This action might not be possible to undo. Are you sure you want to continue?
Customer loyalty and customer loyalty programs
Mark D. Uncles
Professor of Marketing, School of Marketing, University of New South Wales, Sydney, Australia
Grahame R. Dowling Kathy Hammond
Professor of Marketing, Australian Graduate School of Management, University of New South Wales, Sydney, Australia Assistant Professor of Marketing, London Business School, London, UK
Keywords Relationship marketing, Customer loyalty, Consumer behaviour Abstract Customer loyalty presents a paradox. Many see it as primarily an attitudebased phenomenon that can be influenced significantly by customer relationship management initiatives such as the increasingly popular loyalty and affinity programs. However, empirical research shows that loyalty in competitive repeat-purchase markets is shaped more by the passive acceptance of brands than by strongly-held attitudes about them. From this perspective, the demand-enhancing potential of loyalty programs is more limited than might be hoped. Reviews three different perspectives on loyalty, and relates these to a framework for understanding customer loyalty that encompasses customer brand commitment, customer brand acceptance and customer brand buying. Uses this framework to analyze the demand-side potential of loyalty programs. Discusses where these programs might work and where they are unlikely to succeed on any large scale. Provides a checklist for marketers.
New generation of CRM tactics created
1. Introduction The past decade has seen many firms (re)adopt a customer focus ± often through a formal program of customer relationship management (CRM) (e.g. Brown, 2000; Kalakota and Robinson, 1999; Peppers and Rogers, 1997). Recent advances in information technology have provided the tools for marketing managers to create a new generation of CRM tactics. One such tactic that thousands of firms have considered, and which many have adopted, is to establish a customer loyalty program. Examples of these schemes can be found in Japanese retailing, US airlines and hotels, French banks, UK grocery stores, German car companies, Australian telecommunications, Italian fashion stores, US universities, and many other areas. Typically these programs offer financial and relationship rewards to customers, and in some instances benefits also accrue to third-parties such as charities. Two aims of customer loyalty programs stand out. One is to increase sales revenues by raising purchase/usage levels, and/or increasing the range of products bought from the supplier. A second aim is more defensive ± by building a closer bond between the brand and current customers it is hoped to
The authors would like to thank Jack Cadeaux, Robert East, Jennifer Harris, Byron Sharp and Chris Styles for their constructive suggestions. Also, all those who commented on earlier drafts of this paper at workshops organized by the Marketing Science Institute, University of New South Wales and University of Melbourne. The assistance of an Australian Research Council (Small Grant) is acknowledged.
The Emerald Research Register for this journal is available at http://www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0736-3761.htm
JOURNAL OF CONSUMER MARKETING, VOL. 20 NO. 4 2003, pp. 294-316, # MCB UP LIMITED, 0736-3761, DOI 10.1108/07363760310483676
maintain the current customer base. The popularity of these programs is based on the argument that profits can be increased significantly by achieving either of these aims. While loyalty programs can have many other peripheral goals ± such as furthering cross-selling, creating databases, aiding trade relations, assisting brand PR, establishing alliances, etc. ± we do not assess these goals in this paper. But, how effective are these programs in enhancing the number, the loyalty, and/or the sales from customers? Are they likely to be profitable when fully costed? To answer these questions we first discuss what is meant by the term ``customer loyalty''. A review of the literature reveals that this task is not straightforward ± generally people have in mind one of three different models (section 2). We consider whether these models are based on competing or complementary theories (section 3). This provides a platform for thinking about a loyalty continuum (section 4). We show that it is crucial to define and understand customer loyalty if the demand-side benefits of loyalty programs are to be properly evaluated. Next, drawing on these conceptualizations, we review the goals, successes and failings of loyalty programs (section 5). We show that, at one extreme are programs for niche products that presume customers are committed to ``a favorite brand''. At the other extreme there are promotional programs that cater to the divided loyalty of their customers. In between, and widely represented across many different products and services, are loyalty programs that are best described as ``for the brands people already buy''. Future prospects are discussed briefly (section 6). Direct competition between branded products and services The focus of this paper is on established repeat-purchase markets where there is direct competition between branded products and services. These markets include most packaged goods, personal services such as banking and travel agents, food and beverages, hotels, transport, retail, OTC pharmaceuticals, basic cosmetics, and media. They are hugely important in terms of the share of disposable consumer income for which they account, and they have been the focus of much research. 2. Customer loyalty At a very general level, loyalty is something that consumers may exhibit to brands, services, stores, product categories (e.g. cigarettes), and activities (e.g. swimming). Here, we use the term customer loyalty as opposed to brand loyalty; this is to emphasize that loyalty is a feature of people, rather than something inherent in brands. Popular conceptualizations Unfortunately, there is no universally agreed definition (Jacoby and Chestnut, 1978; Dick and Basu, 1994; Oliver, 1999). Instead, there are three popular conceptualizations: (1) loyalty as primarily an attitude that sometimes leads to a relationship with the brand (Model 1); (2) loyalty mainly expressed in terms of revealed behavior (i.e. the pattern of past purchases) (Model 2); and (3) buying moderated by the individual's characteristics, circumstances, and/or the purchase situation (Model 3) (see Figure 1). Loyalty as primarily an attitude that sometimes leads to a relationship with the brand (Model 1) Many researchers and consultants argue that there must be strong ``attitudinal commitment'' to a brand for true loyalty to exist (Day, 1969;
JOURNAL OF CONSUMER MARKETING, VOL. 20 NO. 4 2003 295
thereby causing repetitive same-brand or same brand-set purchasing despite situational influences and marketing efforts having the potential to cause switching behavior. who sees loyalty as a committed and affect-laden partnership between consumers and brands. 1998). 1998. Aaker.g. 4 2003 . Foxall and Goldsmith. 1978. 1996. 1994. The approach also appeals to many practitioners in advertising and brand management because it is empathetic with the search for strategies to enhance the strength of consumers' attitudes towards a brand. Examples in support of this argument include Skoal smokeless tobacco among some North American cowboys. and where consumption is associated with community membership or identity. the revenue-stream from loyal customers becomes more predictable and can become considerable over time ± as analyses of cases such as Federal Express. feel committed to it. Pizza Hut franchises. Conceptualizations of customer loyalty Jacoby and Chestnut.Figure 1. (1999) have shown that attitudinally-loyal customers are much less susceptible to negative information about the brand than non-loyal customers. It is a partnership that will be even stronger when supported by other members of a household or buying group. 1994). there is some evidence to suggest it is a profitable strategy.. will recommend it to others. 296 JOURNAL OF CONSUMER MARKETING. 20 NO. where loyalty to a brand is increased. 392) has in mind when he defines customer loyalty as: A deeply held commitment to rebuy or repatronize a preferred product/service consistently in the future. 1999). Where brand loyalty increases revenue streams become more predictable In the fields of advertising and brand equity research this model receives much conceptual support (e. Also. 1996. Reichheld. 1996). An extension of the ``attitudes define loyalty'' perspective is to suggest that consumers form relationships with some of their brands. Moreover. This is what Oliver (1997. The strength of these attitudes is the key predictor of a brand's purchase and repeat patronage. and have positive beliefs and feelings about it ± relative to competing brands (Dick and Basu. De Chernatony and McDonald. Keller. This is seen as taking the form of a consistently favorable set of stated beliefs towards the brand purchased. p. VOL. and Cadillac dealerships have shown (Gremler and Brown. Mellens et al. A good example of this perspective is provided by Fournier (1998). These attitudes may be measured by asking how much people say they like the brand. Ahluwalia et al.
