Can Non-Tiered Customer Loyalty Programs Be Profitable?

Marketing Science, forthcoming

49 Pages Posted: 8 Apr 2016 Last revised: 8 Sep 2020

See all articles by Arun Gopalakrishnan

Arun Gopalakrishnan

Rice University - Jones Graduate School of Business

Zhenling Jiang

University of Pennsylvania - The Wharton School

Yulia Nevskaya

Olin Business School - Washington University in St. Louis

Raphael Thomadsen

Olin School - Washington University in St. Louis

Date Written: September 5, 2020

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 regressions as well as through a duration-dependent Hidden Markov Model we develop. We find the program increases customer value by almost 30% 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 80% of the program’s total lift, while increased frequency accounts for less than 20% of the program’s lift. The program’s lift is highest for least- and most- frequent automatic members, who experience reductions in attrition rates after joining the program. The impact of the loyalty program on spending per visit is negligible.

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? (September 5, 2020). Marketing Science, forthcoming, 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)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
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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