What do customers get and give in return for loyalty program membership?

Abstract

A successful loyalty program (LP) represents the firms' investment in long-term relationships with their customers. However, to be effective LPs must be perceived as valuable by customers. The purpose of this study is to examine the different types of value customers derive from LP membership and examine the relationship between program value, loyalty to the program, and loyalty to the brand (firm). Further, we examine the effect of program and brand loyalty on behavioral responses, including share of wallet, share of purchase, word of mouth, and willingness to pay more. The moderating effect of program customization and the duration of the customer's LP membership on the relationship between loyalty to the program and loyalty to the brand is also studied. Using a sample of 628 respondents drawn from the two largest stand-alone retail loyalty programs in Australia we find that LP value consists of six primary constructs which drive loyalty. Specifically, we find that value in the form of reward attractiveness, knowledge benefit, and required effort impacts LP members' perceived experiential benefits, which in turn impact program loyalty; while value derived from group belongingness and disclosure comfort drive brand loyalty. We also find that program loyalty influences brand loyalty; and program and brand loyalty together induce positive customer behaviors. However, program loyalty has a negative impact on a customer's willingness to pay. Our findings highlight the impact of multiple program value elements on customer loyalty, extending the literature by clarifying the relationships among program value, attitudinal loyalty, and behavioral loyalty. Practically, our findings suggest how managers can better design and implement their LPs to build customer loyalty.