Loyalty program membership: A study of factors influencing customers'
decision
Introduction
Retaining customers is more profitable for a company than acquiring new ones as the cost of
retaining existing customers is far less than the cost of acquiring others (Reichheld and Sasser,
1990). Retaining customers not only helps in reducing marketing expenses (Duffy, 2003), it also
helps in improving business through increased customer purchases - cross-buying and up-buying
(Reichheld, 1996). Existing customers have also been found willing to buy things at a premium
(Reichheld and Sasser, 1990). Customer retention is therefore, an attractive proposition;
however, retaining customers may be easier said than done. In a recent study undertaken by
Colloquy (2011, a publication of LoyaltyOne), it was found that only one in five customers
(Indian), was loyal to his/her favourite brand.
Given the benefits of retaining customers, companies may be seen using various customer
retention tools, like - e-mail promotions, loyalty programs etc. for maintaining existing
customers. Loyalty programs that were introduced with an intention of rewarding customers for
their continued patronage and purchase over time (Kumar and Reinartz, 2008), help in reducing
customer switching by forming exit barriers (Nunes and Dreze, 2006). These programs have
been found to induce resistance to competitors’ promotions, help in the spread of positive word
of mouth, and thereby encourage customers to join the program (Uncles, Dowling and
Hammond, 2003). Furthermore, loyalty programs that are designed with a long term focus may
also improve customer loyalty by strengthening customer-firm relational bonds (Ou, Shih, Chen
and Wang, 2011). In the light of these advantages, it is not surprising that businesses across
sectors - retail, hospitality, airlines, banks, travel companies etc. are seen offering membership of
loyalty programs to their customers. Popular loyalty programs in India include - First Citizen
program of Shoppers Stop, Inner Circle membership of Landmark Group, Jet Privilege Program
of Jet Airways, etc.
Literature Review
Review of available literature reveals that several investigations have been made to improve the
understanding of loyalty programs in general and their effectiveness on customer retention and
loyalty in particular. In a study conducted in a convenience store context, Liu (2007) found that
loyalty program membership led to an increase in purchase levels among light and moderate
buyers and helped improve their loyalty towards the store. In an investigation involving Dutch
households Leenheer, van Heerde, Bijmolt and Smidts (2007), found that loyalty program
membership impacted customers’ share of wallet with the patronized grocery store in a small yet
significant manner. A mixed effect of loyalty program on customer purchase behaviour towards
participating brands was reported by Sharp and Sharp (1997) in their study of customers or
members of a large scale loyalty program.
Another much investigated area in the study of loyalty programs is their structure and
organization. Five different types of loyalty programs, namely - reward program, rebate program,
appreciation program, partnership program and affinity program were identified by Johnson
(1998) on the basis of their structure and organization. As per Johnson, each of these loyalty
programs has a unique structure that can be used by businesses for achieving specific goals. In
another research investigation by O’Brien and Jones (1995), five key elements were identified
that need to be considered when designing loyalty programs. These elements include - cash value
of reward, choice of reward, aspirational value attached to reward, relevance of reward to the
customer and convenience. Hoffman and Lowitt (2008) stated that loyalty programs designed
with a short term orientation and not aligned to customers’ interest would cause customers to
consider switching to competitor program/s that offered similar benefits. In a study undertaken
by Noble and Philips (2004), the authors found that customers reject loyalty program
memberships out of their concern for time, unattractive program benefits and perceived personal
losses such as - loss of social status or privacy. Loss of freedom in choosing brands and presence
of contractual bonds like minimum purchase levels etc. also discouraged customers from
accepting loyalty program memberships (Wendlandt and Schrader, 2007). In a study of grocery
store customers’ Demoulin and Zidda (2009) found that perception of loyalty program
advantages, it’s complexity, customers proximity to the store in question, and number of loyalty
cards in their possession influenced the acceptance (or rejection) of loyalty program
memberships. The researchers also found that customer loyalty in terms of attitudinal loyalty
(customers’ disposition towards the store) and behavioural loyalty (actual purchases made from
the store) also influenced the chances of a customer accepting the membership of a loyalty
program. Demoulin and Zidda (2009) were of the view that attitudinal loyalty measures like
commitment to the store influenced customers’ decision to accept or not accept membership of
loyalty programs far more than their behavioural loyalty towards the store.
While the work done by scholars has helped identify some factors that influence the acceptance
of loyalty program membership, review of available literature did not reveal any study that
provides a holistic exploration of the factors influencing customers’ decision to accept or not
accept the membership of loyalty programs. Given that such an understanding could be of much
use to both academicians and practitioners an attempt has been made in the present study to:
1. identify factors that influence the decision of Indian customers to accept/not accept
membership of a loyalty program
2. understand the role played by and the significance of the identified factors
The study finds relevance in the current situation where a multitude of loyalty programs are
offered to customers, making them more selective and careful while accepting the membership
of these programs.