2002). Model 2 is arguably the most controversial but the best supported by data. loyalty is inferred to operate in the following manner. 2002). penetration. than for important or risky decisions (Dabholkar.. But. However. controversy persists. repeat-buying ± for a defined period). Loyalty mainly expressed in terms of revealed behavior (Model 2) Paradoxically. Given these descriptions. The examples above are isolated cases. East. loyal to a portfolio of brands in a product category). 2002). 1999).. a brand that provides a satisfactory experience is chosen. They are thought to be less applicable for understanding the buying of low-risk. All these studies are grounded in considerable amounts of market research data and analysis. these conceptualizations of loyalty are not without their critics (e. and the classic case of Harley-Davidson bikers (Schouten and McAlexander. 1997.e. 20 NO.g. Dowling. Little systematic empirical research Despite the psychological and sociological richness of the ``attitudes drive behavior'' and ``relationship'' approaches to understanding customer loyalty.. 1996. 1988. frequently-purchased brands. key performance measures are brand shares. rather than the profit impacts that have been achieved. 1988.loyalty to particular European soccer teams (Arnould et al. loyalty is defined as ``an ongoing propensity to buy the brand. 1970). Ehrenberg et al. Massy et al. From this perspective. most people are ``polygamous'' (i. Loyalty to the brand (measured by repeat purchase) is the result of repeated satisfaction that in turn leads to weak commitment. Researchers have gathered impressive amounts of data about these purchase patterns over many years ± across dozens of product categories and for many diverse countries (Uncles et al. as Oliver (1999) has noted. Ehrenberg et al. over repeated purchases a weak commitment to the (limited) number of brands bought in a product category can form. there is little systematic empirical research to corroborate or refute this perspective of customer loyalty. 1999). then another functionally similar (or substitutable) brand (from the portfolio) will be purchased (e. Those who subscribe to the ``attitudes drive behavior'' and ``relationship'' approaches expressly rule-out revealed behavior as a dominant measure of loyalty.. Researchers tend to adopt a market focus These researchers tend to adopt a market focus as opposed to an individual focus (e. If the usual brand is out of stock or unavailable for some reason. 4 2003 . There is little reason to spend much effort weighing up the alternatives when all are likely to be satisfactory. Stochastic modeling techniques describe the observed patterns of customer buying. may merely reflect happenstance. 1994).. they argue. VOL. not because of any strongly-held prior attitude or deeply-held commitment. The controversy comes about because loyalty in this model is defined mainly with reference to the pattern of past purchases with only secondary regard to underlying consumer motivations or commitment to the brand (Ehrenberg. Kahn et al. They have found that few consumers are ``monogamous'' (100 percent loyal) or ``promiscuous'' (no loyalty to any brand). 2000). despite the weight of empirical evidence. Rather. That. average purchase frequencies. Fader and Hardie. The consumer buys the same brand again. usually as one of several'' (Ehrenberg and Scriven. Also. the Beanie Babies craze (Morris and Martin. 1995). but because it is not worth the time and trouble to search for an alternative.g. Even combined measures of revealed behavior and 297 Uncertainty about true loyalty JOURNAL OF CONSUMER MARKETING.. 1997. Jeep brandfests (McAlexander et al. 2003).. or when impulse buying or variety seeking is undertaken. Through trial and error.g. often cited as illustrative of the revenueeffects that might be achieved.
1999). Buying moderated by the individual's characteristics. A three-factor model emerges. 1974. Here it is repeated satisfaction and weak commitment that together with other relevant contingency variables co-determine future brand choices. The difference between this contingency perspective and the attitude perspective is that the contingency variables are elevated from the status of loyalty inhibitors in Model 1 to loyalty co-determinants in Model 3. intentions and the actual purchase behavior). 1999) definition cited earlier. their characteristics. VOL. 2002. 1998). Individual characteristics are reflected in the desire for variety. attributes of the individual and the purchase situation are conceptualized as ``nuisance'' variables that inhibit the natural evolution of customer loyalty. in Oliver's (1997. a strong attitude towards a brand may provide only a weak prediction of whether or not the brand will be bought on the next purchase occasion because any number of factors may co-determine which brand(s) are deemed to be desirable (Belk.. White and Schneider. circumstances. gift. and time pressure (e. Moving customers up a ``loyalty ladder'' through image-based or persuasive advertising and personal service (recovery) programs are frequently used tactics (Brown. 3. and consequences (up-dated attitudes. 4 2003 A three-factor model emerges . personal use. etc. 298 JOURNAL OF CONSUMER MARKETING.satisfaction may not probe deeply enough for us to be sure there is true loyalty (Arnould et al. and/or the purchase situation (Model 3) Proponents of Model 3. This is even more evident where attitudes are weakly held. the desired brand is too expensive). Competing or complementary theories of customer loyalty? Depending on the model one adopts. For example.g. This way of thinking has become commonplace in communications. 1975. promotions/deals. Blackwell et al. the particular use occasion (e. Loyalty programs are also designed to strengthen commitment and create velvet handcuffs to bond the customer to the brand. the implications for practice can be significantly different. For example. 1999. etc. habit. the contingency approach. branding and CRM textbooks. 20 NO.g. is it possible to combine these three approaches to develop a more unified concept of customer loyalty and therefore to provide a more complete guide for program management? These questions are addressed in sections 3 and 4 respectively. the need to conform. contingency factors (including type of use occasion and the purchase situation). Unified concept of customer loyalty Figure 1 poses two questions about customer loyalty.g. Individual circumstances include budget effects (e. First. do the three models suggest different courses of action for marketing managers ± especially in the context of developing and using customer loyalty programs? Second. based on antecedents (including weak prior attitudes and characteristics of the consumer).. Oliver. family use). and/or the purchase situation faced. 2000. argue that the best conceptualization of loyalty is to allow the relationship between attitude and behavior to be moderated by contingency variables such as the individual's current circumstances. the need to buy any brand in the category at the next available opportunity). the tolerance for risk. advocates of the attitude approach (Model 1) aim to increase sales by enhancing beliefs about the brand and strengthening the emotional commitment of customers to their brand. Fazio and Zanna 1981). whereas in the contingency model these variables are seen as playing a primary and inescapable role in explaining the observed patterns of purchase behavior. That is. Purchase situation effects include product availability.
Consumers have split-loyalty portfolios of habitually-bought brands Alternatively. extending opening hours. a loyalty program might be launched for mainly defensive purposes.g. 299 Loyalty patterns profile customers. Managers who adopt this approach try to maintain their share of category sales by matching competitor initiatives and avoiding supply shortages. Indeed. The anchor points are customer brand commitment (CBC) and customer brand buying (CBB). and some others may buy purely on the price/route combination.. not brands JOURNAL OF CONSUMER MARKETING. for example. most customers may accept a number of airlines. and an image-building program may run counter to such a goal. loyalty programs have been launched by companies who operate in markets with very little product/service differentiation ± many of these can be seen as continuous promotional programs (Palmer and Beggs. as noted above. that is. with customer brand acceptance (CBA) occupying the densely populated middle ground. as with gasoline retailers). and tactical promotions ± the need for strategic focus may preclude one or two of these options. but with no expectation of dramatic changes in customer attitudes and behavior. securing wider distribution). 1997). Here it is assumed that consumers tend to view advertising and other forms of marketing communication more as publicity that sustains awareness and offers reinforcement. and achieve growth via increased market penetration (by. 20 NO. They emphasize what might seem to be prosaic factors ± such as avoiding stock-outs. not brands per se. while a few customers may be committed to one or two airlines. advocates of the behavioral focus (Model 2) suggest that most consumers have split-loyalty portfolios of habitually-bought brands. advertising to encourage more positive beliefs about the brand. Under these circumstances. VOL. 1997). 1998). All these loyalty patterns profile customers. For example. Nevertheless. the launch of a loyalty program may run counter to the creation of a price-competitive image (particularly if it is perceived as an unnecessary expense that inhibits price-cuts from being passed on to customers). Even where budgets are large ± allowing for the simultaneous expansion of the sales base. 4 2003 . Conceptual implications of the different approaches to customer loyalty In Figure 2 we use the three models of loyalty to introduce the notion of a loyalty continuum. the choice of theory becomes important when brands competing in a category are functionally similar and marketing budgets are not big enough to fund the tactics implied by all three models. etc. Advocates of the contingency approach (Model 3) adopt a slightly different approach. in a bid to match competitors or as a publicity generating gesture. deals and special offers to attract the customers of competitor brands (e. These people's air travel schedules may result in them having quite a few brands in their portfolio. While these customers may participate in loyalty programs. rather than as highly persuasive information that fundamentally changes their attitudes and/or levels of commitment (Ehrenberg et al. they are also thought to be less influenced by these programs than the advocates of Model 1 assume (Dowling and Uncles. offering the appropriate assortment mix (to cater for various usage situations and variety seeking). They also often use price promotions. having 24-hour call centers. Choice of theory becomes important For management. consumers are distributed across the curves with respect to their loyalty to a brand. 4. providing online access. In the next section the conceptual implications of these different approaches to customer loyalty are explored. For instance. Here the potential for loyalty programs to impact demand is very limited. the product or service provider is likely to gain greater loyalty by responding directly to the contingent factors.
