Implications of Loyalty Program Membership and Service Experiences for Customer Retention and Value

Abstract

Companies that offer loyalty reward programs believe that their programs have a long-run positive effect on customer evaluations and behavior. However, if loyalty rewards programs increase relationship durations and usage levels, customers will be increasingly exposed to the complete spectrum of service experiences, including experiences that may cause customers to switch to another service provider. Using cross-sectional, time-series data from a worldwide financial services company that offers a loyalty reward program, this article investigates the conditions under which a loyalty rewards program will have a positive effect on customer evaluations, behavior, and repeat purchase intentions. The results show that members in the loyalty reward program overlook or discount negative evaluations of the company vis-a-vis competion. One possible reason could be that members of the loyalty rewards program perceive that they are getting better quality and service for their price or, in other words, “good value.”