CUSTOMER LOYALTY PROGRAMS

Latika Parmar Shahrukh TaghvaeiSanika ShahDisha Chaudhry

What is Customer Loyalty?

Loyalty is a feature of people rather than something inherent in brands

Attitude of the consumer

Commitment to a specific brand

Oliver, 1997

“Deeply held commitment to re-buy or patronize a preferred product/service consistently in the future, thereby causing repetitive same-brand or same brand-set purchasing despite situational influences and marketing efforts having the potential to cause switching behavior.”

Customer Loyalty Program

A customer loyalty program is a structured and long-term marketing effort which provides incentives to repeat customers who demonstrate loyal buying behavior.

2 aims of Consumer Loyalty Programs:

I. To increase sales revenuesII. To increase range of products bought

from supplierIII. To build a closer bond between the

brand and current and/or future customers

3 popular concepts: Model 1 : Loyalty as primarily an attitude that

leads to a relationship with the brand

MONOGAMY

Model 2: Loyalty mainly expressed in terms of patterns of past purchases (revealed behavior)

POLYGAMY

Model 3: Buying moderated by the individual’s characteristics, circumstances and/or purchases situation

PROMISCUITY

Model 1: Attitudinally-loyal customers Strong attitudinal commitment towards a

brand establishes true loyalty Strength of these attitudes is the KEY

predictor of a brand’s purchase and repeat patronage

Revenue becomes more predictable and considerable with time

Attitudes drive behavior Relationships attached with emotion last

longer

Limitations

Model 1 does not apply to: Impulsive buys Low risk commodities Frequently purchased brands Customers who seek variety

Model 2: Revealed Behavior

Pattern of past purchases With regard to underlying consumer

motivations or commitment to the brand

“An ongoing propensity to buy the brand, usually as one of several”

Limitations

I. Trial and errorII. Repeated satisfaction of a particular

brandIII. Results in “weak commitment”IV. Revealed behavior may merely

reflect happenstance

Model 3: Individual’s characteristics and environment

Also known as “Contingency Approach”

Relationship between attitude and behavior moderated by:- current circumstances- individualistic characteristics- purchase situation faced

ANTECEDENTS(weak prior attitudes and characteristics

of consumer)

CONTINGENCY FACTORS

(type of use, occasion, purchase situation)

CONSEQUENCES(up-dated attitudes,

intentions, actual purchase behavior)

Three-Factor Model

Depending on the model one adopts, the implications of

practice can be significantly different

Model 1: Attitudinally-loyal customers Aim: To enhance positive beliefs and

strengthen the emotional commitment of customers to their brand

Image-based or persuasive advertising

Personal Service (recovery) Programs

Model 2: Revealed Behavior

Split-loyalty portfolios of habitually-bought brands

Publicity Advertising + Other forms of Marketing

Communications Matching competitor initiatives Avoiding supply shortages Result: No dramatic changes in

consumer attitudes and behavior

Model 3: Individual’s characteristics and environment Easy accessibility, avoiding stock-

outs, offering appropriate assortment mix extending opening hours – simply to be more acceptable to the consumer

Price promotions, deals, offers Service provider gains loyalty by

responding directly to the contingent factors

Implications of these concepts

Introduction to the three models of loyalty – Loyalty Continuum

I. Customer Brand Commitment (CBC)II. Customer Brand Acceptance (CBA)III. Customer Brand Buying (CBB)

Customer Brand Commitment

Product category: High-end products, luxury goods

Target audience: value psychological and social value more than functionality

Acquired drive of choice/commitment Attitudes, values and social norms

influence the buyer’s decision Relationship between customer and

brand is personal

Limitations:

1. Not all high-end products necessarily have single brand loyalty customers. Eg. Frequent air travelers

2. Just because the brand is designed to be unique, does not mean it is distinct in the eyes of all its potential customers

3. Even if a customer is loyal to a brand, it may not be the only preference of the buyer in that particular product category. Eg. Harley Davidson vs. Japanese Competitors

Customer brand acceptance

Set of acceptable brands in a category

Brand attributes

Need arousal

Individual Customers

Satisfaction of habit

formation

Purchase of acceptable and

accesable brands

Unexpected purchase

situation factors

As long as these brands get the job doneCustomer loyalty mostly based on frequent satisfied use than on

value – laden beliefs

Consumer Brand Buying

Immediate availability Price, promotions Weak attitudes. Eg: Online travel

agencies Contingencies are the co-determinants

of choice Loyalty proportional to habit rather than

serious commitment Model 3 – Model 1 (CBB to CBC) Model 2 - CBA

Loyalty Programs from the Individual’s perspective

Increase of single brand loyalty Decrease price sensitivity Induce greater consumer resistence Encourage word of mouth Less chances of buyers choosing a

substitute products Aim: Create bigger group of single

branded loyal customers

Very hard to convince an individual to reduce their repertoire of brands

Greater access to brands, offers more variety, consolidate their purchases with fewer business providers

Cross-selling, an attempt to increase share-of-wallet instead of share of market

Loyalty Programs – Market’s perspective

1) Increase of CBA category through- Exposure at pt. of purchase- Gaining wider distribution- Suggesting more usage occasions2) Create a niche brand3) Big brand to “super loyal brand”4) Exploit the desire of customers for

change-of-pace (Penetration>Repeat purchase) Eg. Premium beers

Aim: To help grow the size of a brand when used in combination with other marketing programs

Loyalty Programs – Profibility

Better insight into customer behavior Greater efficiency in targeted

marketing Demographics and lifestyles Too much information No control group method Importance of opportunity costs

Thank you