assuming the brands remain functionally adequate and accessible.Figure 2. Typically. A prime reason for this is that a proliferation of brands in most markets has destroyed one of the key reasons for exclusive loyalty. this will be seen as a set of acceptable brands that are ordered as first favorite. 20 NO. Brand distinctiveness affected The concept of CBA is the base case of customer loyalty in competitive repeat-purchase markets. because of a desire to stay sober the need is for low-alcohol beer. and so forth (Hammond. both the functional and the perceived differences among competing brands are small. For instance. We elaborate below. (1997) argue that in many product categories. the relative likelihood of buying each brand will endure over successive purchase cycles. so it is not surprising that customers perceive few critical and meaningful differences across competing brands. Need arousal is included as a trigger to the purchase process ± but this operates mainly on product category decisions. namely brand distinctiveness. Weilbacher (1993) and Ehrenberg et al. Figure 3 summarizes the concept of CBA in terms of the familiar five-stage model of consumer choice. but also brings together some elements of Models 1 and 3. third favorite. Choice among the functionally equivalent alternatives will reflect the accessibility. second favorite. Most likely. and any consequential habit formation. JOURNAL OF CONSUMER MARKETING. the (external) information search and evaluation stages are assumed to have been completed after the initial one or two purchases in the category. For many of these brands the advertising messages and loyalty programs are fundamentally similar too (compare the similar car hire advertisements in travel magazines or the near-identical benefits of alternative airline frequent-flier programs). but not necessarily for any particular brand of lowalcohol beer. Since this is a model of ongoing CBA for frequently-purchased products. in highly competitive repeat-purchase markets acceptance is to be expected more often than the other models. availability and conspicuousness of a brand at the point of purchase. VOL. Satisfaction with past purchases. The contribution of Model 2 is that customers exhibit loyalty to a number of brands because there is little reason to develop exclusive attitudinal loyalty to any one of the brands purchased. and so are not explicitly included in the diagram. It draws heavily on Model 2. 4 2003 Need arousal is a trigger to the purchase process 300 . 1997). not brand-based ones. the nature of the market in which customers buy and brands compete will govern what is normally observed ± thus. explain most of a person's ongoing propensity to buy one or a number of acceptable brands. Summary of the different approaches to customer loyalty Nevertheless.
etc.) and thinking of life-choices (education. Hoek et al. 1997). 1994). etc. 1985. 2000). especially the initial adoption of some distinctive brands such as the Apple Macintosh.g. simple learning (Barwise and Ehrenberg.Figure 3. Brand component that drives choice and commitment CBC The first exception to CBA concerns those consumers who value psychological and social value more than function. an existing brand being on sale) may influence the actual brand chosen on a specific purchase occasion (drawing on Model 3). as long as these brands are believed to ``do the job''. ``Woolworths offers fresh food'') by both brand users and non-users (Dall'Olmo Riley et al. This can be seen in the very similar attitudes reported for descriptive attribute beliefs (e. We label this CBC. 4 2003 .g. it is not necessarily important to have a set of strong value-laden beliefs towards the brands that are purchased. The introduction of new brands or the reformulation of current brands may alter the purchase propensities. but they will be of secondary importance to the functional adequacy of the brand. Similar attitudes reported for descriptive attribute beliefs This is not to suggest that attitudes will not form towards these brands over time (Model 1). although the aggregate impact on short to medium-term brand loyalty is likely to be marginal. Here there may be a brand component that drives choice and commitment for a significant number of customers. sporting allegiances. Castleberry et al. This is easiest to see when these consumers are buying high-identity products (luxury goods. 1997.. ``United Airlines is friendly''. Furthermore. it is more likely to be based on frequent satisfied use than on value-laden beliefs (Dall'Olmo Riley et al. For customers who are buying on a routine and mundane basis..). 20 NO. Customer brand acceptance Unexpected purchase situation circumstances (e. Research suggests that to the extent that a customer does express a consistently favorable attitude about a brand... Indeed. In this 301 JOURNAL OF CONSUMER MARKETING. the discussion of CBA suggests that having a favorable set of beliefs about one brand does not preclude having an equally favorable set of beliefs about other functionally similar brands in the category ± and their almost identical loyalty programs (as is the case with many airline and retailer programs). research shows that these beliefs may simply be a playback of the message content of the brand's advertising or publicity ± that is. the Sony Walkman and Harley-Davidson motorbikes. expensive cosmetics. ``Volvos are safe''. VOL. for the markets which are the focus here.
1998. a manager may want to create a meaningful relationship between the brand and the customer. and the consumer can develop a relationship with the brand ± in keeping with Model 1. 1999). Likewise. users of an online travel agency may express liking for it because it obtains for them best price airfares). and ± at most ± weak attitudes (e. 1999). It is presumed consumers have a consistently favorable set of stated beliefs towards the brand purchased.. research on international travelers indicates that these people are typically members of multiple frequent-flyer programs and therefore show multi-brand loyalty to both the airlines and their programs (OAG. First. but customers do not necessarily desire this or reciprocate (Fournier et al. price. Consider the example of car rental: if we were to draw from a large sample of the population. they will not eliminate the need for the brand to ``do the job''. etc. Horne and Worthington. the socio-psychological elements of competing brands may in fact offer limited scope for creating meaningful differentiation. while the non-functional sources of value may be strong. it means that the same brand may be the object of commitment for one person but merely acceptable to another. 1999. promotions. and not simply nuisance factors. even where a relationship develops. was forced to instigate a quality improvement program to save the brand from Japanese competition. 4 2003 . but invariably. our contention is that CBC and CBB are the exceptions rather than the rule in most repeat-purchase markets.. Moreover. For example. with CBC.situation. 20 NO. even for cases where the level of consumer involvement is high. it does not mean customers will recognize and value this. Because these relationships are defined in the consumer's head. When the type of loyalty is defined by the customer. CBB The second exception to CBA concerns those consumers who exhibit very low levels of loyalty. most customers of Avis or Hertz would be characterized by CBA. one of the strongest personality-relationship brands. Hart et al. In most markets. these are the less profitable customers. Some researchers however have 302 JOURNAL OF CONSUMER MARKETING. frequent flyers tend to use a number of different airlines. For example. Fournier and Yao (1997) quote instances of customers having ``compartmentalized friendships'' with different brands of coffee ± perhaps Starbucks in the morning and Folgers in the afternoon. Frequent flyers tend to use a number of different airlines However. and only a few by CBC (committed to my Hertz) or CBB (renting from literally any car hire firm that happened to be discounted at the time of purchase). none of this is guaranteed ± especially when the focus is on frequently-bought brands. attitudes. Harley-Davidson. where contingencies are the co-determinants of choice. Second.. Their choices are shaped by considerations of immediate availability. The concept of CBB is closely allied to Model 3. values and social norms are seen as having a major influence. One way to see this is as a sampling problem (Figure 2). differentiation among brands may be relatively low (such as with most airlines and hotel chains) ± resulting in the type of behavior best described by CBA. when a brand is designed to have a distinct and unique personality. they may help to differentiate one brand from another and they may support a price premium for that brand (Kapferer. In summary. VOL. 1998). Harley-Davidson was forced to instigate a quality improvement program Third. it may not be the only one in a particular product category.g. It is mainly the infrequent flyers who are loyal to a single frequent-flyer program.
