field however, recent research results on the effects of VIP programs have been somewhat mixed. Some studies have found a positive influence on consumer behavior (Berry, 1995;De Wulf & Odekerken-Schröder, 2003), whereas others report no significant impact (De Wulf, Odekerken-Schröder, & Iacobucci, 2001;Sharp & Sharp, 1997).The motivation of this research is to provide a possible explanation for such contradictory evidence in the literature. Specifically, the paper points out that most studies to date have overlooked the possibility that the impact of VIP programs can be moderated by important variables such as the loyalty traits of their customers. The purpose here is to fill this gap. Additionally, while most past research has studied the impact of mileage or reward programs that are offered to all customers, this study looks at the impact of loyalty programs that focus only on loyal or VIP customers. At a time when companies are attempting to concentrate more on their loyal customers while de-marketing their marginal ones, identifying the factors that must be considered in more clearly delineating the effects of loyalty programs will have both academic and managerial significance.This paper is organized as follows. The next section presents the theoretical background and the hypotheses; the following section describes the model and the data used to test those hypotheses. We then present the results of the analysis and derive the net effect of the VIP program. The final section provides some discussion and conclusions from the results, followed by a brief discussion on issues for future research. THEORETICAL BACKGROUND AND HYPOTHESESThe fact that VIP programs offered to a select group of valuable customers will generally exert a positive influence on those customers' buying behaviors can be explained from at least two perspectives. The first is basic economic utility theory (Lancaster, 1971;Dodson, Tybout, & Sternthal, 1978;Blattberg & Neslin, 1990;DelVecchio, 2005;Graham, 1994). VIP programs provide rewards such as lower prices, gifts, and mileage points that enhance the value and utility of a product or service. This in turn increases the likelihood of current and future purchases.A second explanation can be drawn from equity theory (Huppertz, Arenson, & Evans, 1978). Customers compare their purchase input (e.g., price paid, time, effort, opportunity cost, and so on) with the transaction output...

Loyalty Programmes: Current Knowledge and Research Directions*

“…2009). Psychological barriers are hard to quantify, but their effects drive attitudinal and behavioural responses, particularly in the long run (Hallberg 2004; Kim et al . 2009; Steyn et al .…”

“…Likewise, sales increased – although on a comparatively smaller scale – as a result of the continuous LPs employed by on‐line and off‐line retailers (Leenheer et al . 2007; Lewis 2004; Liu 2007; Meyer‐Waarden 2007), department stores (Kim et al . 2009; Lacey 2009), financial services (Verhoef 2003) and airlines (Kopalle et al .…”

“…2007) and an insurance company (Verhoef 2003). Attitudinal loyalty and the perceived attractiveness of the LP help amplify this effect (Demoulin and Zidda 2008; Kim et al . 2009; Wirtz et al .…”

“…The effects of LPs also differ across customer segments; their impact is strongest among light and moderate buyers, whether in the short term (Lal and Bell 2003; Taylor and Neslin 2003) or continuously (Kim et al . 2009; Liu 2007).…”

“…2005; Wendlandt and Schrader 2007). Enrolment in some LPs requires an invitation or the achievement of qualifying criteria, whereas other LPs allow open access (Kim et al . 2009; Lacey et al .…”