Impact of loyalty programs on consumer retention

This study provides a detailed analysis of four literature chosen on the topic of loyalty programs and its impact on the consumer retention in the market. Based on the analysis of the articles, common themes have been identified along with the key differences. The research has also highlighted the key managerial implications across all the four articles and the limitation of the research. The gap in these literature will be identified to determine the future scope in the research.

Running head: BUSINESS RESEARCH METHODOLOGY
Business Research Methodology
Name of the student
Name of the university
Author note

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Table of Contents
Introduction............................................................................................................................................ 2
Summary and theories across four articles............................................................................................ 2
Common themes across four articles.................................................................................................... 3
Different themes across four articles..................................................................................................... 3
Managerial implication of the four articles.............................................................................................. 4
Study limitations and future research direction......................................................................................4
Conclusion............................................................................................................................................. 4
References............................................................................................................................................ 5

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Topic: Impact of loyalty programs on consumer retention
Introduction
This study provides a detailed analysis of four literature chosen on the topic of loyalty
programs and its impact on the consumer retention in the market. Based on the analysis of the
articles, common themes have been identified along with the key differences. The research has also
highlighted the key managerial implications across all the four articles and the limitation of the
research. The gap in these literature will be identified to determine the future scope in the research.
Summary and theories across four articles
Magatef and Tomalieh (2015) aimed to develop an in depth understanding on the impact of
customer loyalty programs on the retention of the customers. The study was conducted in respect to
the Jordanian customers. In this study, loyalty program was the independent variable and different
elements of loyalty programs have been identified. These elements include tier reward system, point
system, Upfront charges for VIP benefits and non-monetary programs. On the other hand, the
retention of the consumers have been considered as the dependent variable. This study had used a
single research design where survey was conducted with 350 respondents. These participants
belonged to diverse backgrounds and the findings showed significant relationship and influence of
loyalty programs on developing and maintaining customer retention of employees. This study
developed a theoretical framework which aimed at measuring the impact of different elements of
loyalty programs on customer retention. The study showed that loyalty programs are essential for
developing competitive advantage in the global market.
Source: (Magatef and Tomalieh 2015)
On the contrary, Zhang and Breugelmans (2012), conducted an empirical investigation which
replaced the general loyalty programs with an item based loyalty programs to evaluate whether there
is significant increase in the responsiveness of the consumers. This study is focused on the retail
organizations and developing loyalty schemes for individual products. Moreover, the new loyalty
program had different impact on the existing and new consumers. However, this had negative impact
on the existing consumers as sufficient promotions is required otherwise the consumers would feel
alienated. Moreover, it increases the chances of repeat purchases of the new consumers and there is
change in the purchase intention. This theoretical framework in this research aims to examine the
impact of the item based loyalty programs on the purchase intention of the individual consumers. This
uses a framework already proposed by Leenhur et al. (2007). The framework conjecture that loyalty
programs can definitely impact the buying decision of the consumers. This is done by affecting the
appeal of the focal store in comparison to the competitor stores.

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Source: (Zhang and Breugelmans 2012)
Lim and Lee (2015), has conducted a study to evaluate the impact of loyalty programs on the
online retail consumers. There has been significant growth of the online retail market and various
retail companies have been using loyalty programs to influence the purchase intention of the
consumers. This aims to examine whether the results are same or different in cases of online retail
consumers. This research has used the game theoretical model to evaluate the likelihood of success
of using loyalty programs where it can be seen that it is higher in case of the online markets than the
offline markets. The author suggested that the preferences of the retail consumers are highly dynamic
but the cost of redeeming their loyalty programs is lower in comparison as there is no cost of
transportation. The model also suggested that online consumer’s preference data provides better
profit incentives as the transaction data facilitates in highlighting and customising preferences of
online consumers.
Thompson and Chmura (2015), conducted a research which examined and contrasted
between the different loyalty programs in developed and emerging markets. Loyalty programs are
used as an instrument to increase the purchase intention of the consumers. Moreover, it enhances
the value proposition of the companies. However, the main concern of the research is the influence of
the cultural values on the loyalty programs while expanding business into emerging markets. The
results showed that cultural differences have deep significant impact on the loyalty program choices of
the consumers. This research has used the Hofstede cultural dimension model to examine the impact
of cultural values on the loyalty program choices. The different dimensions have been individually
examined to understand the impact of diverse cultures.
Common themes across four articles
The common theme among these articles is the fact that these authors have aimed to
evaluate the relationship between consumer purchase decision and loyalty programs in different
circumstances. The articles have taken up a similar approach to research where they aimed to
examine the relationship between loyalty programs and purchase intention of the consumers (Magatef
and Tomalieh 2015). The results has shown similar outcomes where authors have agreed that there
is significant relationship between these two variables. Moreover, all these studies have taken up
quantitative approach and a single research design to address the research problem in each journal.
These peer reviewed journals have tried to develop a conceptual model which determines the
relationship between the two variables.
Different themes across four articles
The major difference across all the themes is the use of different conceptual models due to
the investigation in different setting. The articles measure the relationship between consumer
behaviour and loyalty programs but the first articles uses a general approach to establish the
relationship. On the contrary, in case of the second article, the focus was on item based loyalty
programs which further made classifications with loyalty programs (Zhang and Breugelmans 2012).
On the other hand, the third article focused on the online retail consumers due to the significant

