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Introduction
In the USA alone, firms distribute an estimated USD48 billion per year in loyalty programs (LPs) points and rewards (Altair, 2012). Despite these expenditures and an abundance of LPs, actual consumer loyalty has been on the decline since 2008 (Deloitte, 2011). Therefore, it is not surprising that many firms have reconsidered the value of their LPs. As a result, several firms across the globe have decided to terminate their LPs, e.g. supermarkets: Safeway (USA), Edah, Jan Linders, Coop (The Netherlands) and Coles (Australia); and banks: ABN Amro (The Netherlands). Other firms are concerned that terminating their LP may backfire (Wagner et al., 2009). In a review of LPs, Uncles et al. (2003, p. 310) concluded:
[…] once these programs have been introduced, managers seem very reluctant to cancel them – even if their claimed benefits are not being realized. For example, there are persistent rumors that many airlines would like to end their frequent-flyer programs if they could find an acceptable way to do this.
Yet, it is largely unknown what the effects of discontinuing an LP actually are[1].
There is only anecdotal evidence concerning the effects of discontinuing an LP. In 1992, Shell terminated its LP in The Netherlands, which caused an adverse response from its clientele. After a 2 per cent revenue loss corresponding to 45.5 million, the firm apologized publicly and reinstated the LP (De Jong, 1993). In addition to lost revenues, some firms faced other consequences from their frustrated customers. When Continental Airlines downgraded its LP, a $100 million loss and a lawsuit by upset customers followed (Kumar and Reinartz, 2005). Similarly, following the termination of Subway’s Sub Club, frustrated consumers started an online petition to reinstate the LP (Ogles, 2005). Hence, there are case-based empirical indications that terminating an LP could have negative consequences for a firm. However, to the best of our knowledge, the issue has not been addressed in a systematic way, while understanding the factors that moderate the potential negative impact of terminating an LP is of crucial importance to managers and researchers alike.
Prior research has looked at the effects of introducing or maintaining LPs. These effects were shown to depend on the LP design (Drèze and Nunes, 2009; Kivetz and Simonson, 2002,...