A distinction must be drawn between the loyalty of some customers to some brands. 1996).used highly selective sampling to highlight the exceptions and thus convey a very different impression of the relative importance of CBA. and/or increase the amount of product bought. 2000. attract a larger pool of customers. Supporters of loyalty programs have in mind Model 1. encourage word-of-mouth support and endorsement. Implications for the management of customer loyalty programs What gives poignancy to the concept of customer loyalty is the supposed justification it gives for managers to spend millions of dollars on CRM programs and the costly customer databases that support these. 1997). We examine the issues from the perspective of individual customers. CBC and CBB in repeat-purchase markets (a point previously noted by Uncles and Laurent. 4 2003 303 . markets. These are strong claims and counter-claims. dampen the desire to consider alternative brands. Or they envisage a combination of Models 3 and 1. In evaluating the aims and demand-side success of loyalty programs. Indeed. induce greater consumer resistance to counter offers or counter arguments (from advertising or sales-people). loyalty programs can be seen as vehicles to increase single-brand loyalty. where consumers with no loyalty (CBB-types) are converted into single-brand loyal CBC-types because of the customer benefits of the program. where the program is seen to reinforce CBC-type outcomes. VOL. Proponents tend to focus on the psychological bonding that eventuates from membership (a customer benefit). (2000) found that members of the loyalty program of a financial services company were generally less sensitive than other customers to perceptions of lower service quality from their company and any price disadvantage relative to competitors. and to a large extent they rest on the different models of customer loyalty we have outlined above. and the loyalty of most customers to most brands. we take account of these somewhat contradictory positions. they argue that these programs are expensive to set up and maintain and that there is little or no evidence that any changes in behavior justify the expenditure (Dowling and Uncles. and touch on the contribution to profits of such schemes. if customers are already single-brand loyal. 1997). suggests that this is both undesirable for most customers and unachievable for most firms (the implication of Figure 2). Also. In keeping with this focus. Pearson. Bolton et al. For instance. But the review of customer loyalty presented in the previous section and the empirical evidence cited. Critics favor the multi-brand divided-loyalty model (Model 2). the rhetoric of many consultants suggests that the aim of a loyalty program should be to create a bigger group of single-brand loyal customers (consistent with Model 1). 20 NO. and the enhanced customer insights that can be gained from analyzing the program database (a firm benefit) (Brown. Loyalty resembles habit 5. and assume most customers are CBA-types who are not strongly swayed by the program. decrease price sensitivity. Our review of customer loyalty provides the necessary basis from which to evaluate the aims and potential commercial effectiveness of loyalty programs ± at least in terms of the customer-related (demand-side) issues. Loyalty programs can increase single-brand loyalty Loyalty programs from an individual's perspective Where the focus is on individual customers. the scheme will only be sales effective if it can get these JOURNAL OF CONSUMER MARKETING. Critics argue that the loyalty ± both attitudinal and behavioral ± for most customers is quite passive and resembles habit rather than serious commitment. Customer loyalty programs are a current manifestation of this trend.
However. customers may come to build a relationship with the program rather than the brand. 43 percent of respondents did not use their ``loyalty-building'' credit card during the one-year study period and a further 36 percent used their card on fewer than six occasions ± the program could not be described as particularly motivating. in this case the substantial appeal of the program can actually be its weakness. Something that is exceedingly hard if customers are not particularly motivated by the brand.'s (2000) study. always shop at the same bookstore. buy one brand of petrol. eat at one restaurant. Empirically. Thus. if consumers have good reasons for being multi-brand loyal. Similarly. If the program is sufficiently appealing. It also shows how difficult it is to separate purely functional and economic benefits (more JOURNAL OF CONSUMER MARKETING. However. recall that over a number of purchases. Hence. most consumers buy more than one brand in the category. it is a major challenge for brand managers to convince enough people to reduce their repertoire of brands such that the propensity to buy their particular brand increases enough to cover the full costs of the program. then it is unrealistic for brand managers to expect them suddenly to become single-brand loyal. drink one brand of wine.people to buy more of the brand. as well as something that is vulnerable to competitive responses. Wright and Sparks (1999) found that as many as a fifth of retail loyalty card-holders did not make any use of their card over a three-month period. consumers appear not to want to watch one television station.. then it might entice customers to switch brands (creating a new group of single-brand loyals. only attend one theatre. this course of action is likely to induce a quick counter-response from managers whose brands start to loose share. etc. The launch of the One World Alliance in international airlines can be seen as an example of this strategy. 20 NO. the best way for customers to reallocate some of their category purchasing to a particular brand is for a program to address the underlying reasons for polygamy. Second. In these circumstances. patronize one hotel chain. Then a large part of the brand's equity becomes dependent on something that might have little directly to do with the brand. In general. program members might be given greater access to the brand. get all their business news from one magazine. This is not easily achieved when so many single-brand loyal buyers are light users ± in these circumstances they must be persuaded to buy more of the brand and more of the category or other categories offered by the same firm (Ehrenberg et al. Most people only buy what they need Significantly. category or program. 4 2003 Program to address the underlying reasons for polygamy 304 . it is possible that a loyalty program could be offered to people who do not buy the target brand (but do buy from the category). when the program is attractive. Why? Because most people generally only buy what they need. as in Model 1) or to include the brand in their repertoire of acceptable brands (making them polygamous loyals. Most consumers buy more than one brand in the category In between these extremes. offered more variety. repeat-purchase markets. go to one holiday destination. At the other extreme. in Bolton et al. For these consumers there is some scope for bringing about a reallocation of purchasing without demanding any fundamental shifts in attitudes or behavior towards the brands bought or the product category. 2003). as in Model 2). although the existence of competing alliances ± notably the Star Alliance ± shows the difficulty of devising a unique and well-differentiated program in highly competitive. VOL. enhancing the bond between customers and their brands and expecting that this will automatically stimulate more demand for the product category is not a sustainable outcome. First. or helped to consolidate their purchases with fewer business providers/brands.
20 NO. gaining wider distribution. The loyalty program is seen as a brand extension aid An important component of many loyalty programs is the scope for crossselling. the Body Shop was a successful niche brand. financial services.e. an above-average number of CBCs at a high level of market share). A possible fourth strategy is considered too. This can be achieved by making the brand acceptable to a larger number of potential customers ± in keeping with Figure 3 and the focus on CBA. Whatever their market shares. there will be some CBB and CBC buyers. offering greater perceived value. suggesting more usage occasions. This market structure gives rise to three strategies for enhancing the observed level of repeat-purchase or loyalty of a brand. and a majority of CBA buyers. Most brands exhibit a double jeopardy (DJ) effect Loyalty programs from a market perspective At an aggregate level. 1999. This strategy implies a higher proportion of behaviorally-loyal and committed buyers (CBCs) for the level of market share than predicted by the DJ effect. the loyalty program is seen as a brand extension aid.. Loyalty-program members are encouraged to buy products they would not normally have bought from that provider. These are brands that exhibit signs of strong commitment and that have higher than expected (using the DJ model) repeat-purchase (Fader and Schmittlein. During the early 1990s. in an attempt to increase share-of-wallet. 1990). etc. restaurants. 4 2003 . ± and often these markets support other loyalty programs. In its early years. rather than market share (Peppers and Rogers 1997). Tactically. while Tesco attempts to expose its Clubcard members to high-margin wines. Goh and Uncles. this means exposure at the point of purchase. The first strategy is to try to grow the size of the brand. financial services and electrical goods. For example. 2003). This could be achieved by reducing the distribution coverage of the brand and using the money saved to better support/promote the brand to current customers. Some imported and premium beer brands fall into this category. 1993) (i.. for all brands. The third strategy is for a big brand to become a ``super-loyalty brand''. as well as lowermargin groceries. In essence. This is primarily a penetration effect and cannot be seen as loyalty building unless an organization offers a 305 JOURNAL OF CONSUMER MARKETING. One issue is that many of the cross-selling opportunities are themselves in highly competitive markets ± hotels. United tries to interest customers in car hire and hotels. Niche brands The second strategy is to create a niche brand by aiming to keep the numbers of buyers relatively low but at the same time increasing the average amount bought by these buyers. icon-status Nike appeared to be such a super loyalty brand. than predicted by the DJ effect (Kahn et al. etc. The implication here is that only a truly exceptional program will change the purchasing behavior of customers to increase sales revenues significantly. Desire for change-of-pace A fourth strategy implied by the DJ effect is to exploit the desire of customers for change-of-pace. it is to be expected that. VOL. through their respective programs. though the typical beer brand of this type is simply small.routes and flexible schedules in the case of airlines) from membership benefits (Driver. most brands exhibit a double jeopardy effect whereby small brands have fewer buyers who buy them less often than big brands (Ehrenberg et al. repeat-purchase markets typically have a well-defined structure ± namely. Here the penetration is higher and the repeatpurchase rate lower. car hire. 1988).
