RP Customer Loyalty

Journal of Consumer Marketing
Customer loyalty and customer loyalty programs

Mark D. Uncles Grahame R. Dowling Kathy Hammond
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Mark D. Uncles Grahame R. Dowling Kathy Hammond, (2003),"Customer loyalty and customer loyalty programs", Journal of
Consumer Marketing, Vol. 20 Iss 4 pp. 294 - 316
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An executive summary for
managers and executive Customer loyalty and customer
readers can be found at the
end of this article loyalty programs
Mark D. Uncles
Professor of Marketing, School of Marketing, University of
New South Wales, Sydney, Australia
Grahame R. Dowling
Professor of Marketing, Australian Graduate School of Management,
University of New South Wales, Sydney, Australia
Kathy Hammond
Assistant Professor of Marketing, London Business School,
London, UK
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
New generation of CRM The past decade has seen many firms (re)adopt a customer focus ± often through
tactics created 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
The authors would like to thank Jack Cadeaux, Robert East, Jennifer Harris,
Byron Sharp and Chris Styles for their constructive suggestions. Also, all those who
commented on earlier drafts of this paper at workshops organized by the Marketing
Science Institute, University of New South Wales and University of Melbourne. The
assistance of an Australian Research Council (Small Grant) is acknowledged.
The Emerald Research Register for this journal is available at

http://www.emeraldinsight.com/researchregister
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294 JOURNAL OF CONSUMER MARKETING, VOL. 20 NO. 4 2003, pp. 294-316, # MCB UP LIMITED, 0736-3761, DOI 10.1108/07363760310483676
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 many other peripheral goals ±
such as furthering cross-selling, creating databases, aiding trade relations,
assisting brand PR, establishing alliances, etc. ± we do not assess these goals in
this paper.
But, how effective are these programs in enhancing the number, the loyalty,
and/or the sales from customers? Are they likely to be profitable when fully
costed? To answer these questions we first discuss what is meant by the term
``customer loyalty''. A review of the literature reveals that this task is not
straightforward ± generally people have in mind one of three different
models (section 2). We consider whether these models are based on
competing or complementary theories (section 3). This provides a platform
for thinking about a loyalty continuum (section 4). We show that it is crucial
to define and understand customer loyalty if the demand-side benefits of
loyalty programs are to be properly evaluated. Next, drawing on these
conceptualizations, we review the goals, successes and failings of loyalty
programs (section 5). We show that, at one extreme are programs for niche
products that presume customers are committed to `à favorite brand''. At the
other extreme there are promotional programs that cater to the divided
loyalty of their customers. In between, and widely represented across many
different products and services, are loyalty programs that are best described
as ``for the brands people already buy''. Future prospects are discussed
briefly (section 6).
Direct competition The focus of this paper is on established repeat-purchase markets where there
between branded products is direct competition between branded products and services. These markets
and services include most packaged goods, personal services such as banking and travel
agents, food and beverages, hotels, transport, retail, OTC pharmaceuticals,
basic cosmetics, and media. They are hugely important in terms of the share
of disposable consumer income for which they account, and they have been
the focus of much research.
2. Customer loyalty
At a very general level, loyalty is something that consumers may exhibit to
brands, services, stores, product categories (e.g. cigarettes), and activities
(e.g. swimming). Here, we use the term customer loyalty as opposed to brand
loyalty; this is to emphasize that loyalty is a feature of people, rather than
something inherent in brands.
Popular conceptualizations Unfortunately, there is no universally agreed definition (Jacoby and
Chestnut, 1978; Dick and Basu, 1994; Oliver, 1999). Instead, there are three
popular conceptualizations:
(1) loyalty as primarily an attitude that sometimes leads to a relationship
with the brand (Model 1);
(2) loyalty mainly expressed in terms of revealed behavior (i.e. the pattern of
past purchases) (Model 2); and
(3) buying moderated by the individual's characteristics, circumstances,
and/or the purchase situation (Model 3) (see Figure 1).
Loyalty as primarily an attitude that sometimes leads to a relationship with

the brand (Model 1)
Many researchers and consultants argue that there must be strong
`àttitudinal commitment'' to a brand for true loyalty to exist (Day, 1969;
JOURNAL OF CONSUMER MARKETING, VOL. 20 NO. 4 2003 295

