Posted onNovember 23, 2016
Little is known about the effectiveness of Loyalty Programe-related promotions, particularly about their effects over time. Related studies on Loyalty Program design primarily assessed the attractiveness of different types of reward incentives, ignoring the effects of short term promotions in Loyalty Programs.
In general, the design of Loyalty Program incentives significantly influences program enrollment and usage. However, Loyalty Program participation delivers mainly long-term benefits through delayed rewards that cardholders can obtain for continuous purchases. Therefore, short-term promotions can help leverage a firm’s short-term goals and encourage cardholders’ engagement in Loyalty Programs. Simulations indicate that e-mailing an additional coupon (short-term promotion) increases cardholders purchase incidence rate, spending volume, and average customer revenue compared with offering only Loyalty Program rewards.
However, Loyalty Program rewards and Loyalty Program-related promotions may increase cardholders’ sensitivity to incentives, which may divert attention away from the brand and/or firm. The consequence is that the reward may become the primary reinforcement in purchases, which increases customers’ spurious loyalty behavior.
This effect may be particularly pronounced in MVLPs, because of a possible incongruence of Loyalty Program benefits with the focal products and a division of loyalty across vendors.
The effect of an Loyalty Program-related promotion on sales may depend on the volume (number of cardholders receiving the promotion), the communication channel used (usually e-mail or post), or the number of featured vendors (individual versus joint promotions). An effect of the volume of a promotion is obvious: larger-volume promotions make offers salient to larger numbers of cardholders, which should have a direct, positive impact on effectiveness of the promotion. Direct mail and e-mail are the communication channels MVLPs use most frequently.
The integrated marketing communication literature advocates greater effectiveness from integrating multiple communication channels This indicates that using multiple media to reach cardholders with the same promotion might be more effective than using only one medium. Finally, the effectiveness of individual relative to joint promotions is closely related to the coalition benefits, which we discuss next.