If this is successful the program will help the brand to grow and repeat purchase will be a natural outcome ± although subject to the DJ constraint. Given that FlyBuys was a particularly largescale and bold attempt to use a loyalty program to re-engineer patterns of repeat purchase. Successful instances of strategies two and three are uncommon (by definition. p. servicing costs. editorial and production costs of loyalty magazines. The first strategy is more common ± it implies offering better value than competitors and growing the size of the brand. Loyalty programs and profitability Firms employing loyalty programs should expect them to be profitable. 1997). Two conclusions from this study are noteworthy.g. There are establishment costs (often including new advertising and promotional activity). p. The consumer may even re-evaluate the brand. 1997. The easiest. This is precisely the approach adopted by the UK retailer Tesco. only two showed substantial repeat-purchase loyalty deviations and both of these showed this deviation for non-members of the loyalty program as well as members'' (Sharp and Sharp. Thereafter. enrollment costs. periodic communication with members can take place. 479) state that they ``do not observe the consistent finding of FlyBuys brands showing higher levels of average purchase frequency given their individual levels of penetration''. One reason for this is that marketing programs in general. Sharp and Sharp (1997. moving from some weakly-held attitudes to more strongly held ones. and strategic developments in the management of Tesco (Broadbent.portfolio of these brands (in which case the portfolio can again be expected to conform to the DJ pattern). They already have aboveaverage shares of loyal (CBC) customers. availability and conspicuousness of a brand (e. and loyalty programs in particular. product range extension. these results are not encouraging. the direct costs of rewards. First. database creation and maintenance costs. Sharp and Sharp (1997) used consumer panel data and stochastic modeling to establish normal patterns of consumer repeat-purchasing as a benchmark and then looked for departures from these predictions as evidence of the impact of the Australasian FlyBuys loyalty program on creating excess loyalty. and most cost-effective role for a loyalty program here is to improve the accessibility. although this success is also closely linked to high-profile advertising. accurate estimates are difficult to obtain ± even within corporations. a major implication is to see whether loyalty programs have the potential to help grow the size (and thus sales revenue) of a typical brand ± when used in combination with other marketing programs. This can be achieved initially by advertising and publicizing the program. and therefore a loyalty program would have to be unusually effective to raise loyalty levels further (although it may help to maintain the deviation). 2000. 485). East and Hogg. IT hardware. Second. its top-of-mind awareness or salience). 20 NO. to expect that the program will be sufficiently powerful to create single-brand commitment from initial divided loyalty for enough people to cover its full costs is a considerable challenge. they are deviations from the norm). From a market perspective. seldom are fully costed. management costs. FlyBuys loyalty program An example illustrates the point. this provides something newsworthy to say about the brand. The Tesco Clubcard scheme is regarded as a financial success. VOL. and the opportunity costs of 306 JOURNAL OF CONSUMER MARKETING. they find that: ``Of the six loyalty program brands. especially in terms of cross-selling and up-selling. 4 2003 Tesco Clubcard scheme regarded as a financial success . On the cost side of the profit equation. However.
information is obtained on demographics and lifestyle at the time of joining the program. However. multinational automobile companies. fewer customer defections.g. the problem is that too little of the right kind of data are collected. A fourth area of concern is that evaluations on the sales effectiveness of loyalty programs are often based on a poor quasi-experimental design. A formula for factoring-in some of these costs is provided by Niraj et al. availability and conspicuousness. (2001). Not surprisingly. researchers are beginning to question the accuracy of these effects (e.g. few of these programs collect data about the complete customer experience or the portfolio of brands bought (i.g. and more satisfied customers (e. 4 2003 307 Successful schemes quickly copied by competitors . In practice the danger is that rather too much of this information is acquired.g. One reason for this is that if a scheme looks as though it might be successful in increasing levels of accessibility. Problems collecting right kind of data Second. or in adding to the perceived value of the brand. When widespread copying happens. This information provides the analytical basis for Model 1 and CBC outcomes. Here. But interpreting this information is difficult: often there is too much of some types of sales information and too little of other types. our discussion in the first part of the paper shows that this information is essential for anything other than a superficial and possibly inaccurate understanding of customer loyalty. the evidence from sales is contradictory. 2002). Notwithstanding the various initiatives that have been tried over the years. JOURNAL OF CONSUMER MARKETING.e. customer retention. DJ effects) have been robust to attempts by loyalty schemes to change them. A scheme with millions of active members (such as those run by national grocery chains. VOL. Reinartz and Kumar 2000. 20 NO. the empirical regularities of purchase incidence noted earlier (namely. Typically. new product development). noncustomers are ignored). Yet. Rayner (1998) reports on a number of UK schemes). Specifically. many suggest that their schemes are successful (publicly at least). The classic example of such imitation is the airline frequent-flier programs ± there are now no major airlines without such a scheme. it is quickly copied by competitors. When quantitative measures of effectiveness are developed they typically compare post-program levels of sales. banks and airlines) gathers more EPOS data than it can usefully analyze or use for targeting purposes. Interpreting information is difficult Many different types of information are available about the sales effects of loyalty programs. The effects are reported as one or more of the following: increased sales of the target brand. etc. little information on either decision-making or total category expenditure). higher levels of crossselling. and much of the data are gathered from poorly designed studies. customer satisfaction. a purported benefit of loyalty programs is that they provide vast amounts of data that allow both a better insight into customer behavior and greater efficiency in targeted marketing. a thorough and accurate understanding of Models 2 and 3 requires data that are rarely available from loyalty-program databases. product purchasing and responses to targeted marketing initiatives are documented for each purchase occasion. Turning to the first of these problems.spending money on a loyalty program instead of on other marketing initiatives (e. subsequently. Nor do they have much to say about the total market and competitor marketing activity (e. A third area of concern is that data come from two sources ± these often provide contradictory evidence. One source is the companies that have introduced these schemes. any benefit gained is likely to be ephemeral.
The typical benchmark consists of conditions prevailing before the program was introduced. It is within this context that most firms should assess their loyalty programs. more direct forms of brand extension. program effects are confounded with the effects of other marketing initiatives. but without the ``benefit'' of a loyalty program). In fact. an increase in advertising spend.. there is often no control group (that is. indeed. below. Choice of benchmark critical A final potential problem is the choice of benchmark. Unfortunately. The major managerial implication from looking at the potential profitability of loyalty programs is that. VOL. Hence. This is not to criticize what was done. A much tougher test of the effectiveness of the loyalty program would be to compare the post-program results with what may have been achieved had the full costs of the program been used in another way ± such as establishing a policy of everyday low prices. echoing Cook and Campbell's (1979) warning. the paradox is that good business practice is based on an integrated approach to marketing that will most likely give rise to confounded measures of success. no group subjected to the same new service regime. The jury is still out because much of the evidence relied on to support customer loyalty programs is not scientifically valid. 6. 20 NO. 1999). The notion of brand acceptance draws heavily on behavioral definitions of loyalty. the jury is still out ± but the early signs are not encouraging. or improvements in the channels of distribution. For example. Thus managers should be cautious of claims extolling the cost-effectiveness of these schemes. The early signs are not encouraging because two of the better scientific studies. the checklist. 4 2003 Cost-effectiveness of these schemes should be treated with caution . the oft-cited success of Tesco's loyalty scheme is difficult to determine because it was introduced as part of a much broader program of new business development and store acquisition (East and Hogg. but these are not necessarily widespread. namely those of Sharp and Sharp (1997) and Reinartz and Kumar (2000) do not support the widespread use of customer loyalty programs. Whither loyalty programs? We have discussed how loyalty programs might have an impact on customer loyalty in established repeat-purchase markets where there are directly competing branded products and services. we should be wary of making causal inferences from studies with weak experimental designs. CBC and CBB by some customers in some categories exists.with pre-program measures. In Rayner's (1998) review she reports that all the programs she describes were introduced as part of more wide-ranging marketing initiatives. In these markets CBA is believed to describe the loyalty of most customers to most of the brands they buy. Thus. the Reinartz and Kumar study suggests a very weak association between customer profitability and long-life (loyal) customers. a new product introduction. while allowing for weak attitude formation and the influence of major contingencies. in most cases. 1997). The literature on good decision-making suggests that this type of comparison is likely to produce better management outcomes than evaluations based on one alternative versus the status quo (Hammond et al. is designed to help managers when considering the strategic and operational implications of starting or evaluating a loyalty program: 308 JOURNAL OF CONSUMER MARKETING. Taking account of all considerations in this paper.
