Loyalty program types as drivers of customer retention: a comparison of stand-alone programs and multi-vendor loyalty programs through the lens of transaction cost economics

Abstract

Loyalty programs have enjoyed a steady increase in popularity, particularly in retailing. Past research has explored whether the membership in a loyalty program affects important customer outcomes. However, none of the previous contributions has differentiated between the effects of different loyalty program types on customer retention. This paper intends to fill this research gap by focusing on the question whether different types of loyalty programs, i.e. multi-vendor loyalty programs (MVLP) or stand-alone programs (SAPs) are most effective in retaining customers. Based on a transaction cost theoretic analysis of benefits generated by the two types of programs, two empirical studies are conducted in the retail sector. Our results clearly indicate that a higher level of customer retention cannot be achieved by joining an MVLP, but by setting up an SAP. It is, however, possible to win new customers through joining an MVLP which does not seem feasible through setting up an SAP.