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This study, set in a credit card context, examines the impact of loyalty programs on share of wallet and explores the moderating role of attitudinal loyalty on this relationship. The authors are particularly interested in two characteristics of reward programs: their perceived attractiveness and perceived switching costs between loyalty programs. Their findings suggest that perceived switching costs are highly effective in driving share of wallet at low rather than high levels of attitudinal loyalty, and only when combined with an attractive reward program. The attractiveness of a reward program, on the other hand, has a positive impact on share of wallet regardless of the level of psychological attachment to the company. These findings are particularly important for service providers in markets characterized by undifferentiated product offerings and low perceived switching costs between service providers.
Keywords: customer loyalty; reward program; share of wallet; switching costs
Many markets have become a battleground for a share of the customer's wallet. Loyalty reward programs are important tools for driving customer retention in many industries, including airlines, credit card companies, and retail and hotel chains (Kivetz 2005; Kivetz and Simonson 2003; Kivetz, Urminsky, and Zheng 2006; Noordhoff, Pauwels, and Odekerken-Schröder 2004). The goal of such programs is to enhance customer relationships by offering high value to profitable market segments (Bolton, Kannan, and Bramlett 2000; Kumar and Shah 2004). Reward programs are also effective in increasing customers' perceptions of switching costs, thus further fostering customer retention (Bendapudi and Berry 1997; Guiltinan 1989). As many service firms suffer from undifferentiated offerings and low switching costs (Reinartz and Kumar 2000), loyalty reward programs might be an effective tool to relationship building.
This study investigates the relationship between reward programs and customer loyalty. Here, we focus on two dimensions of loyalty, namely attitudinal loyalty and share of wallet, and their relationship. Attitudinal loyalty reflects the consumer's psychological attachment toward a particular provider or brand (Butcher, Sparks, and O'Callaghan 2001; Oliver 1999), whereas share of wallet reflects the consumer's brand-level spending within a product category (Baumann, Burton, and Elliott 2005). A richer understanding of the attitudinal component of loyalty is crucial, as it has been shown to be linked to future usage (Liddy 2000), enhanced word-of-mouth recommendations (Reichheld 2003), and ultimately to customer...