Marketing Assesment

Marketing Assessment

Name

Course

Date

Tutor

Marketing Assessment

Critically evaluate the key concepts/theories on the topic of ‘the effectiveness of loyalty programmes on customer loyalty’

Loyalty reward programs are ubiquitous and a favoured marketing tool for effecting customer loyalty and retention. Used widely in varies industries such as hotel chains, airlines, retail stores and credit card companies (Kivetz, 2005; Kivetz & Simonson 2003; Kivetz, Urminsky & Zheng, 2006; Noordhoff, Odekerken-Schröder & Pauwels. 2004), these programs aim to improve customer relationships by giving value to profitable market segments (Bolton, Kannan & Bramlett, 2000; Kumar & Shah 2004). Loyalty programs are, further, successful in raising customers’ perception of switching costs, thus improving consumer retention even more. Loyalty programs just may be the answer to relationship building in an industry where many service enterprises are characterized by low switching costs and undifferentiated offerings (Bandapudi and Berry 1997; Guiltinan, 1989).

The efficacy of a loyalty program is a sum of many variables such as a consumer’s psychological attachment towards a brand or provider, the consumer’s brand level spending within product category, the attractiveness of a reward program, and the consumer’s perceived switching costs between loyalty programs. Understanding a consumer’s attachment to a brand or provider is important as it has been linked to future usage (Liddy, 2000) and consequently, to profitability. (Reinartz & Kumar, 2002)

Conceptual and Theoretical Framework: the Attractiveness of Loyalty Programs

The first and primary reason why consumers engage in loyalty programs is to gain economic advantages (discounts), emotional advantages (a sense of belonging), recognition or prestige and/ or access to an exclusive service or experience. (Gruen, 1994; Yi and Jeon, 2003) It is assumed that a consumer will participate in a loyalty...