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Loyalty Programs: Generalizations on Their Adoption, Effectiveness and Design Full Text Available At Full text available at: http://dx.doi.org/10.1561/1700000026 Loyalty Programs: Generalizations on Their Adoption, Effectiveness and Design Full text available at: http://dx.doi.org/10.1561/1700000026 Loyalty Programs: Generalizations on Their Adoption, Effectiveness and Design Tammo H. A. Bijmolt University of Groningen The Netherlands [email protected] Matilda Dorotic University of Split Croatia [email protected] Peter C. Verhoef University of Groningen The Netherlands [email protected] Boston { Delft Full text available at: http://dx.doi.org/10.1561/1700000026 Foundations and Trends R in Marketing Published, sold and distributed by: now Publishers Inc. PO Box 1024 Hanover, MA 02339 USA Tel. +1-781-985-4510 www.nowpublishers.com [email protected] Outside North America: now Publishers Inc. PO Box 179 2600 AD Delft The Netherlands Tel. +31-6-51115274 The preferred citation for this publication is T. H. A. Bijmolt, M. Dorotic and P. C. Verhoef, Loyalty Programs: Generalizations on Their Adoption, Effectiveness and Design, Foundations and Trends R in Marketing, vol 5, no 4, pp 197{258, 2010 ISBN: 978-1-60198-500-2 c 2011 T. H. A. Bijmolt, M. Dorotic and P. C. Verhoef All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, mechanical, photocopying, recording or otherwise, without prior written permission of the publishers. Photocopying. In the USA: This journal is registered at the Copyright Clearance Cen- ter, Inc., 222 Rosewood Drive, Danvers, MA 01923. Authorization to photocopy items for internal or personal use, or the internal or personal use of specific clients, is granted by now Publishers Inc for users registered with the Copyright Clearance Center (CCC). The `services' for users can be found on the internet at: www.copyright.com For those organizations that have been granted a photocopy license, a separate system of payment has been arranged. Authorization does not extend to other kinds of copy- ing, such as that for general distribution, for advertising or promotional purposes, for creating new collective works, or for resale. In the rest of the world: Permission to pho- tocopy must be obtained from the copyright owner. Please apply to now Publishers Inc., PO Box 1024, Hanover, MA 02339, USA; Tel. +1-781-871-0245; www.nowpublishers.com; [email protected] now Publishers Inc. has an exclusive license to publish this material worldwide. Permission to use this content must be obtained from the copyright license holder. Please apply to now Publishers, PO Box 179, 2600 AD Delft, The Netherlands, www.nowpublishers.com; e-mail: [email protected] Full text available at: http://dx.doi.org/10.1561/1700000026 Foundations and Trends R in Marketing Volume 5 Issue 4, 2010 Editorial Board Editor-in-Chief: Jehoshua Eliashberg University of Pennsylvania Co-Editors Teck H. Ho University of California Berkeley Mary Frances Luce Duke University Editors Joseph W. Alba, University of Florida David Bell, University of Pennsylvania Gerrit van Bruggen, Erasmus University Pradeep Chintagunta, University of Chicago Dawn Iacobucci, University of Pennsylvania Brian Sternthal, Northwestern University J. Miguel Villas-Boas, University of California, Berkeley Marcel Zeelenberg, Tilburg University Full text available at: http://dx.doi.org/10.1561/1700000026 Editorial Scope Foundations and Trends R in Marketing will publish survey and tutorial articles in the following topics: • B2B Marketing • Marketing Decisions Models • Bayesian Models • Market Forecasting • Behavioral Decision Making • Marketing Information Systems • Branding and Brand Equity • Market Response Models • Channel Management • Market Segmentation • Choice Modeling • Market Share Analysis • Comparative Market Structure • Multi-channel Marketing • Competitive Marketing Strategy • New Product Diffusion • Conjoint Analysis • Pricing Models • Customer Equity • Product Development • Customer Relationship • Product Innovation Management • Sales Forecasting • Game Theoretic Models • Sales Force Management • Group Choice and Negotiation • Sales Promotion • Discrete Choice Models • Services Marketing • Individual Decision Making • Stochastic Model Information for Librarians Foundations and Trends R in Marketing, 2010, Volume 5, 4 issues. ISSN paper version 1555-0753. ISSN online version 1555-0761. Also available as a com- bined paper and online subscription. Full text available at: http://dx.doi.org/10.1561/1700000026 Foundations and Trends R in Marketing Vol. 5, No. 4 (2010) 197{258 c 2011 T. H. A. Bijmolt, M. Dorotic and P. C. Verhoef DOI: 10.1561/1700000026 Loyalty Programs: Generalizations on Their Adoption, Effectiveness and Design Tammo H. A. Bijmolt1, Matilda Dorotic2 and Peter C. Verhoef1 1 Department of Marketing, Faculty of Economics and Business, University of Groningen, The Netherlands, ft.h.a.bijmolt,p.c.verhoef [email protected] 2 Department of Marketing, Faculty of Economics, University of Split, Croatia, [email protected] Abstract Loyalty programs (LPs) have increased in popularity, and have been studied extensively