Loyalty, or customer loyalty, means that customers exhibit a commitment to, or a relationship with, an organization such as a retailer, a leisure service provider, a bank, or an airline. Loyal customers mean that the organization has a higher level of customer retention and thereby a more stable customer base. The longer a customer “stays” with an organization, the greater their experience of, and engagement with, the organization. For the organization, this leads to lower customer price sensitivity, reduced expenditure on attracting new customers, and improved organizational profitability. A loyalty business model is a strategic approach in which resources are deployed with the aim of increasing the loyalty of customers.
Customers may exhibit behavioral or attitudinal loyalty. Behavioral loyalty is exhibited by staying with a provider and/or by increases in the number or frequency of their purchases or both, leading to increased customer spending. Attitudinal loyalty is associated with a positive identification with the organization, which may lead to customers acting as advocates for the organization and thereby influencing the decisions of others. Both types of loyalty can be exhibited in relation to a brand, a retailer or their organization, or to a specific service or retail outlet.
Scholars have proposed four different segmentations of loyalty orientation that can be used as a basis for segmentation: (1) loyalty, associated with high relative attitude and high repeat patronage; (2) latent loyalty, associated with high relative attitude, but low repeat patronage; (3) spurious loyalty, associated with low relative attitude, but with high repeat patronage; and (4) no loyalty, associated with low relative attitude, and with low repeat patronage. J. Rowley develops this segmentation recognizing that some staying behavior is based on inertia rather than positive engagement with an organization, and suggests the following loyalty categories: captive, convenience-seeker, contented, and committed.
Loyalty schemes are one of the ways by which organizations seek to enhance customer spending and advocacy. Members give basic demographic details when they register as members. In exchange, they receive a plastic loyalty card, rewards card, point card, club card, or discount card. This card is then used as a form of identification when purchases are made so that rewards or points can be registered to the member’s account or discount granted. While these rewards are intended to incentivize members to exhibit behavioral loyalty, some organizations also capitalize on the opportunity to link purchase behavior to demographic data, which allows them to segment their customer base and thereby to better target their offers. Loyalty schemes have become a widespread feature of the retail and service landscape. Major categories are in retail and operated by single retailers (e.g., Boots Advantage Card, Tesco Clubcard, Priceline Club Card); travel, which reward travelers with discounts or enhanced service (e.g., AAdvantage Program, Hyatt Gold Passport); and financial services, typically associated with store or credit or debit cards (e.g., American Express Membership Rewards, HSBC Premier). Coalition schemes are where a managing agent operates a scheme on behalf of a number of retail and service sector partners (e.g., AirMiles, Nectar).
Tesco Clubcard, managed by DunnHumby, is a particularly sophisticated loyalty scheme that builds brand awareness and engagement with the Tesco brand. Tesco regards Clubcard as a “thank you card,” which has an underlying contract and promise that if members join the Clubcard, they become a long-term stakeholder in the brand. The reward design is multidimensional and targets both behavioral and attitudinal loyalty. The quarterly mail-out with reward points is used as an opportunity to communicate with customers and to create a positive event with impact. Rewards, available through Tesco Freetime, include experiences delivered by a range of other organizations/brands. Tesco has invested considerable effort in developing data-mining algorithms that allow them to mine the data in order to improve both the offer to the customer and to inform strategic decisions associated with entry into online retailing and financial services.
Some have suggested that the term loyalty scheme is a misnomer, since such schemes do not generate loyalty, but rather simply offer low-level discounts. Some organizations have withdrawn schemes, but other schemes have been long established, lending credence to the belief that as with many other business strategies, success lies in implementation that aligns with business objectives and context.
- Suraksha Gupta, Susan Grant, and C. Melewar, “The Expanding Role of Intangible Assets of the Brand,” Management Decision (v.46/5–6, 2008);
- Shep Hyken, The Cult of the Customer: Create an Amazing Customer Experience That Turns Satisfied Customers into Customer Evangelists (Wiley, 2009);
- Anand Kumar Jaiswal, Examining the Nonlinear Effects in Satisfaction-Loyalty Behavioral Intentions Model (Indian Institute of Management, 2007);
- David Kean and Chris Cowpe, How to Win Friends and Influence Profits: The Art of Winning More Business from Your Clients (Marshall Cavendish, 2008);
- Timothy L. Keiningham, Lerzan Aksoy, Bruce Cooil, and Tor Wallin Andreassen, “Linking Customer Loyalty to Growth,” MIT Sloan Management Review (v.49/4, 2008);
- Rowley, “The Four C’s of Customer Loyalty,” Marketing Intelligence and Planning (v.23/46, 2005);
- Doyle Yoon, Sejung Marina, and Dongyoung Sohn, “Building Customer Relationships in an Electronic Age: The Role of Interactivity of E-commerce Web Sites,” Psychology & Marketing (v.25/7, 2008).
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