Article ID: | iaor20061157 |
Country: | United States |
Volume: | 24 |
Issue: | 2 |
Start Page Number: | 185 |
End Page Number: | 193 |
Publication Date: | Mar 2005 |
Journal: | Marketing Science |
Authors: | Shugan Steven M. |
Keywords: | loyalty programs, customer care, brand choice |
Brand loyalty and the more modern topics of computing customer lifetime value and structuring loyalty programs remain the focal point for a remarkable number of research articles. At first, this research appears consistent with firm practices. However, close scrutiny reveals disaffirming evidence. Many current so-called loyalty programs appear unrelated to the cultivation of customer brand loyalty and the creation of customer assets. True investments are up-front expenditures that produce much greater future returns. In contrast, many so-called loyalty programs are shams because they produce liabilities (e.g., promises of future rewards or deferred rebates) rather than assets. These programs produce short-term revenue from customers while producing substantial future obligations to those customers. Rather than showing trust by committing to the customer, the firm asks the customer to trust the firm – that is, trust that future rewards are indeed forthcoming. The entire idea is antithetical to the concept of a customer asset. Many modern loyalty programs resemble old-fashioned trading stamps or deferred rebates that promise future benefits for current patronage. A true loyalty program invests in the customer (e.g., provides free up-front training, allows familiarization or customization) with the expectation of greater future revenues. Alternative motives for extant programs are discussed.