Can Non-Tiered Customer Loyalty Programs Be Profitable?

41 Pages Posted: 8 Apr 2016 Last revised: 9 May 2019

See all articles by Arun Gopalakrishnan

Arun Gopalakrishnan

Rice University - Jones Graduate School of Business

Zhenling Jiang

Georgia State University - Department of Marketing

Yulia Nevskaya

Olin Business School - Washington University in St. Louis

Raphael Thomadsen

Olin School - Washington University in St. Louis

Date Written: May 6, 2019

Abstract

We study the impact of launching a non-tiered customer loyalty program on consumers’ spending per visit, frequency of visits and attrition rates, as well as the overall customer value. We demonstrate these results both through descriptive difference-in-difference estimations as well as through an HMM-style we develop. We find the program increases customer value by almost 19% over a five-year horizon, which is considerably larger than has been previously found for non-tiered loyalty programs. Most of the impact of the loyalty program comes through attrition: We show that the program’s reduction in attrition accounts for over 70% of the program’s total lift, while increased frequency accounts for approximately 20% of the program’s lift. The impact of the loyalty program on spending per visit is negligible. Further, the program effects are heterogeneous across consumers of varying pre-program involvement: The relative lift in customer value is highest for the low- and high-frequency segments and much smaller for the moderate-frequency segment. This finding is driven by a similar pattern in the effect of the program on attrition. Frequency effects, however, are higher for customers who were already high-frequency visitors compared to lower frequency prior to program introduction.

Keywords: Loyalty Program, CRM

JEL Classification: M31

Suggested Citation

Gopalakrishnan, Arun and Jiang, Zhenling and Nevskaya, Yulia and Thomadsen, Raphael, Can Non-Tiered Customer Loyalty Programs Be Profitable? (May 6, 2019). Available at SSRN: https://ssrn.com/abstract=2759888 or http://dx.doi.org/10.2139/ssrn.2759888

Arun Gopalakrishnan

Rice University - Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Zhenling Jiang (Contact Author)

Georgia State University - Department of Marketing ( email )

United States

Yulia Nevskaya

Olin Business School - Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Raphael Thomadsen

Olin School - Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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