ServiceFriday: The Double Edged Sword of Customer Loyalty Programs

As an important means of customer relationship management, loyalty programs are used widely by airlines, supermarkets, hotels, and many other industries with the goal of attracting and retaining loyal customers. In a paper published in the Journal of Services Marketing, authors Baolong Ma, Xiaofei Li and Lin Zhang explore a model for why and how loyalty program strategies can be used effectively to achieve that goal.

In the study, three main loyalty strategies were found to be the most popular: tangible-rewards (customers earn program-specific rewards such as points, miles, etc.), preferential treatment (giving customers better treatment or services such as priority boarding), and perceived status (endowing customers with preferred status or elite memberships). Li and Zhang found that loyalty programs carried with them effects that were both positive and negative. For example, the programs had a positive effect on the quality of the customer relationship, but had a negative effect on the customers demand for extra offerings and entitlements, resulting in lower profits.

“A net effects analysis demonstrates that loyalty programs are a double-edged sword. While loyalty programs can improve customer relationships, strategies based on perceived status have a positive relationship to customer entitlement, which may lead customers to expect extraordinary efforts from companies, such as greater discounts and extra privileges.”

The authors’ research implies that companies need to be cautious with their customer loyalty program design, especially when the loyalty strategies are used in combination with one another. 

To access the paper visit the Emerald Insight at this link: https://bit.ly/2Wewg3Z (A fee may apply.)