IDEAS home Printed from https://ideas.repec.org/a/inm/ormksc/v44y2025i2p306-326.html
   My bibliography  Save this article

On the Profitability of Loyalty

Author

Listed:
  • Ying Lei

    (Business Department, New York University Shanghai, Shanghai 200122, China)

  • Ji Shen

    (Guanghua School of Management, Peking University, Beijing 100871, China)

  • Ei Yang

    (School of Finance, Shanghai University of Finance and Economics, Shanghai 200437, China)

  • Xin Zhai

    (Guanghua School of Management, Peking University, Beijing 100871, China)

Abstract

This paper aims to enhance our understanding of customer loyalty and its implications on firm profits. Factors such as favorable brand attitudes and switching costs may drive customer loyalty, which is often considered a strong indicator of a firm’s profitability. However, empirical findings on the profitability of customer loyalty are inconsistent, and a comprehensive framework to analyze the connection between customer loyalty and firm profits is still lacking. This paper fills this gap by proposing an analytical framework that characterizes how repeat-purchase loyalty is generated from consumer choice in a dynamic competition environment. It also examines the impact of brand preference and switching costs on firm profits and customer loyalty. Our findings suggest that strong brand preference can either increase or decrease customer loyalty, depending on the stability of consumer preferences over time, and when it increases loyalty, such loyalty is profitable for firms. Conversely, if customer loyalty is primarily driven by habitual buyers who are simply avoiding switching costs, this type of loyalty is not profitable for firms.

Suggested Citation

  • Ying Lei & Ji Shen & Ei Yang & Xin Zhai, 2025. "On the Profitability of Loyalty," Marketing Science, INFORMS, vol. 44(2), pages 306-326, March.
    • Handle: RePEc:inm:ormksc:v:44:y:2025:i:2:p:306-326
    DOI: 10.1287/mksc.2022.0109
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mksc.2022.0109
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mksc.2022.0109?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormksc:v:44:y:2025:i:2:p:306-326. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.