in the academic literature with mixed findings. Therefore, we offer an overview of extant research on LPs. We derive generalizations on the effectiveness and best design of LPs, discuss con- ditions that mediate and moderate the effects of LPs on customer behavior and attitudes, and highlight avenues for further research. Overall, we conclude that LPs are effective in increasing consumer purchase behaviors over time, but their impact differs across con- sumer segments and markets. Numerous practical examples illustrate the points discussed. Overall, this monograph provides insights to researchers and practitioners through a comprehensive, research-based synthesis of current knowledge. As a consequence, LP managers may better understand the implications of LP adoption, and ultimately improve the effectiveness of their LPs. Full text available at: http://dx.doi.org/10.1561/1700000026 Contents 1 Introduction 1 2 Definition of Customer Loyalty and Loyalty Programs 3 3 Conceptual Framework 7 4 LP Adoption by Firms and Customers 11 4.1 LP Adoption by Firms 11 4.2 LP Enrollment by Customers 12 4.3 Further Research Directions 15 5 Behavioral Responses to LPs 17 5.1 LP Effects on Aggregate Performance Measures 17 5.2 LP Effects on Customer Retention 18 5.3 LP Effects on Customer Expenditures 19 5.4 Synthesis of Behavioral Responses to LPs 22 5.5 Further Research Directions 23 6 Attitudinal Responses to LPs 25 6.1 LP Effects on Attitudinal Loyalty 25 6.2 Further Research Directions 26 ix Full text available at: http://dx.doi.org/10.1561/1700000026 7 Points-Pressure and Rewarded Behavior Mechanisms 29 7.1 Reward-based Mechanisms 29 7.2 The Points-Pressure Mechanism 30 7.3 The Rewarded Behavior Mechanism 31 7.4 Further Research Directions 32 8 Personalized Marketing 35 8.1 Benefits of Personalized Marketing 35 8.2 Costs of Personalized Marketing 36 8.3 Relation between LP and other Marketing Instruments 36 8.4 Further Research Directions 37 9 Role of LP Design 39 9.1 LP Design 39 9.2 LP Structure 39 9.3 Further Research Directions 48 10 Conclusion and Discussion 49 10.1 Discussion of LPs from Different Perspectives 49 10.2 Conclusion 51 References 55 Full text available at: http://dx.doi.org/10.1561/1700000026 1 Introduction The boom in information technology and the shifting of firms toward a customer-centric focus have prompted the development of loyalty pro- grams (LPs) as important customer relationship management tools. During the 1990s, the number of LPs among European retailers grew 25%{30% annually (Ziliani and Bellini, 2004). Traditionally LPs have been prominent among retailers, but the implementation of LPs is rapidly spreading to new areas. In September 2010, Microsoft intro- duced Bing Rewards LP to reward online customers who use the Bing search engine for Web searches (and even to reward spam reporting). Popularity of LPs increased also in the non-profit sector. For example, Recyclebank offers an LP that rewards members for recycling at home and using other green activities. By 2003, approximately 92% of UK consumers participated in LPs (Berman, 2006). By 2010, the number of LP memberships in the US exceeded 2.1 billion memberships, growing by 16 percent despite the worldwide recession (Hlavinka and Sullivan, 2011). In fact, consumer interest in LPs has increased during the recent recession (Burness et al., 2009; Ferguson and Hlavinka, 2009a), parallel to the increased interest of firms (Barsky, 2008; Burness et al., 2009). 1 Full text available at: http://dx.doi.org/10.1561/1700000026 2 Introduction The popularity of LPs has spurred substantial academic research (for previous reviews, see Berman, 2006; Nunes and Dr`eze,2006b; O'Brien and Jones, 1995; Uncles et al., 2003; Wansink, 2003), where this review builds on Dorotic et al., 2012. Unfortunately, empirical research shows divergent findings and may bring more confusion than guidance to managers (McCall and Voorhees, 2010). Some studies indicate a pos- itive impact on customer behavior (Lal and Bell, 2003; Leenheer et al., 2007; Liu, 2007; Taylor and Neslin, 2005), while others report little or no impact (Meyer-Waarden and Benavent, 2006; Sharp and Sharp, 1997). Diverse research methodologies, concepts, and measurements make it difficult to compare the results. Yet, given the prevalence of LPs and the growing number of studies, we offer an overview of extant research on LPs, derive generalizations on the effectiveness and best design of LPs, and highlight avenues for further research. We thus expect this monograph to support both researchers and practitioners through a comprehensive, research-based, synthesis of current knowledge. Fur- thermore, our study aims to help companies with LPs improve their performance. Meanwhile, companies that are still contemplating LPs will better understand the implications of such programs through this overview. In the following sections, we begin by defining customer loyalty and loyalty programs and proposing a conceptual framework (Figure 3.1) that structures our literature overview. We conclude with generaliza- tions at the end of this monograph in Table 10.1.
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