The Adverse Effects of Customer Loyalty Programs

The concept of loyalty has not only gained importance in recent years, but much rather has been around for centuries. An ancient legend describes a kingdom that has been besieged by its enemies. The king required a proof of loyalty from his soldiers and told them to cut off one of their fingers so he would know that they are truly loyal, will do anything to defend the city and would not turn against him in the face of defeat. However, besides this old legend there are historically proven incidents where loyalty has played a crucial role in certain events that changed the course of history. Napoleon Bonaparte, the Emperor of the French, is only one of several political and military leaders that managed to achieve the unthinkable through the establishment of extreme loyalty among the soldiers under their command. Back in these days, loyalty determined the value and the integrity of a man by assessing his reliability.

Even though, the old times of imperialism and conquest are long gone, the concept of loyalty has stood the test of time and has not forfeited any of its importance. Loyalty has made the transition from the military field to the world of business, where today it is every company’s ally in the fierce battle for a sustainable competitive advantage and profitability.

The questions that inevitably arise are “What is the meaning of loyalty today in the world of business?” and “How can companies achieve true loyalty, so they can rely on their customers even when the going gets tough?”

1.2 Relevance of Customer Loyalty for Companies

Loyalty occurs when ”(…) the customer feels so strongly that you can best meet his or her relevant needs that your competition is virtually excluded from the consideration set and the customer buys almost exclusively from you” (Smith 1998) . Jacoby and Chestnut (1978) summed up the importance of loyal customers by proposing that the long-term success of a brand does not depend on those customers that purchase the brand only...