Methodology
A qualitative study comprising of 25 in-depth interviews was conducted to gain a deeper
understanding of the factors that influence customers’ decision to accept or not accept the
membership of a loyalty program. A judgment sample of the respondents was selected on the
basis of their familiarity with and knowledge of loyalty programs. The final sample comprised of
10 men and 15 women, aged 23 to 55 years belonging to different cities of India. While most of
the respondents were members of some loyalty programs, few respondents did not have
membership of any such programs. All the respondents had however, been offered membership
of loyalty programs sometime in the past and were knowledgeable about the same. Respondents
who did not have membership of any loyalty program were included in the study primarily to
understand the reasons why they declined membership offers. All the interviews were conducted
face to face, except four that were performed over telephone. Respondents (with loyalty program
membership) gave reasons for accepting loyalty program membership, and provided detailed
description of the benefits, privileges, rewards membership fee, rules and regulations etc. In a
question posed to them respondents were asked whether they would accept or reject the
membership offer of yet another loyalty program. They were asked to provide detailed
description of all possible reasons for acceptance and rejection of such an offer. The interviews
were concluded after 25 respondents as saturation was reached in respondents’ discussions.
All face to face interviews were recorded while detailed notes were made for the ones conducted
over phone. Transcripts of all interviews were prepared immediately after the completion of each
session. Once prepared all transcripts were read, re-read and examined several times to identify
key words and phrases. Following the categorization process of Lincoln and Guba (1985), the
phrases that reflected similar feelings and sentiments were organized into distinct categories.
Five main themes namely – Purchase, Attitude, Concerns, Loyalty program characteristics and
Sales persons’ expertise and several sub-themes corresponding to each of these were identified
(see Figure 1). Excerpts from customer interviews that reflect and support each of these themes
and sub-themes are provided in Table 2.
Conclusion
The present study tried to understand the factors that affect customers’ decision to accept or not
accept the membership of a loyalty program, through a qualitative study, comprising of 25 indepth interviews. The five main themes that emerged from the study are - Purchase, Attitude,
Concerns, Loyalty program characteristics and Sales persons’ expertise. The findings from this
research may help firms to structure loyalty programs that are readily accepted by customers.
However, while the factors revealed from the present study are important, they are essentially
preliminary in nature. A more extensive quantitative study would be undertaken in future to
validate the findings of the present study.
Appendix 1
Figure 1: Acceptance/ Rejection of Loyalty Program Membership
Acceptance/Rejection of Loyalty
Program Membership
Purchase
*Frequency
*Value
Attitude
Concerns
*Toward store/brand
*Towards loyalty
programs in general
Loyalty program
characteristics
*Privacy
*Convenience
*Loss of
freedom
*Membership
*Policy
*Rewards
Sales persons’
expertise
*Knowledge
*Proactiveness
Appendix 2
Table 1: Respondents Comments
Purchase
- “I don’t find much use in it (loyalty program) because to get anything redeemed, you must accumulate lots of
points. The chances of me shopping in Lifestyle for that much amount will never happen. I go to Lifestyle
maybe once a year or twice a year. My purchase there will in all be worth … 2000 rupees. Let’s say, I might
get 10 points from that but to buy anything of any value you might need at least 200 to 300 points. For me
because I don’t shop that much, I don’t earn enough points to spend it.” (Female, 33yrs.)
Attitude
- “Any place I shop in has to meet certain basic criteria in terms of cost, quality… if they don’t , I will not stick
with them… If these basic criteria are met, I will consider their loyalty program.” (Male, 35yrs.)
-
“I think it’s a pain. I am not interested in loyalty programs. There is no immediate reward that you get. You
have to acquire points for quite some time. Every purchase you make, you get minimal points. Maybe after
your nth time you get something free… I would prefer something which is instant.” (Female, 27yrs.)
Loyalty program characteristics
- “I did pick up a loyalty card from a shoe store recently. They had a 5% cash back offer in terms of reward
points straightaway on whatever you purchase. I thought that was a good scheme and I felt that there was a
good chance of me going back there because of the same reason.” (Male, 35 yrs)
-
“I would never take a card if I had to pay for it because every store these days wants to offer you something
and you never really know if you going to use it. Most of the time what happens is, when you redeem those
points, you get something very useless like a water bottle which makes you happy you got something but it’s
really meaningless. It doesn’t make sense. I wouldn’t pay for that anyways.”(Female, 24yrs.)
Concerns
- “I obviously don’t want to take that card because it goes into my wallet and makes it even more bulky.”
(Female, 24 yrs.)
-
“One of the reasons that I don’t choose a loyalty card is that I have to give my details. I know that the details
are sold and your phone numbers are sold for advertising. This is one of the main reasons why I don’t opt for
a card as it will have all my details like my e-mail, my mobile etc.” (Female, 33 yrs.)
-
“I am not loyal to any particular store. I don’t want to restrict myself because when you have the card you
kind of feel that you have to go back again.” (Female, 23 yrs.)
Salespersons’ expertise
- “Even if I am slightly hesitant, there are instances when I remember that even if there’s a form filling to do,
they (sales persons) will do most of it and they will give it to me saying you just have to fill up your name, email, address etc...For Westside that’s what happened and I am not even a frequent shopper with Westside.”
(Female, 25 yrs.)
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