What underlying model of customer loyalty is being assumed ± model 1. what can be done to rectify the problem? (Section 5 (a). .) What is the appeal of the program for these customers? (Section 5 (a). 20 NO.) 309 .) Will these initiatives grow share and sales revenues? (Section 5 (b).) Or.(1) Context: .) How will the program be used in combination with other marketing activities? (Section 5 (a).) How will the overall profitability of the program be calculated? (Section 5 (c).) Can the customer data be analyzed in useful ways? (Section 5 (c). 4 2003 . Figure 2.) What steps have been taken to address the sampling problem? (Section 4. . VOL. Figure 1. too few customers who will actually use it? Does the scheme have little appeal for customers? (Section 5 (a). . . (2) Assessing customer loyalty: . CBAs and CBBs? (Section 4. if so. (3) Assessing loyalty programs: . .) What benchmarks have been chosen to assess the loyalty program and are these appropriate? (Section 5 (c). .) In general. . will the program focus on the most profitable customers? What time frame is to be used to assess their profitability? (Section 4.) Are customers more loyal to the scheme than the brand? Is this a problem and.) Know your customers ± what are the relative sizes and distinguishing features of the CBCs. Established repeat-purchase markets. .) Are there.) What demand-side goals are there for the loyalty program ± maintaining customer loyalty or enhancing it? How will these goals be set and assessed? (Section 1. . or 3? (Section 2.) Are the sales and cost data reliable? Is the evidence contradictory? Are you relying on studies with weak experimental designs? (Section 5 (c). in fact. . 2. . .) How is this assumption influencing thinking about loyalty-building initiatives ± explicitly and implicitly? (Section 3. JOURNAL OF CONSUMER MARKETING. . (4) Assessing major traps: . . Demand-side success is assumed to be of crucial importance. has the scheme been too indiscriminant ± perhaps all three types of customers have joined because they see it as a (relatively) free option and/or a reward for their current purchase behavior? (Section 5 (a). Where there is direct competition between branded products and services.
This can manifest itself as a more credible proposition to retailers in order to secure more shelf-space and benefit from ``retail push''. that goal has proved elusive. More loyalty programs are being introduced Notwithstanding our cautious assessment.) Is the need to service large numbers of members driving up running costs? (Section 5 (c). including product and service improvements). First. . What are the chances of a competitor retaliating to nullify the impact of the program? Have competitors already launched a counterinitiative (Section 5 (b)?) Do you simply want to maintain the status quo (at a higher cost to all competitors)? (Section 5 (c). The critical task for the program manager is to design a cost-effective scheme to achieve this aim. more opportunity to sell brand extensions to customers. 20 NO. it is possible to see loyalty programs as vehicles for maintaining customer loyalty (i. then this is a bonus. If customers feel the need for affinity. but rather it simply makes the brand easier to consider.) . the aim of the program is to get the brand into the customer's set of acceptable brands. once these programs have been introduced. they will join the programs of the brands they buy. psychological and economic value designed into the brand. is not a substitute for the inherent functional. Brand accessibility and market conspicuousness Second. well-financed programs to change them (e. not just building loyalty-program equity. major retail schemes or the airline frequent-flier programs). Here. the fact remains that many loyalty programs are in operation and more are being introduced. perhaps. of course.g.e. The critical issue then is for the program to reinforce the value proposition of the parent brand ± enhancing brand equity. This conclusion is based on two main observations: (1) established patterns of repeat-purchase behavior appear to be robust to the attempts of even large. however. or desire an explicit reward for their loyalty. For example. If for some people the program provides additional emotional value. VOL. This. In other cases it may provide more opportunities to talk with customers and. another role for loyalty programs can be to improve levels of accessibility and market conspicuousness for a brand. So far. thus nullifying much of their potential impact (which. a more realistic aim is to build on existing levels of CBA. managers seem very reluctant to cancel them ± even if their claimed benefits are not being realized. 4 2003 ``Me-too'' pressure 310 .. rather than trying to induce single-brand loyalty from customers who previously have exhibited divided-brand loyalty. We conclude by briefly considering why is there so much momentum behind these programs. for keeping the brand in the customer's repertoire) or for maintaining brand share (where the program works in combination with other valued enhancements. Our review suggests that the demand-side success of many of these programs has been over-claimed by their advocates. there are persistent rumors that many airlines would like to end their frequent-flier programs if they could find an acceptable way to do this. although the need to respond to deep discounting by companies such JOURNAL OF CONSUMER MARKETING. and (2) many high-profile programs are either quickly copied or induce a direct counter-response from competitors. In either case. Moreover. A third major factor is the me-too pressure to follow others who have embarked on this path. is often the case with marketing and communications initiatives in established markets).
in that any pattern of buying here is likely to result from the recurrence of contingent factors (e. Exclusive loyalty is also a function of the length of the observation period ± in a short period most people will appear to be exclusively loyal because they have had so few opportunities to buy. The bias is towards a consideration of customer issues. Web site ``chat'' groups.g. which is a powerful reason for carefully thinking through the issues discussed here. Reichheld (1996). For instance.g. Notes 1. Some prefer to use the term ``spurious loyalty''. Examples include telephone help lines.g. club memberships. Programs that offer air miles as their reward could be viewed as the outcome of airlines wanting to sell excess capacity at a price greater than marginal cost. the success of the endeavor may depend on an ability to negotiate a particularly attractive deal with the other business partners ± irrespective of whether the program has much impact on customer loyalty. neither of which should be regarded as spurious. In this context. buying may change. Or the establishment of a club where consumers pay for membership. issue. Nevertheless. Airline frequent-flier programs have been a prototype for many of the schemes. Mercedes Mastercard (Butscher. 2002).. Therefore. Indeed. No direct economic benefit is offered to the customer. They are designed to enhance the emotional bond between customer and brand. but separate. VOL. JOURNAL OF CONSUMER MARKETING.. There are also broader issues of business policy and marketing strategy that need to be addressed. 2001. e. from the perspective of one business partner in a loyalty program. or aspirational rewards such as air miles. marketing strategy and cost structures (Niraj et al. 3. where the focus is on enhancing the emotional bond between customer and brand. our comments about the contribution of loyalty schemes to profits focus largely on consumer-related demand-side issues. etc. See. Hybrids also exist. there also might be first-mover drawbacks from snatching away much heralded customer benefits. Despite all the problems surrounding loyalty programs.g. 2. Among these buyers. newsletters. It would be useful for others to consider other perspectives. monogamous ``loyalty'' may merely reflect a very limited number of purchase occasions (e. Volkswagen Club.g. 2000. the infrequent holiday traveler versus the international business executive). 4 2003 311 . we argue that Model 3 is the basis of brand acceptance and weak loyalty. This latter format is prevalent in countries like Germany where privacy and trading laws prohibit incentive-based schemes. However. Mellens et al. they are likely to be in the marketer's toolkit for a long time yet. 2002). for example. It is pointed out that if the contingent factors are removed. Usually this takes the form of points that can be exchanged for gifts. 4. there is some evidence to suggest declining profitability from long-term customers in the context of catalogue buying in the US (Reinartz and Kumar. Loyalty programs are schemes offering delayed. For instance. Shaw. and for the company to learn more about the customer. reflecting the customer-focus logic of marketing. Swatch the Club. schemes operated by the DIY group Do-it-All and the grocery store Safeway in the UK. The main exception ± where exclusive buying is observed ± is among consumers who are light buyers of the product category and therefore of any brand in the category. in return for access to special events and offers. and a third-party (e. We regard this as a very important. Mechanisms are set up to enhance two-way communication in order for the customer to get to know the brand (or company that stands behind it) better. 20 NO. 5. a charity) receives a financial benefit. some of these programs could be viewed as a form of indirect price cut that is desired by one segment of customers but is ultimately paid for by all customers. accumulating economic benefits to consumers who buy the brand. it takes no account of the company's specific circumstances. For example. free products. particularly its target market. there are instances of card-based loyalty programs having been dropped (e.as Southwest and Virgin may force the hand of some operators. Just as there may have been first-mover advantages in creating a loyalty program. alumni associations. While this generalization is often made by consultants. 1998). 1996). use of the word ``loyalty'' is debatable. also Ford USA withdrew its credit card reward program). Affinity programs are a specific type of loyalty program.
