Journal of Critical Reviews

ISSN- 2394-5125 Vol 7, Issue 6, 2020

Review Article
IS LOYALTY PROGRAM AS A MARKETING TOOL EFFECTIVE?
Ms. Nisha Nandal1, Dr. Naveen Nandal2, Dr. Ritika Malik3
1Research
scholar. Ansal University, Gurugram
2Assistant
Professor, Ansal University, Gurugram
3Management Consultant and Visiting Professor

Received: 15.02.2020 Revised: 14.03.2020 Accepted: 25.04.2020

Abstract
Loyalty programs are an ubiquitous instrument of customer relationship management. Complexity of modern business requires
managers to strive for innovative strategies to acquire and retain customers in any product market field. As acquiring new customers
is getting costlier day by day, business organizations have offered loyalty programmes to retain & reward existing customers and
maintain relationships. One of the best ways to keep customers coming back for more is by establishing an effective loyalty or rewards
program. Loyal customers, it is said, are worth striving for. They spread positive word-of mouth, reduce defection rates, and amplify
the purchase frequency, to name just a few examples. But what can be done to induce that loyalty? Can loyalty schemes help us to do
so? In this paper, we try to determine whether loyalty cards issued by stores have an impact on customer loyalty. The aim of this
research is to enhance our understanding of loyalty program effectiveness.

Key Words: Loyalty, Complexity, program.

© 2019 by Advance Scientific Research. This is an open-access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/)
DOI: http://dx.doi.org/10.31838/jcr.07.06.188

INTRODUCTION Benefits of Customer Loyalty Programme

A loyalty program is a promoting framework initiated by a • Increase in Customer Retention.
business that rewards acquiring conduct accordingly • Increase in Customer Lifetime Value
expanding the client’s inclination to remain faithful to the • Improved client Relation
organization. A loyalty program may offer accommodation • Improved company reputation
store credit prizes or some other advantage that would allure • Great ‘Customer Win back’ strategy to bring back lost
the faithfulness of a client. Customer engagement Organizations customers.
all through the country are presently using loyalty programs • Great way to encourage customers to move up from their
more regularly than any other time in recent memory. These current spend level to a higher spend level.
associations comprehend the significance of holding existing • Allows the flexibility to decide which segment of your
clients and execute a framework coordinated particularly at client base you wish to spend your marketing budget on.
building client loyalty. Of course, similar to all other showcasing • Loyalty Programmes give you the opportunity to acquire
endeavours an all-around created dependability program new customers. Value Rewards
requires assets that may presently be assigned towards • Gives you the opportunity to create brand advocates who
different attempts. Customer Loyalty programme - a very can help you expand your customer base by giving
powerful strategy Which has been accepted and implemented personal recommendation.
by businesses big and small.
• Allows laser targeted marketing based on the valuable
segmentation of a loyalty database.

History of Loyalty Program

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 IS LOYALTY PROGRAM AS A MARKETING TOOL EFFECTIVE?

