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The effects of loyalty program introduction and design on short- and long-term sales and gross profits

Author

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  • Malika Chaudhuri

    (University of Dayton)

  • Clay M. Voorhees

    (University of Alabama)

  • Jonathan M. Beck

    (Michigan State University)

Abstract

Loyalty programs (LPs) are marketing investments designed to foster behavioral loyalty among a firm’s best customers and, ultimately, increase firm performance. Surprisingly, the effectiveness of introducing LPs on firm performance in the short and long term has not been thoroughly evaluated. This research examines the extent to which introducing an LP can increase both firm sales and gross profits. Leveraging data from 322 publicly-traded firms that introduced an LP between 2000 and 2015, the authors demonstrate that introducing an LP can increase sales and gross profits in the short term (within the first year), and these positive effects are sustained long term (for at least three years). However, the effects on gross profits do not become significant until the second quarter after LP introduction, and their overall impact on performance lags substantially behind sales. Complementing these primary findings, the results reveal that offering an LP with tiers or earning mechanisms can provide firms with significant increases in sales and gross profits. Taken together, this research demonstrates that introducing strategically designed LPs can dramatically increase firm performance in both the short and long term.

Suggested Citation

  • Malika Chaudhuri & Clay M. Voorhees & Jonathan M. Beck, 2019. "The effects of loyalty program introduction and design on short- and long-term sales and gross profits," Journal of the Academy of Marketing Science, Springer, vol. 47(4), pages 640-658, July.
    • Handle: RePEc:spr:joamsc:v:47:y:2019:i:4:d:10.1007_s11747-019-00652-y
    DOI: 10.1007/s11747-019-00652-y
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    Cited by:

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    2. Sonja Fourie & Michael Goldman & Michael McCall, 2023. "Designing for loyalty programme effectiveness in the financial services industry," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 28(3), pages 502-525, September.
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    6. Blanca I. Hernández-Ortega & Michael A. Stanko & Rishika Rishika & Francisco-Jose Molina-Castillo & José Franco, 2022. "Brand-generated social media content and its differential impact on loyalty program members," Journal of the Academy of Marketing Science, Springer, vol. 50(5), pages 1071-1090, September.
    7. Meyer-Waarden, Lars & Bruwer, Johan & Galan, Jean-Philippe, 2023. "Loyalty programs, loyalty engagement and customer engagement with the company brand: Consumer-centric behavioral psychology insights from three industries," Journal of Retailing and Consumer Services, Elsevier, vol. 71(C).
    8. De Silva Kanakaratne, Maheshan & Bray, Jeffery & Robson, Julie, 2020. "The influence of national culture and industry structure on grocery retail customer loyalty," Journal of Retailing and Consumer Services, Elsevier, vol. 54(C).
    9. Jaeho Jeong & Dongeon Kim & Xinzhe Li & Qinglong Li & Ilyoung Choi & Jaekyeong Kim, 2022. "An Empirical Investigation of Personalized Recommendation and Reward Effect on Customer Behavior: A Stimulus–Organism–Response (SOR) Model Perspective," Sustainability, MDPI, vol. 14(22), pages 1-19, November.
    10. Jennifer Watson, 2020. "The Provision of Long-Term Credit and Firm Growth in Developing Countries," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 7(2), pages 224-234.
    11. Kokkoris, Michail D. & Hoelzl, Erik & Kamleitner, Bernadette, 2020. "Self-found, spellbound: The sense of own discovery shapes customer bonds with service venues," Journal of Business Research, Elsevier, vol. 113(C), pages 303-316.
    12. Hu, Xin & He, Liuyi & Liu, Junjun, 2022. "Status reinforcing: Unintended rating bias on online shopping platforms," Journal of Retailing and Consumer Services, Elsevier, vol. 67(C).
    13. Jisu J. Kim & Lena Steinhoff & Robert W. Palmatier, 2021. "An emerging theory of loyalty program dynamics," Journal of the Academy of Marketing Science, Springer, vol. 49(1), pages 71-95, January.
    14. Alex Belli & Anne-Maree O’Rourke & François A. Carrillat & Ljubomir Pupovac & Valentyna Melnyk & Ekaterina Napolova, 2022. "40 years of loyalty programs: how effective are they? Generalizations from a meta-analysis," Journal of the Academy of Marketing Science, Springer, vol. 50(1), pages 147-173, January.
    15. Bies, Suzanne M.T.A. & Bronnenberg, Bart J. & Gijsbrechts, Els, 2021. "How push messaging impacts consumer spending and reward redemption in store-loyalty programs," International Journal of Research in Marketing, Elsevier, vol. 38(4), pages 877-899.
    16. Bies, Suzanne, 2022. "Examining the effectiveness of activation techniques on consumer behavior in temporary loyalty programs," Other publications TiSEM ade86df3-4846-4318-938f-a, Tilburg University, School of Economics and Management.

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