156-63. 312 JOURNAL OF CONSUMER MARKETING.C. 22 No. 2nd ed. Dall'Olmo Riley. VOL. in Earl. and Scriven. ``The variability of attitudinal repeat-rates''.. (1996). International Journal of Research in Marketing. December. 437-50. Price. ButterworthHeinemann. and Kemp. Vol. D..W. Barwise. The Elgar Companion to Consumer Research and Economic Psychology. Vol. Journal of Advertising Research. A. Ehrenberg. Vol. Prentice-Hall. E. S. ``Expectancy value models''. 2.W. and Dall'Olmo Riley. Cheltenham. ``Consumer beliefs and brand usage''. Customer Clubs and Loyalty Programmes: A Practical Guide. G. R. Vol.C.E. N.K. Cambridge. 11. 157-64. and Kemp. Driver. J. (1979).D. S. (1985). Vol. Theory and Application. 28 No. (2000). ``Customer relationship management: in B2C markets. 6. (2002). John Wiley & Sons. London. (1988). pp. 4. pp. Vol. May.. and Campbell. 5.R.S. Ehrenberg.. N. 201-8. Report No. pp. Bolton. 2. (1997). Arnould. G. Castleberry. Journal of the Academy of Marketing Science. (1997). 81-93. D. P. L. J. (1999).. 3. A. Ahluwalia. A. 1. Oxford University Press. J. NY. McGraw-Hill. Szeinbach. Barnard. Ehrenberg. Day. in Earl. 87-104.M. Vol. 29-35. 99-116.A. Barnes. California Management Review. Oxford. (1997).. Journal of Services Research. (2002). (1999). Ehrenberg. Gower. New York.. Edward Elgar.. D.S. Barwise.C. (Eds). NY. pp. ``Customer loyalty: toward an integrated conceptual framework''. (2000). (1999). R.S.R. S. New York. pp. (1997). S... and Zinkhan. Belk. Quasi-Experimentation. S. pp. ``An exploratory assessment of situational effects in buyer behavior''. pp. London.A. R. Marketing Science Institute. World Advertising Research Center. ``Implications of loyalty program membership and service experiences for customer retention and value''. (1994). and Hogg. R. chapter 1. 1.S.A. M. Vol. Vol. F. Garner. Journal of the Market Research Society. (1997). M. Barnard. ``A two-dimensional concept of brand loyalty''. Henley-on-Thames.W. Belk.R.References Aaker. A. P. Blackwell.R. Building Strong Brands. Consumer Behaviour: Advances and Applications in Marketing. Kannan. and Bramlet. Oxford. (2000). and Uncles. 1 No. Ehrenberg... Journal of Advertising Research. Butscher. Brown. Rand McNally. 53-63. Journal of Marketing Management. Journal of Consumer Research. K. Castleberry.A. ``Situational variables and consumer behavior''.D. A. P. 16. Consumers. V. Vol. pp. P. T. Dick. ``How every little helps was a big help to Tesco''.. East. 5 No. 20 NO. MA. Vol. (1975).J. and Barnard. S. 38 No. IL. Edward Elgar. Unnava. ``Individual attitude variations over time''. Journal of Brand Management. East.C. P. Free Press. P. and Brunkrant. pp. (2002). G. Sloan Management Review. 99-113. pp. Repeat-Buying: Facts. 37 No. ``Differentiation or salience''. Cook. Broadbent.N. Dowling. 5 No.E. (1974). 7-14.. Vol. L. 5.C. and McDonald. 134-50. pp. and Bush. Griffin. 9. ``Developments in airline marketing practice''. S. The Elgar Companion to Consumer Research and Economic Psychology. Creating Powerful Brands. (Eds). 95-108. A.L. 4. 153-62.C. ``Brand loyalty''.S.E. R. (1994). 14 No. and Basu. 44 No. Customer Relationship Management. S.D. Toronto. often less is more''. J.B. A. Vol.S.S.T. Boston.A.S. A. 71-82. Vol. ``The anatomy of conquest: Tesco versus Sainsbury''. Barwise. M.C. Towards Understanding the Value of a Loyal Customer: An Information-Processing Perspective. De Chernatony. T. (1999).H. and Ehrenberg. 53-60. P. Dabholkar. F. R. 4 2003 .R. pp.L. H. ``Do customer loyalty programs really work''. ``The antecedents of customer loyalty: an empirical investigation of the role of personal and situational aspects on repurchase decisions''. (1998). Chicago. R. MA. Journal of Marketing Research. (1999). in Advertising Works 11. Dowling. N. (1969). Journal of the Academy of Marketing Science. pp. 27. Journal of Marketing Practice: Applied Marketing Science. and Scriven. pp. pp. Cheltenham. G.
S. ``Are loyalty schemes a manifestation of relationship marketing?''. and Uncles. S. Fournier. pp. Fader. Journal of Marketing Research. pp. H. W. e-Business. R (1978). 271-93. (1997). Hoek.S. ``Excess behavioral loyalty for high-share brands: deviations from the Dirichlet model for repeat purchasing''. Stochastic Models of Buyer Behavior. Mellens. pp. and Chestnut..-N. (2000). Kapferer. K. J. J.H. Vol. Smart Choices. (1996). Vol. Harvard Business School Press.S.S. 54 No. pp. November. D. and Gendall. 2. (1998).G.R. 4. B. Journal of Product and Brand Management. Journal of Marketing. Vol. Montgomery. ``A review of brand-loyalty measures in marketing''. Advances in Experimental Social Psychology.. (1999). C. J..W. (1998). and Tzokas. and Barwise. 10 No. K. January-February. 4. 15 No. Prentice-Hall. Journal of Consumer Research. 507-33. and Zanna.C. Vol. G. (1999). M. ``The affinity credit card relationship: can it really be mutually beneficial?''. and Brown. 6. (1999). and. (1988). R. (1993).M.G.J. J. Consumer Psychology for Marketing. Tijdschrift voor Economie en Management. JOURNAL OF CONSUMER MARKETING.Ehrenberg. P. Harvard Business Review. 7. G. New York. and Worthington. pp.. 33. Vol. Vol. and Martin. Journal of Marketing Management. 30 No. Vol. R&D I Research Report. (1999). 161-202. MA. Fournier.. and Goodhardt. Smith.. 20 NO. (forthcoming). 343-73. Vol. Gremler. 66 No. Fazio. A.G. Advertising is Publicity Not Persuasion.. Barnard. 541-62. Dobscha. Journal of Marketing Research. J. (1981). MIT Press. 3. Addison-Wesley. P. and Goldsmith. D. A. and Yao. ``Reviving brand loyalty: a reconceptualization within the framework of consumer-brand relationships''. D. ``Beanie babies: a case study in the engineering of a highinvolvement/relationship-prone brand''.. 38-54. London Business School. and Hardie. Ehrenberg.F. 2nd ed. M. R. Morris. Routledge London. B.F. D. VOL. J. Strategic Brand Management. ``Consumers and their brands: developing relationship theory in consumer research''.P. Boston. pp. Jacoby. N. Keeney.E. Vol. Uncles. H. 78-96. J. 5.S. M. Journal of Marketing. and Robinson.A. 82-91. 3. Kalwani.. 478-93. (1990). S.. Wright.. NJ. (1994). pp. Kahn. (1999). and Mick. J. ``Brand loyalty for frequently bought goods''.R. Vol. Ehrenberg. ``The loyalty ripple effect: appreciating the full value of customers''. 24 No. R. pp.C. Sparks. R. S. Goh. pp. 1. (1970). Journal of Product and Brand Management. 41 No. Transportation Research. NY. 15 No. ``Double jeopardy revisited''. 415-33. ``Niching versus change-of-pace brands: using purchase frequencies and penetration rates to infer brand positionings''. M. Kogan Page.S.S. Fader. pp. 603-16. Goodhardt. (1997). 4. Kalakota. J.L. Upper Saddle River. London. Boston. ``Understanding brand performance measures: using Dirichlet benchmarks''. S. Massy. McAlexander. N. D. and Schmittlein. International Journal of Research in Marketing. Foxall. S.L. (2000).H. South Bank University London. 14 No. G.B (1996). 384-90. Vol. and Morrison. ``Descriptive and evaluative attributes: what relevance to marketers?''. S. Vol.W. J. ``Modeling consumer choice among SKUs''. 4. Schouten. Journal of Marketing Management. London.. M.-B. Steenkamp. L. (2002). and Raiffa. M. (2003). pp. D. Dunnett. (1999). Journal of Marketing Research. Brand Loyalty Measurement and Management. and Morrison. ``Direct experience and attitude behavior consistency''. 9 No. (1998). A. John Wiley & Sons.B. MA. K.L.E. (2003). ``Preventing the premature death of relationship marketing''.U. Hammond. Vol. MA. ``Building brand community''. Hart. M. Journal of Business Research (forthcoming). S. and Scriven. 9 No.J. ``The benefits of airline global alliances: an empirical assessment of the perceptions of business travelers''. M.. Reading.. 14.D. International Journal of Service Industry Management. P. pp. unpublished PhD thesis. 6/7. R. 442-52. 4 2003 313 .C. Vol. Keller.D. Hammond. (1998). 451-72. P. pp. Horne. pp. 25 No. A. Dekimpe. Strategic Brand Management. Fournier. and Koenig.
