Analysis of the Efficiency of Loyalty Programs: a Case Study

Within the field of retailing, most companies have developed loyalty programs build around the concept of loyalty cards. Do these programs are really efficient? Do they really increase customer loyalty ? Few evidence come from the literature because very few empirical work has been done. The purpose of this paper is first to contribute empirically to a better knowledge of this kind of marketing program, second to contribute to a better understanding of their management. Three different analysis are conducted. The first one deals with aggregated data at the store level, relative to a 37 month experiment in 15 point of sales. With panel-data analysis, we tried to test the effect of the card diffusion upon sales, margin, traffic and mean basket. The main result is that if we detect a significative effect, the size of this effect, measured through elasticity, is very low. So low, that extrapolating the results, conditions of profitability of the program, should be a selective diffusion. The second analysis is related to desegregate data relative to the card's owners and their buying behaviour history. We show, on an individual basis, there is no long-term effect, but strong short-term one. These results suggest that loyalty cards seem to work as a promotional device more than as a loyalty induce. The last analysis deals with the effect of mailings sent to the cards holders. With a survival analysis we tested the acceleration of sales effect for 28 mailing campaigns. In most cases there is a significant reduction of the interpurchase time. In conclusion, a discussion about conditions of efficiency is developed. We claim that efficiency of loyalty programs is dependant of two main factors : the ability to target responsive lead users; the quality of promotional events associated with loyalty programs. The loyalty card, including reward schemes, is not sufficient to modify behaviours. The flow of events, animations, associated to the loyalty card, is the key for successful programs when applied to responsive customers.