Types of Customer Loyalty Programs points are not just the numbers, they are converted into some
Frequency Loyalty Program Loyalty rewards programs kinds of reward for you. Customers get a chance to redeem their
This loyalty rewards program encourages the customers to buy points on the future purchase
more. For example: If a customer has bought 4 items then he
gets the 5th one free. Therefore, by rewarding the customer on 2. Spend Program
the 5th purchase this loyalty scheme helps increase sales. On the basis of how much the customer has spent on
purchasing, he gets credits. It has been seen that the amount on
PROS: This is the simplest type of customer loyalty programme. transaction increases by giving credit facility to customer
It is easy and cost effective to set up this customer rewards
program. It allows businesses to set up tiers to reward increase 3. Tiered Program
in levels of purchase behaviour. One way to find the right balance between attainable and
CONS: The Downside of this customer loyalty program is that desirable rewards is to implement a tiered system, which
it’s too simple. Its simplicity does not allow companies to collect rewards initial loyalty and encourages more purchases. This
customer information. You lose valuable data which can one is based on how much loyal the customer is. On every
otherwise be used in further marketing efforts. purchase customer gets certain points. As the points increases,
the level of loyalty also increases. Customer will start getting
Earn Points to Get Rewards Customer rewards programs more points as the level increases
In this type of customer rewards program customers earn
points on each purchase. These points can then be exchanged 4. Paid Program – VIP member club
for rewards. Rewards can be weekend getaways, movie tickets, This one does not come free of cost. One has to pay monthly or
spa etc. annual fee for its subscription to enjoy special benefits &
discounts. There are certain benefits which can only be
PROS: It’s a simple process for customer to understand, set up accessible by their members, they are made exclusive for them
and follow. Once rewarded customers remember their rewards
for a long time which encourages them to stay loyal to your 5. Value – based Program
products and services. This one is based on the customers value. First, it is very
important to define your values. Let’s imagine that you run an
CONS: This customer loyalty program needs a careful system to
online pet store and you know that your audience values animal
track points correctly. Since there is no instant gratification for
welfare. One thing you may do it, is to start a loyalty program,
customers, they could lose interest in the programme and
similar to the point system, where customers’ purchases
abandon it. Customers constantly need to be reminded of the
translate into currency. Then, every time a customer makes a
points they have earned.
50€ purchase, you would donate 5€ to an animal rescue
organization.The reward when choosing the value-based
Cash Back Loyalty Program best reward programme
program is to connect with customers on a deeper level by
In this type of Rewards Programme, your customers will earn
creating a strong and ethical relationship with them.
money after crossing a certain spend limit. They can then spend
this earned cash on their future purchases.
6. Partnered Program
PROS: It is a simple system to set up and follow. Customers love Can be super effective regarding customer retention, as you
the idea of earning money by spending money which offer them more opportunities. At the same time, it can help
encourages them to come to you more frequently. the growth of your business by building new business
relationships (partnerships).While providing your customers
CONS: You may not be able to attract customers in low spending with value that is relevant to them and goes beyond what your
category using this type of Loyalty Program. It may not be company can exclusively offer them, you are showing them that
suitable for businesses where the customers have no need to you truly understand and care about their needs.
frequent your store.
7. Game Program
Some other types of Loyalty programs Loyalty programs sometimes sound boring for the customers.
1. Point Program To make it interesting, a unique idea is to convert loyalty
It is the simple & common program used widely by the firms. program into a game application to encourage repeat
According to this, if you Spend more, you will get more points purchases, increase customer loyalty, entertain customers and
in return. In this method, what happens is when a customer visit help strengthen your brand’s image in a more entertainment
website or store to make a purchase, on the basis of amount of way.
purchase certain points are added in their loyalty card. These

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8. Hybrid Loyalty Programs (FA & RF, 2019)Concluded that Social bonding strategies should
Is a combination or merger of 2 different loyalty systems. In this be used by companies to have loyal customers and must
program, 2 different systems are merged such as tier and game provide value to everyone involved in exchange process.
program, whenever customers reach a certain level of loyalty, Customer loyalty will come along with many benefits but for
means that they have completed a new level in your game. that company should understand first, how customer loyalty is
The most commonly used combination is point-based system built. This study revealed that Loyalty programs found to have
with tier program because in this calculation of points is easy positive effect on Customer loyalty. Although Loyalty programs
for the customers and motivates them to so for next loyalty level give benefits to customers, yet they compare the price with
by making more purchases. competitors.