D.Niraj. IL. 429-39. and Schneider. 98-108. Manchester Metropolitan University. International Journal of Research in Marketing. pp. (2002). and Sharp. 76 No. Marketing Science Institute. Currency Doubleday. Macmillan Business. Vol.J. W. VOL. 14 No. Weilbacher. Pearson.. (1996). Uncles. (1995). R. Irwin/McGrawHill. pp.D. (2001). D. Brand Marketing. 399-404. ``Loyalty programmes: congruence of market structure and success''.. Palmer. International Journal of Retail & Distribution Management. 64 No.F.S. 43-61. ``Customer profitability in a supply chain''. (1997). Hammond. (1998). K. A. F. M. Vol. and Kumar. Lincolnwood. (1999). Rayner. W.J. Climbing the Commitment Ladder: The Impact on Customer Commitment of Disconfirmation of Service Expectations. Ehrenberg. pp. A. MA. J. pp. Vol. (1997).C. London. Reichheld. ch. Enterprise One to One: Tools for Competing in the Interactive Age. (1996). Reinartz. Journal of Marketing. and Kumar. International Journal of Research in Marketing. 5. Reinartz. B. Wright. 5. The Loyalty Effect. Vol. pp. pp.L. 20 NO. Journal of Marketing. 3. Vol. and Narasimhan. (1997). R. ``Editorial: special issue on loyalty''. FT Retail and Consumer Publishing. and Laurent. Peppers. 1-16. B. Harvard Business Review. Sharp. 10. G. L. Cambridge. NTC Books. ``On the profitability of long-life customers in a noncontractual setting: an empirical investigation and implications for marketing''.W. Uncles. and Davis. OAG. 86-94. London. 14 No. ``Loyalty saturation in retailing: exploring the end of retail loyalty cards?''. 22 No. 4 2003 . (1999). Customer Loyalty Schemes: Effective Implementation and Management. 63. C. S. (2000). OAG Business Travel Lifestyle Survey. Dunstable. Economist Books. Official Airline Guides (OAG) (1998). (1998).M. London. Oliver. S. (1993). Oliver. 1. European Journal of Operational Research. Journal of Marketing. and Beggs. ``Subcultures of consumption: an ethnography of the new bikers''. Manchester. pp. R. & 314 JOURNAL OF CONSUMER MARKETING. 375-84.. Building Brands Directly. J. Journal of Consumer Research. 17-35. 33-44. MA. July. C and Sparks. A. M. R. ``Whence customer loyalty''. New York. Report No. ``A replication study of two brand-loyalty measures''. Schouten. (1997). NY. (1994). Boston. Vol.L. 7. Gupta. ``The mismanagement of customer loyalty''. M. pp. 4. and McAlexander. 65 No. pp.H. Vol. R. S.E. Harvard Business School Press. Vol. ``Loyalty programs and their impact on repeat-purchase loyalty patterns''. (1997). Shaw. White. V. M. 2. NY. Satisfaction: A Behavioral Perspective on the Consumer. (1998). R. V. 2nd ed. Improving Marketing Effectiveness. W. and Rogers. 473-86.. New York. Proceedings of the Academy of Marketing Conference.
The question for marketers is whether some of the characteristics we see in this super-loyalty might be applied to these more prosaic brands or whether loyalty as an idea detracts from the primary function of brand marketing. ``loyalty is a function of people rather than something inherent in brands''. consumers appear not to want to watch one television station. eat at one restaurant. I think it is safe to say that. Indeed there are times when the idea of ``customer loyalty'' seems more suited to the purposes of consultants than the objectives of marketing management. Indeed the authors suggest that some airlines would like to drop frequent flyer promotions and that the jury remains out on the success or otherwise of loyalty schemes such as the Tesco Clubcard (we should note that the company still insists this is a success and as the UK's most successful supermarket in recent years it is difficult to argue with their strategy). Dowling and Hammond provide a very helpful and thoughtful review. it seems to me. some types of brand (in the widest sense) are more likely to attract loyalty than others. always shop at the same bookstore. . for example. also refer to the issue of double jeopardy and the concept that consumers select from a portfolio of brands rather than being loyal to just one brand. There are a number of problems and issues with the concept of loyalty and. in this article. only attend one theatre. Certainly. As the authors succinctly put it. Indeed the most promising customers (those that buy more. go to one holiday destination.This summary has been provided to allow managers and executives a rapid appreciation of the content of this article. such dedication is unlikely to be directed towards a chocolate bar or department store. Can a chocolate bar be like a football team? The classic examples of ``super-loyalty'' are seen with sports teams. Uncles et al. seem to question the effectiveness that many of the loyalty marketing schemes run by businesses such as airlines and supermarkets. Moreover the loyalty strategies employed by different brands are very similar. 20 NO. is to JOURNAL OF CONSUMER MARKETING. patronize one hotel. I suspect that many consumers do not distinguish between loyalty campaigns and other forms of sales promotions. These divided loyalties make it more difficult for marketers to take actions aimed a promoting loyalty. lies in the definition of loyalty in that it sometimes means ``unquestioning'' repeat purchase and sometimes relates to a more nebulous relationship with the particular brand or organization. drink one brand of wine. It would seem the case that the focus on loyalty to the exclusion of other elements in consumer behaviour could result in misplaced marketing strategies. As the authors describe: . . The first problem. At times the ``loyalty'' seems almost pathological with the performance of the team seemingly the most important thing in the fan's life. behaviour and attitude. Consumers have divided loyalties Uncles et al. get all their business news from one magazine. As everybody recognizes. Those with a particular interest in the topic covered may then read the article in toto to take advantage of the more comprehensive description of the research undertaken and its results to get the full benefit of the material present Executive summary and implications for managers and executives Loyalty or cupboard love? Like many people I have my doubts about whether it's possible to be loyal to a particular brand of tomato soup. The dedicated Manchester United fan refers to the team as ``we'' and the performance of the team affects mood. more regularly) are portfolio buyers with ``many single-brand loyal buyers'' being light users. VOL. etc. outside the area of mental illness. Uncles. 4 2003 315 . We know that the point of frequent flyer programmes.
those who have our brand in their portfolio of possible brands to purchase). the loyalty programme provides an incentive for these buyers to repeat their purchase with us rather than switch (possibly temporarily) to another brand. Uncles et al. For ``loyalty'' read ``customer retention'' For most brands (exceptions can be made for brands such as Harley Davidson) the object of the loyalty strategy is to secure a greater share of choice from within a limited portfolio of brands. . (A precis of the article ``Customer loyalty and customer loyalty programs''. Identifying good customers can be a way to maintaining market share and reflects that decades old argument from direct marketers that making a further sale to an existing customer is far easier than recruiting a new customer. 20 NO. A loyalty strategy for a brand that has genuinely loyal customers will be very different from a strategy aimed at getting our product greater attention from actual and potential buyers (i. Assuming that those who buy from us have our brand in their choice set. Indeed the authors' conclusion that the demand side success of many loyalty programmes ``. incentives or other benefits).encourage us to use one particular airline and we make the choice to do so because we receive some reward (discounts. For some investing time and money in securing a ``closer bond'' with customers makes sense whereas for other's the focus should be on the aggregate effect of our promotions ± ``loyalty'' is a lovely idea but in many cases it can result in the wrong promotional strategy. VOL.) 316 JOURNAL OF CONSUMER MARKETING. . in turn. 4 2003 . As ever we need to make a clear distinction between different types of market. Chocolate bars differ from supermarkets which. This selfish motivation does not mean that the loyalty programme is ineffective since offering incentives to existing customers can represent a better sales promotion strategy than the use of general or new customer targeted promotions. differ from hotel chains or holiday destinations. But it remains the case that marketers have to recognise that their customer might be equally ``loyal'' to another competing brand. Â Supplied by Marketing Consultants for Emerald. provide marketers with food for thought about loyalty and raise questions and doubts about the use of loyalty programmes in a range of settings. The consumer acts out of self-interest rather than pure loyalty. has been overclaimed'' is a clear indication that marketing must move on to a more informed approach to repeat purchase promotions and loyalty programmes.e.
This action might not be possible to undo. Are you sure you want to continue?