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An executive summary for managers and executive readers can be found at the end of this article
Keywords Relationship marketing, Customer loyalty, Consumer behaviour
Abstract Customer loyalty presents a paradox. Many see it as primarily an attitude-- based phenomenon that can be influenced significantly by customer relationship management initiatives such as the increasingly popular loyalty and affinity programs. However, empirical research shows that loyalty in competitive repeat-purchase markets is shaped more by the passive acceptance of brands than by strongly-held attitudes about them. From this perspective, the demand-enhancing potential of loyalty programs is more limited than might be hoped. Reviews three different perspectives on loyalty, and relates these to a framework for understanding customer loyalty that encompasses customer brand commitment, customer brand acceptance and customer brand buying. Uses this framework to analyze the demand-side potential of loyalty programs. Discusses where these programs might work and where they are unlikely to succeed on any large scale. Provides a checklist for marketers.
1. Introduction
The past decade has seen many firms (re)adopt a customer focus - often through a formal program of customer relationship management (CRM) (e.g. Brown, 2000; Kalakota and Robinson, 1999; Peppers and Rogers, 1997). Recent advances in information technology have provided the tools for marketing managers to create a new generation of CRM tactics. One such tactic that thousands of firms have considered, and which many have adopted, is to establish a customer loyalty program. Examples of these schemes can be found in Japanese retailing, US airlines and hotels, French banks, UK grocery stores, German car companies, Australian telecommunications, Italian fashion stores, US universities, and many other areas. Typically these programs offer financial and relationship rewards to customers, and in some instances benefits also accrue to third-parties such as charities[1].
Two aims of customer loyalty programs stand out. One is to increase sales revenues by raising purchase/usage levels, and/or increasing the range of products bought from the supplier. A second aim is more defensive - by building a closer bond between the brand and current customers it is hoped to maintain the current customer base. The popularity of these programs is based on the argument that profits can be increased significantly by achieving either of these aims[2]. While loyalty programs can have...