Objective of the study (Shugan, 2005)Concluded that loyal customer should serve as
• To study impact of Loyalty program on Customer an asset for the company rather than liability. True loyalty
loyalty programs don’t demand trust, they built trust and believes in
investing now for the future. There are some loyalty programs
• To enhance the understanding about Loyalty
which generate short term revenue to customers, but in long
Programs
term they become obligations for the customers. A real loyalty
• To know how effectively Loyalty programs are used
program is the one that becomes asset rather than liabilities for
as a tool of marketing?
the customers. Instead of passing the benefits in future, the
company should provide current benefits to the customers. By
Research Methodology
making customers more attached to the brand, assets are
The methodology applied is descriptive in nature. Data is
created in the form of loyal customers. Attachment does not
collected using secondary resources. Various reports & studies
come by its own, it needs learning, experience, Customization
have been referred in the present research. The sources from
or habit.
where the data has been collected for the present study is listed
below –
(Hasim, Mahmud, Shamsudin, Hussain, & Salem,
• Research paper on related topic 2015)Concluded that loyalty programs help in promoting
• Web resources related to the topic products and services of Banks. Banks are making use of loyalty
• All the other published material has been referred during program to retain their long-term relationship with the
the research customer as well to attract the potential customers. To know
how much effective the loyalty program is, bank has to find out
LITERATURE REVIEW how many customers are satisfied & their satisfaction level
(Hofman-Kohlmeyer1, 2016)Concluded that loyalty program from the loyalty program.
comprises of affective and financial components. By just
(Saklani, 2009)Concluded that millions are spent on setting up
offering monetary benefits won’t guarantee retention of
& maintaining loyalty programs, so to find out their outcome is
customers. Consumer reward program is a valuable source of
important. When free membership is offered to the customers,
Information and customer database. Collected data of
involvement in the enrolment is seen to be low. The company
customers must be used to build marketing strategy. To
should identify the customers first, from whom the results can
maintain the privacy of Customers is the responsibility of
be expected. After that, customers who find the program
Manager, how loyal the customers are depending on the fact
valuable are relevant and raise in their purchase post
that how much they trust on the company. Researcher also
membership can be expected. Others might shift to the
analysed that loyalty program are proved to be more profitable
competitors if they offer better value.
as they are made to retain the existing customers. To attract
new, one is less expensive than retaining existing one. (Mathur, 2015)Concluded that there is a tough competition
prevailing in Organized retailing in India and to survive in this
(Gomez, Arranz, & Cillan, 2006) Concluded that effectiveness of
competitive environment, one has to create strong bond with
loyalty program gets strengthened with time. The study was
the customers by understanding them better and to do so the
focussed on grocery retailing companies, the industry with
firm has to build and develop the loyalty program consisting of
highest loyalty programs. The study revealed that companies
attractive tangible and intangible benefits for their loyal
with loyalty program enjoy greater behavioural loyalty as
customers. In future, retailing performance can be enhanced by
compared to the competitors who don’t run such programs.
effectively implementing loyalty programs.
Participants of loyalty program showed higher positive
attitude, commitment, trust and satisfaction as compared to (Babu & Sultana, 2017)Concluded that Loyalty program attract
non-participants. Hence, loyalty programs are successful in customers to visit the stores more frequently & to spend more.
attracting most loyal customers. All loyalty programs initiatives are focussed towards Customer
retention. To maintain Customer relation & retention, company
(Zakaria, et al., 2014)Concluded that there exists a significant &
has to rely on Loyalty programs. These programs are a way of
positive relationship between Customer satisfaction & Loyalty
maintaining long term & profitable relationship with
programs of JUSCO AEON. The findings clearly indicated that
customers, to value the customers & to keep trust into the
Gift Redemption, special price, members day, rebate gift
brand.
voucher, shopping partners programme etc. influence the level
of Customer satisfaction. The study also revealed that magazine (Dr.K.Arunmuhil & Dr.A.Arumugam, 2013)Concluded that
and insurance coverage does not influence customer loyalty retailers are using some predictive software to find out the
much. The customers who found to be loyal to the JUSCO AEON buying pattern & potential customers. Many retailers ate taking
are also loyal to other retailers. So, for most loyal customers advantage of internet to promote their loyalty programs
company should have special rewards. through websites and e-mail. They are taking efforts to
reconnect with their customers by catering their changing
(Liu & Yang, 2009)Concluded that to maintain relationship with
needs. Earlier shoppers used to identify the needs of customers
customers, the best tool is loyalty program. To have competitive
but now this task has been assigned to the computers. Loyalty
advantage over the firm, loyalty program must come with other
programs encourage staff to put more efforts in knowing the
complementary resources to fully realize its value. It has been
customers personally, making them feel that they are valued
seen that not every firm gets advantage from loyalty programs,
and respect their privacy. Loyal customers are most important
the lift in sales in only seen in high share firms using loyalty
for business, therefore loyalty programs should be designed
programs. The companies should not offer too much loyalty
and implemented well in order to increase profits and to have
programs as it reduces the return of individual program too. If
competitive advantage.
the company is using new channel of marketing, then loyalty
program proves to be more appealing by attracting & (Chodisetty & Reddy, 2019)Concluded that in India majority of
influencing them to buy more the retailers are using loyalty programs to increase traffic of
customers In their outlet and to enhance store loyalty with aim

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