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increase in the online retail market (Lim and Lee 2015). The fourth article had taken up a complete
different approach where they used the Hofstede model to evaluate the cultural values and its impact
on loyalty program choices. Moreover, two of the studies has used empirical investigation in
comparison to survey data collection in the other two journals.
Managerial implication of the four articles
These articles have significant managerial implications as these journals significant
knowledge on the factors affecting the buying behaviour of the consumers using the different
elements of loyalty programs. Marketers have to use differentiated loyalty programs to present a
differentiated value proposition to the consumers in the market (Magatef and Tomalieh 2015).
Moreover, the loyalty programs needs to be differentiated as per the needs of the different consumer
segments. Therefore, it is essential to evaluate the different characteristics of the consumers and
diversify loyalty programs to attract more consumers. Moreover, it also showed that current
consumers and new consumers react differently to the loyalty programs. It also showed the
incorporation of new loyalty programs results in decrease in the purchase intention of the consumer
and on the contrary, it increases the spending of the new consumers (Zhang and Breugelmans 2012).
This means that the new item based loyalty programs are more effective for the new target
consumers and the managers should implement these programs for the new target consumers.
However, the new programs increases the retention rate of the consumers.
The third article showed that the preferences of the consumers are dynamic in nature where
different consumers are attracted by different loyalty programs. Moreover, the consumers are
sensitive to different stores both in online and offline markets as loyalty programs have little value in
cases where the consumers are drawn or geographically bounded to the store locations (Lim and Lee
2015). However, the model showed that there are instances where loyalty programs have provided
positive impact on the consumers and managers should develop expectation based on the market
condition and consumer perceptions. Moreover, the loyalty programs are more effective only when the
preferences of the consumers are dynamic and they are insensitive to the store differentiations. The
final article showed that cultural values impacts the choices of the consumers in terms of loyalty
programs (Thompson and Chmura 2015). The companies require diverse loyalty programs to address
the consumer preferences and attract more consumers. This means that consumers in different
countries react to different loyalty programs differently so while catering to emerging market the
approach should be different to the approach in the developed markets.
Study limitations and future research direction
The major limitation of the above researches that a single research design has been used.
Moreover, the studies are implemented in different locations but there are still considerable amount of
locations that have not been addressed. The empirical analysis has been used ion majority of the
cases and focused on using predictive modeling to predict the behaviour. However, the above studies
lack qualitative analysis and involvement of human aspect which requires in depth analysis of
consumers responses. The research needs to conduct mixed method analysis to triangulate data
using different approaches. Moreover, the literature has not addressed the behaviour of the
consumers based on their demographics in detail which needs to be analysed. Moreover, the studies
used cross section data which avoided the time lag effect and longitudinal studies can be used in
future to provide better arguments. The research also has the scope of using specific companies to
explore this aspect in detail.
Conclusion
Thus, it can be concluded from the analysis of the given articles that loyalty programs are
significantly important in influencing the purchase intention of the consumers and retaining them. The
loyalty programs have significant managerial implications where it can be seen that it is necessary to
diversify loyalty programs as per the needs of the different target segments. These articles have been
successful in highlighting the dynamic nature of the consumers which makes loyalty programs more
important in modern business environment.

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References
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