Article Summary on, "The Long-Term Impact of Loyalty Programs on Consumer Purchase Behavior and Loyalty" written by Yuping Liu. The objective of this summary is to explain the research conducted on impact of loyalty program on various type of customer and how the customer perceives the customer loyalty program. The study was more concentrated on these consumer loyalty programs which changes consumers’ patronage levels to the firm and the outcomes are very important to study because they are directly related to consumer profitability and the financial success of a loyalty program.
The study further answers the following questions.
How do consumers change their usage levels after joining a loyalty program?
Does the program make consumers more loyal over time?
How do consumers with different initial spending levels respond differently to the program?
There is a change in influencing Individual consumer’s behavior that happens after they join a loyalty program. So consumers with different initial usage levels change their behavior to maximize the benefits they receive from a loyalty program. But there is a strategic importance because to run such programs it’s a costly investment and requires a firm’s long-term commitment. More on it is difficult to initiate and maintain a loyalty program. It requires extensive efforts to manage point records and reward issuance.
Such Loyalty programs provide value to consumers can be classified into two stages. In the first stage, points are given to consumers when the purchase takes place. Although these points doesn’t have any value until they are redeemed, but it create a psychological satisfaction to consumers. This psychological benefit which the consumer gains increases the purchase amount and number of purchases and, subsequently, the overall value perception of doing business with the firm. Because consumers can later redeem points for free rewards, point accumulation creates an anticipation of positive future events, which increases consumers’ retained and create and strong relationship. In the second stage, where redemption takes place, consumers receive both psychological and economic benefits from a loyalty program.
Consumers usually have a tendency to compare across competitors, consumers, and the time before going for a loyalty program. A main advantage of loyalty programs is their ability to increase switching cost. In the long run, the increase in switching costs has important implications for customer loyalty. When consumers join a loyalty program to redeem more quickly they increase their purchases on one firm, and more on this program will further helps in these consumers will diversified their purchases by purchasing other products of the firm, this cross-sell will increase the CLTV of the consumer.
Through these measures, the opportunity for these consumers to benefit from the loyalty program increased, further motivating them to spend more and patronize the store more exclusively.
The main advantage company can earn from this program is retaining the customer for longer period, thus this vested interest he or she will have could be used to increase the CLTV and this creates a long-term customer lock-in. and when the switching costs is higher for the consumer the loyalty program members are less likely to have extended experience with competitors, further reducing their ability to weigh competitor comparison in their decisions.
It can be concluded that, heavy buyers already can enjoy frequent rewards and thus do not have a strong incentive to change their behavior, but whereas Moderate and Light buyers are the best and most opportunity target, where the program gives an incentive to change their purchase behavior and shift their purchases to one firm. The loyalty program had positive impact on both light and moderate buyers purchase frequencies and transaction sizes, and it made these consumers more loyal to the store. And further it can be said that the consumer who started with low usage levels changed more than other targets groups, which contradicts the myth that low level buyers are less opportunity target and that they will not perceive much value in the program.
