Loyalty and Reward Schemes: How Much is Your Loyalty Worth?

Abstract

Loyalty and reward schemes are one of the tools in customer relationship management. Consumers who register as loyalty scheme members allow businesses to record purchase transactions, and thereby grant implicit permission for businesses to use that data in exchange for modest rewards. Some loyalty schemes have more information about consumer behaviour and lifestyles, than that held by the consumers being profiled, and the potential for intrusion, infringement of privacy and manipulation is considerable. Two main sections in the article explore practice and research in relation to loyalty schemes respectively. Loyalty schemes can be grouped into the following categories; retailer schemes, coalition schemes, financial services schemes, online schemes, frequent flyer or travel schemes, and geographically based schemes, although individual schemes may bridge more than one category. Key aspects of the schemes are the means and processes whereby rewards, points or credits can be earned, and the options or deals through which points can be spent. Research on loyalty schemes centres on the question: 'Do loyalty schemes work?' This core question has led to discussion of the nature of loyalty and commitment, the value and application of loyalty scheme data, and the appropriateness and effect of rewards. The most recent research has urged a more strategic perspective on the contribution of loyalty schemes to customer relationship management strategy, and, more widely marketing and business strategy. This involves consideration of issues such as the customer experience of the scheme, customer lifetime value, targeting best customers, and brand building.