Loyalty program effectiveness: Theoretical reviews and practical proofs

Abstract

Loyalty programs are widely used by organizations as a structured customer relationship management (CRM) tool to build and extend customer-supplier relationship. Although a large number of benefits are offered through them to both companies and consumers, loyalty programs face a set of planning and implementation pitfalls. Scholars or practitioners rarely discuss such pitfalls. Thus, this paper intends to add further values to the current literature by exploring/investigating the main loyalty scheme pitfalls, both theoretically and practically. The study explores a set of loyalty program planning problems and some of the execution’s drawbacks, including clear aim need, loyalty program design, budgeting and experienced employee involvement. In addition to loyalty programs benefits and rewards offered, loyalty programs target customer selection problems using loyalty program promotional tools. For the study, 161 managers and employees who were involved in loyalty program planning and execution were surveyed. Smart-PLS was used to test the developed model and hypotheses. The study found that all studied loyalty program elements identified affected their planning and implementation. However, some of these elements where seen important to be considered when planning loyalty schemes, such schemes’ benefits and rewards offered were still not planned properly and did not meet customer needs or even expectations and, in most cases, the loyalty programs’ aims were not clear to all their stakeholders. The paper also provides additional discussion about additional issues of loyalty schemes planning and execution problems and proposes a set of solutions and recommendations, which might highlight some of the future venues with this regard.