Essay - Customer Loyalty Programs: are They Affecting Profit and Market Share?...

Customer Loyalty Programs: Are They affecting Profit and Market Share?

In today's economy, companies must examine every avenue to gain and retain their portion of the market share. They must continue to expand their customer base, but they ***** also concentrate on keeping existing customers. Customer loyalty programs are designed to assure that ***** customers c*****tinue to purchase goods and services, rather than switching to a competitor. This study will explore whether these programs actually have a measurable affect on profit ***** market share. It will examine the real value of customer loyalty ***** and their impact on the company bottom line.

Customer loyalty programs can ***** a positive imp*****ct ***** ***** retention, but ***** ***** have a downside. They represent ***** capital expenditure and continuing operating costs. Nearly 75 percent of US shoppers currently belong to a customer loy*****lty program (CIOInsight 2003). Schemes are creative and include anything from free merchandise to frequent flyer miles. Managing customer loyalty has become a major part of the marketing mix. The effectiveness of these programs has become a topic of interest in both the *****cademic and business world.

This research study will have a real dollar impact for ***** companies that choose to use the information. They ***** be able to determine if ***** money on customer loyalty programs is being well spent. The justificati***** for choosing th***** topic is a practical one. Companies need to know if the money they are spending on cus*****mer loyalty programs ***** bringing them a healthy return ***** their investment, or ***** their ***** would be better spent elsewhere. This study will help companies to answer ***** important questions.

Literature Review

*****re are several underlying theories regarding what makes customers remain loyal to a company. First, the customer must feel satisfied with their relationship ***** the company in order to rema***** a ***** cus*****mer. Recent marketing surveys indicate that incentives such as customer loyalty cards are only effective if the customer has an overall feeling of satisfaction with ***** company in the first place (***** 2003). Customer ***** only results in return sales if ***** customer is happy with the products and service.

The customer ***** is measured by comparing the inflow of new customers to the outflow of cus*****mers. A 5% change in positive customer retention ***** amount to a profit increase ***** 2*****-100% (CIOInsight 2003). Research indicates that ***** reward programs may not be as efficient as it would seem. The one-size-f*****s-all approach of many cus*****mer *****s programs only appeal to one type of customer (Meyer-Waarden & Benavent 2008). It was also found ***** many loyal customers were already ***** customers ********** the customer loyalty program was in ***** (***** & ***** 2008). These factors ***** represent confound*****g variables that must be considered in the current study design.

Customer Motivation

Customer rewards can ***** divided into intrinsic ***** ***** extrinsic rewards. Intrinsic rewards are those ***** match the *****'s natural purchase patterns. Extrinsic *****s are those that are different from a customer's personal shopping