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Introduction
A number of companies have jumped on the bandwagon of loyalty programs, because they presume that customer loyalty enhances their firm’s value (Dorotic et al., 2014). Currently, loyalty programs are a state-of-the-art marketing tool (Meyer-Waarden and Benavent, 2009) and the number of program members is increasing steadily: In the USA, for example, loyalty program memberships grew by 26.7 percent from 2,089 billion in 2010 to 2,647 billion in 2012 (Berry, 2013).
However, recent business reports show that loyalty program success is unreliable and companies are unable to retain the programs’ members. In 2013, 53 percent of consumers admitted to having abandoned at least one loyalty program over the previous years (Maritz, 2013), almost 90 percent of social media sentiment toward loyalty programs is negative (Capgemini, 2015), and the number of active members is declining (Berry, 2013). If such programs’ members do not participate actively, their repeat purchases are not rewarded and the program’s goal of strengthening customer loyalty is not achieved. This essentially means that companies are investing resources in ineffective programs and losing money.
The reasons for this development may be manifold. Besides the effectiveness of different reward types (Youjae and Hoseong, 2003; Jin and Huang, 2014), companies fail to understand that only rewarding financial transactions is short-sighted in times of interaction orientation (Ramani and Kumar, 2008). In recognition of this, some companies have already redesigned their programs to also reward specific customer engagement. Customer engagement, seen as a vehicle to generating and strengthening customer relationships (Brodie et al., 2013), has been adapted to loyalty programs to enhance their effectiveness. By participating in different activities, customers are encouraged to interact and engage with the program instead of only being rewarded for spending money on a company’s products and services (Capgemini, 2015). Loyalty programs following this new approach reward customers for, e.g. their social media engagement (Smith, 2014) and their health-related engagement (Overby, 2013).
An understanding of the effects of rewarding customer engagement in addition to mere purchase volume is crucial to helping companies design loyalty programs to enhance customers’ value perceptions of such programs and, hence, increase their loyalty to and purchases from these companies. From a management perspective, this study aims to analyze whether this new approach of rewarding customer...