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Competing with loyalty: How to design successful customer loyalty reward programs

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  • Nastasoiu, Alina
  • Vandenbosch, Mark

Abstract

For industries with low switching costs, customer loyalty programs (LPs) have potential to drive differentiation and sustain a competitive advantage. However, incentives provided through LPs also have a potential to escalate into costly price wars. In this article, we discuss how to design successful customer loyalty reward programs that bring value to participants and that cannot be emulated by competitors easily. We focus on three distinct aspects of improvement: personalization, reward types, and additional services. Through personalization, companies can leverage the knowledge they already have on their customers to tailor offers that they find relevant and appealing. For the reward structure, we argue in favor of a certain degree of opacity. We also encourage loyalty programs to consider giveaways that are unique and difficult to imitate and to use all the information they have available to provide rewards that fit with each customers’ idiosyncratic situation or preference. Finally, competitive LPs should look beyond offers and rewards. In addition to purchases, LPs can reward participants for other desirable behaviors; they can also provide additional services that impose minimal costs on firms, but bring value to customers.

Suggested Citation

  • Nastasoiu, Alina & Vandenbosch, Mark, 2019. "Competing with loyalty: How to design successful customer loyalty reward programs," Business Horizons, Elsevier, vol. 62(2), pages 207-214.
    • Handle: RePEc:eee:bushor:v:62:y:2019:i:2:p:207-214
    DOI: 10.1016/j.bushor.2018.11.002
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    References listed on IDEAS

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    Cited by:

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    2. Tsai, Pei-Hsuan & Chen, Chih-Jou, 2021. "Entertainment in retailing: Challenges and opportunities in the TV game console industry," Journal of Retailing and Consumer Services, Elsevier, vol. 60(C).
    3. Baoliang Hu & Wei Huang & Shuai Yan & Guang Liu & Tao Zhang, 2020. "Business Model Design and Customer Loyalty: The Mediating Role of Customer Citizenship Behavior," Sustainability, MDPI, vol. 12(17), pages 1-14, August.
    4. Afonso Vieira, Valter & Agnihotri, Raj & de Almeida, Marcos Inácio Severo & Lopes, Evandro Luiz, 2022. "How cashback strategies yield financial benefits for retailers: The mediating role of consumers’ program loyalty," Journal of Business Research, Elsevier, vol. 141(C), pages 200-212.
    5. Hanna Górska-Warsewicz & Olena Kulykovets, 2020. "Hotel Brand Loyalty—A Systematic Literature Review," Sustainability, MDPI, vol. 12(12), pages 1-34, June.
    6. Hallikainen, Heli & Luongo, Milena & Dhir, Amandeep & Laukkanen, Tommi, 2022. "Consequences of personalized product recommendations and price promotions in online grocery shopping," Journal of Retailing and Consumer Services, Elsevier, vol. 69(C).
    7. Hanna Górska-Warsewicz & Maciej Dębski & Michal Fabuš & Marián Kováč, 2021. "Green Brand Equity—Empirical Experience from a Systematic Literature Review," Sustainability, MDPI, vol. 13(20), pages 1-34, October.
    8. Sundström, Malin & Hjelm-Lidholm, Sara, 2020. "Re-positioning customer loyalty in a fast moving consumer goods market," Australasian marketing journal, Elsevier, vol. 28(1), pages 30-34.

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