Three Perspectives for Making Loyalty Programs More Effective

Abstract

Loyalty programs are an ubiquitous instrument of customer relationship management. However, many loyalty programs perform poorly, which ultimately results in their abolition. Among both marketing managers and researchers, reasons for loyalty program failure are far from clear. The aim of this research is to enhance our understanding of loyalty program effectiveness. We propose a broadened framework for analyzing loyalty program performance which relies on three perspectives: a customer portfolio perspective, a reward elements perspective, and a reward delivery perspective. Further on, we identify three psychological mechanisms, i.e. customer gratitude, customer status, and customer unfairness as the positive and negative forces mediating loyalty programs' impact on performance outcomes. We validate our framework in two experimental studies and one field study.