The Short-Term Impact of an Item-Based Loyalty Program

Abstract

Given the prevalence of loyalty programs' implementation in service industries, in order to create a difference in the eyes of the customer from other competitors, examining new loyalty program designs become more and more important for most firms. Compare with Zhang and Breugelmans' research of the item-based loyalty program (IBLP), this research studies a more complicated IBLP design, in which customers can earn different extra points for purchases made on different items. The main purpose of this research is to examine the short-term impact of items with different points in this new IBLP design on different types of customers' purchase behavior. Using data from a Japanese grocery store chain, this study shows that those customers who were heavy customers at the beginning of the IBLP are more affected by this new IBLP design. Then, instead of higher-point items, a middle-level-point, 25-point items has the highest impact on customers' purchase behavior. These findings suggest this special tactic can enhance the value of firm's loyalty program, and help managers to further improve the effect of the IBLP by arranging more targeted items to different types of customers.