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Is loyalty overrated?


11 June 2007

Is loyalty overrated?

Reports that some New Zealand companies are reviewing their customer loyalty programmes to see if they’re delivering value for money comes as no surprise to one academic. Research by Waikato Management School marketing professor Harald van Heerde shows such programmes have nowhere near as much impact as previously thought.

“The difference is astonishing,” said Prof van Heerde. “Unlike previous models, our model takes into account those self-selecting consumers who join a loyalty scheme for the savings and discounts but would have shopped at the firm anyway. It’s been calculated that for every dollar spent, loyalty membership schemes enhance spending by around 30c. But our research shows that when you factor out self-selecting members, the real extra spending is only about 4c for every dollar. That’s seven times less than we’d previously thought.”

To increase the additional spend, Prof van Heerde and fellow authors Jorna Leenheer, Tammo H.A. Bijmolt and Ale Smidts recommend strategies for firms to boost loyalty scheme membership among customers who are not yet loyal to the firm. “We suggest focussing on delayed rewards (saving for gifts) rather than direct discounts, and creating a set of ‘soft’ membership benefits, such as special shopping evenings or cooking lessons for members only.”

The researchers say it’s also important to ensure that the privacy of loyalty scheme members is fully protected and to communicate this clearly

The research has earned Prof van Heerde best paper award from the International Journal of Research in Marketing, the premier European marketing journal published by the European Marketing Academy. Prof van Heerde has also been named the top researcher in Australasia and 23rd in the world in the American Marketing Association’s latest world ranking of marketing scholars.


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