An empirical analysis of the components of retailer customer loyalty programs

Abstract

PurposeThis paper sets out to determine the benefits offered to customers and activities taken by retailers, whether or not they have formal customer loyalty programs, whether there are differences in the benefits/activities of retailers with and without formal loyalty programs and finally, whether specific benefits/activities of retailers can predict whether or not they have formal loyalty programs.Design/methodology/approachA questionnaire was sent to a random sample of retailers in one US state. In addition, respondents reporting that they had formal loyalty programs received a telephone call lasting less than ten minutes designed to gather further information regarding their loyalty program. χ2, Kendall's W and logistic regression analysis were used to test the purposes of this study.FindingsThe most used benefits/activities of participating retailers are: demonstrating having the customers' interests at heart, providing financial incentives to selected customers, sending thank you notes to customers, and identifying customer preferences and recording them to guide future actions. In addition, a model was developed that was used to predict those retailers that had formal loyalty programs.Research limitations/implicationsGiven the nature of the sample, there is a need for replication to corroborate these findings. A larger‐sized sample would be needed to determine the presence of moderating and mediating factors that should be taken into account, such as size, environment, and competition.Practical implicationsCustomer loyalty is one critical key to business success and retaining an existing customer costs far less than acquiring new ones. One way to do this is to create customer loyalty programs that effectively reward one's best or potentially important best customers. Further, these program participants will spend more than the non‐participants.Originality/valueThis empirical research provides support for retailers' usage of loyalty programs. Further, insights are provided into the activities that can be used to retailers' competitive advantage by identifying the types of benefits they can offer.