Loyalty Programs and their Impact on Repeat-Purchase Loyalty Patterns: a replication and extension

We evaluated the effect of a loyalty program in terms of its ability to alter normal repeatpurchase patterns and move a brand into an “excess loyalty” position. In doing so we replicate the work of (Sharp and Sharp, 1997) and extend the research by examining an almost identical loyalty program but in a more “promotion sensitive” market (and in a different country) and where a retaliatory price promotion ran in competition to the loyalty program. We were therefore able to examine the differing effects of a loyalty program and a price promotion on repeat-purchase behaviour in the same market. As expected, we observed a stronger “excess loyalty” effect for the loyalty program than (Sharp and Sharp, 1997) recorded. This was in spite of the competitive price promotion. The loyalty program appeared to insulate the loyalty program brand from the effect of this promotion. Interestingly, the price promotion also generated excess loyalty but less than the loyalty program. The price promotion generated a greater, but temporary, market share gain. Both marketing interventions appear to be quite defensive in nature, encouraging buying by existing buyers. This is in contrast to interventions that achieve “normal”, permanent market share gains which are primarily based on increases in penetration, ie numbers of customers. This result supports other empirical work that suggests that promotions attract existing customers, they are defensive and reinforcing which is in contrast to a popular view that promotions at best attract new trials and at worst harm the loyalty of existing customers. 1 Authors’ contact address is Marketing Science Centre, GPO Box 2471, Adelaide, South Australia 5001. Australia Email [email protected] Telephone: 61 8 8302 0715 Fax: 61 8 8302 0123