Dynamic segmentation of loyalty program behavior

Abstract

Loyalty programs have evolved in recent years to become a key component of customer relationship management. The creation of huge databases from these loyalty programs has created a need for methodologies capable of generating meaningful insights from analysis of the large quantities of longitudinal behavioral data flowing from them. Our research utilizes a group trajectory modeling approach to generate managerially important segments among members of a retail loyalty program based on the dynamics of their behaviors following the launch of the program. We profile the segments and discuss the managerial implications of such findings as segment sizes, spending trajectories, and possible drivers of differences among the groups, evaluating these issues relative to the effectiveness of the loyalty program design.