Effect of Loyalty Programs on Consumer Behavior: A Literature Review

This report discusses the effect of loyalty programs on the minds of customers who indulge in frequent purchases. It covers the definition of loyalty programs, strategies used for designing loyalty programs, and the impact of rewards on customer loyalty. The report also highlights the need for businesses to investigate the effectiveness of their loyalty programs.

Running head: CONSUMER BEHAVIOR
Articles on loyalty programs
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Abstract
This report has discussed the effect of loyalty programs in the minds of the customers who
indulge in frequently purchases. They are offered rewards from the companies both tangible
and intangible and show loyalty to the brands. The companies follow different strategies to
attract and retain customers among which this loyalty program is one important strategy.
Introduction:
The aim of this report is to discuss the impact of loyalty programs in the purchasing
behaviour of the customers in the current business context. This report will conduct a
literature review to understand the definition of loyalty programs and Strategies used for
designing loyalty programs in the business context.
Loyalty programs
Loyalty programs are rewards programs which the customers who frequently make
purchases, get from the companies. According to McCalland McMahon (2016), loyalty
programs have proliferated in different types of industries including the hospitality industry
where the customers expect rewards in exchange of their patronage. This is the reason why
the managers modify their reward programs to become more profitable and competitive. As
stated by Bowen and Chen (2015), the business today builds loyalty models perfectly fitted
with the behaviour of their customers so that they can attain them regularly and gain
competitive advantage in this highly competitive industry settings. The paper has made three
propositions to explain the loyalty of the customers to the business. Finally, according to
Melnyk and Bijmolt (2015) the companies need to investigate the effects of loyalty programs
accounting for the simultaneous effects on the loyalty program designs, competition effects
as well as cross-customer effects. To these authors, despite the fact that the business spread a
lot in their loyalty programs, it is not always clear that these are enhancing the loyalty of the

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customers. therefore, the businesses these days need to judge the effectiveness of their loyalty
programs though finding out the results in its absence.
Strategies used for designing loyalty programs
According to García,Gutiérrez and Gutiérrez (2006), loyalty program aims to
encourage in gaining behavioural loyalty to their products. However, according to the
surveys, buying behaviour of the customers is consistent in spite of indulging in the loyalty
programs organized by the brands. Strategic approach of the brands enhances the initiatives
to improve the public relation with the customers. Jang and Mattila (2005), in their article
have aimed to investigate the customer preferences towards the loyalty reward programs in
restaurant industry. The vast majority of study respondents showed necessary, immediate and
monetary gratification. In this industry, the customers had preferred both tangible and
intangible benefits which motivate both the customers as well as the businesses. Meyer-
Waarden (2015), has pointed out the preferred loyalty programs of the customers in
perfumery and grocery retailing with different degrees of personal involvement. This author
has analysed full profile conjoint analysis through important attributes like rewards timings,
compatibility of the customers with the image of store and tangibility. The main focus of the
research is to highlight the effects of the rewards on the buying behaviour and loyalty of the
customers towards the stores. The author is of the view that level of involvement helps in
determining the loyalty of the customers towards the brand. Along with this, the author also
opines that this level of involvement helps in planning loyalty programs for adding value to
the investment of the customers. This involvement, further, enhances the brand image of the
store (Meyer-Waarden 2015).

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References:
Bowen, J.T. and Chen McCain, S.L., 2015. Transitioning loyalty programs: a commentary on
“the relationship between customer loyalty and customer satisfaction”. International Journal
of Contemporary Hospitality Management, 27(3), pp.415-430.
García Gómez, B., Gutiérrez Arranz, A. and Gutiérrez Cillán, J., 2006. The role of loyalty
programs in behavioral and affective loyalty. Journal of Consumer Marketing, 23(7), pp.387-
396.
Jang, D. and Mattila, A.S., 2005. An examination of restaurant loyalty programs: what kinds
of rewards do customers prefer?. International Journal of Contemporary Hospitality
Management, 17(5), pp.402-408.
McCall, M. and McMahon, D., 2016. Customer loyalty program management: what matters
to the customer. Cornell Hospitality Quarterly, 57(1), pp.111-115.
Melnyk, V. and Bijmolt, T., 2015. The effects of introducing and terminating loyalty
programs. European Journal of Marketing, 49(3/4), pp.398-419.
Meyer-Waarden, L, 2015. Effects of loyalty program rewards on store loyalty. Journal of
Retailing and Consumer Services, 24, 22-32.