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1. Customer loyalty programs
Customer loyalty programs are now thought to have been among the most successful marketing tools of the 1990s, and they have received considerable attention in both trade and academic journals. Loyal customers are considered an asset to the business, as relative costs of customer retention are substantially lower than those of acquisition ([15] Fornell and Wernerfelt, 1987). Consumer loyalty is considered an important key to organizational success and profit ([30] Oliver, 1997), and practitioners increasingly refer to the "lifetime value" of customers as a form of equity. Customer loyalty programs focus on the firm's existing customer base with the intention of building lasting relationships as well as to strengthening commitment and creating "velvet handcuffs" that bond the customer to the brand ([9] Dowling and Uncles, 1997). Some key loyalty-marketing trends have been identified and explored in detail ([4] Capizzi and Ferguson, 2005).
2. Literature review
2.1. Background
The first loyalty programs appear to have been the "trading stamp programs," popular in parts of the USA during the late 1950s and 1960s. Typically customers received one stamp for every 10 cents of purchase, and could redeem their stamps for merchandise at specially established redemption centers. Trading stamps became so popular in some areas that retailers competed by offering three and four times the normal award of stamps. It was not unusual to see automobile glove compartments and kitchen drawers stuffed with trading stamps. In the early 1980s, airlines added frequent flier programs, with points accumulated on the basis of miles flown and redeemable for free flights, ([40] Wansink, 2003). Frequent flier programs have been in existence for over 25 years and have dramatically changed the pricing and marketing programs of what is essentially a commodity business ([39] Varien, 1999). During this period also, loyalty programs became popular with other service industries such as hotels, rental car agencies, department stores, and credit cards.
Loyalty programs usually provide rewards based on cumulative purchases, and are an explicit attempt to enhance customer retention and increase product usage. They also serve to attract new customers with the promise of additional benefits. They encourage repeat buying and thereby improve both retention rates and "share of wallet" from regular customers ([23] Lewis, 2004). [2] Bell and Lal (2002)...