Figure 1. Conceptualizations of customer loyalty
Jacoby and Chestnut, 1978; Foxall and Goldsmith, 1994; Mellens et al.,
1996; Reichheld, 1996). This is seen as taking the form of a consistently
favorable set of stated beliefs towards the brand purchased. These attitudes
may be measured by asking how much people say they like the brand, feel
committed to it, will recommend it to others, and have positive beliefs and
feelings about it ± relative to competing brands (Dick and Basu, 1994). The
strength of these attitudes is the key predictor of a brand's purchase and
repeat patronage. This is what Oliver (1997, p. 392) has in mind when he
defines customer loyalty as:
A deeply held commitment to rebuy or repatronize a preferred product/service
consistently in the future, thereby causing repetitive same-brand or same brand-set
purchasing despite situational influences and marketing efforts having the
potential to cause switching behavior.
Where brand loyalty In the fields of advertising and brand equity research this model receives
increases revenue streams much conceptual support (e.g. Aaker, 1996; De Chernatony and McDonald,
become more predictable 1998; Keller, 1998). The approach also appeals to many practitioners in
advertising and brand management because it is empathetic with the search
for strategies to enhance the strength of consumers' attitudes towards a
brand. Moreover, there is some evidence to suggest it is a profitable strategy.
Ahluwalia et al. (1999) have shown that attitudinally-loyal customers are
much less susceptible to negative information about the brand than non-loyal
customers. Also, where loyalty to a brand is increased, the revenue-stream
from loyal customers becomes more predictable and can become
considerable over time ± as analyses of cases such as Federal Express,
Pizza Hut franchises, and Cadillac dealerships have shown (Gremler and
Brown, 1999).
An extension of the `àttitudes define loyalty'' perspective is to suggest that
consumers form relationships with some of their brands. A good example of
this perspective is provided by Fournier (1998), who sees loyalty as a
committed and affect-laden partnership between consumers and brands. It is
a partnership that will be even stronger when supported by other members of
a household or buying group, and where consumption is associated with
community membership or identity. Examples in support of this argument
include Skoal smokeless tobacco among some North American cowboys,
296 JOURNAL OF CONSUMER MARKETING, VOL. 20 NO. 4 2003

loyalty to particular European soccer teams (Arnould et al., 2002), the
Beanie Babies craze (Morris and Martin, 2000), Jeep brandfests
(McAlexander et al., 2002), and the classic case of Harley-Davidson bikers
(Schouten and McAlexander, 1995).
Little systematic empirical Despite the psychological and sociological richness of the `àttitudes drive
research behavior'' and ``relationship'' approaches to understanding customer loyalty,
these conceptualizations of loyalty are not without their critics (e.g. Dowling,
2002). They are thought to be less applicable for understanding the buying of
low-risk, frequently-purchased brands, or when impulse buying or variety
seeking is undertaken, than for important or risky decisions (Dabholkar,
1999). Also, as Oliver (1999) has noted, there is little systematic empirical
research to corroborate or refute this perspective of customer loyalty. The
examples above are isolated cases, often cited as illustrative of the revenue-
effects that might be achieved, rather than the profit impacts that have been
achieved.
Loyalty mainly expressed in terms of revealed behavior (Model 2)

Paradoxically, Model 2 is arguably the most controversial but the best
supported by data. The controversy comes about because loyalty in this
model is defined mainly with reference to the pattern of past purchases with
only secondary regard to underlying consumer motivations or commitment
to the brand (Ehrenberg, 1988; Fader and Hardie, 1996; Kahn et al., 1988;
Massy et al., 1970). Researchers have gathered impressive amounts of data
about these purchase patterns over many years ± across dozens of product
categories and for many diverse countries (Uncles et al., 1994). They have
found that few consumers are ``monogamous'' (100 percent loyal) or
``promiscuous'' (no loyalty to any brand). Rather, most people are
``polygamous'' (i.e. loyal to a portfolio of brands in a product category).
From this perspective, loyalty is defined as `àn ongoing propensity to buy
the brand, usually as one of several'' (Ehrenberg and Scriven, 1999).
Researchers tend to adopt a These researchers tend to adopt a market focus as opposed to an individual
market focus focus (e.g. key performance measures are brand shares, penetration, average
purchase frequencies, repeat-buying ± for a defined period). Stochastic
modeling techniques describe the observed patterns of customer buying.
Given these descriptions, loyalty is inferred to operate in the following
manner. Through trial and error, a brand that provides a satisfactory
experience is chosen. Loyalty to the brand (measured by repeat purchase) is
the result of repeated satisfaction that in turn leads to weak commitment. The
consumer buys the same brand again, not because of any strongly-held prior
attitude or deeply-held commitment, but because it is not worth the time and
trouble to search for an alternative. If the usual brand is out of stock or
unavailable for some reason, then another functionally similar (or
substitutable) brand (from the portfolio) will be purchased (e.g. East, 1997;
Ehrenberg et al., 1997; Ehrenberg et al., 2003). There is little reason to spend
much effort weighing up the alternatives when all are likely to be
satisfactory. However, over repeated purchases a weak commitment to the
(limited) number of brands bought in a product category can form.
Uncertainty about true All these studies are grounded in considerable amounts of market research
loyalty data and analysis. But, despite the weight of empirical evidence, controversy
persists. Those who subscribe to the `àttitudes drive behavior'' and
``relationship'' approaches expressly rule-out revealed behavior as a
dominant measure of loyalty. That, they argue, may merely reflect
happenstance. Even combined measures of revealed behavior and

satisfaction may not probe deeply enough for us to be sure there is true
loyalty (Arnould et al., 2002; Oliver, 1999).
Buying moderated by the individual's characteristics, circumstances, and/or

the purchase situation (Model 3)
A three-factor model Proponents of Model 3, the contingency approach, argue that the best
emerges conceptualization of loyalty is to allow the relationship between attitude and
behavior to be moderated by contingency variables such as the individual's
current circumstances, their characteristics, and/or the purchase situation
faced[3]. That is, a strong attitude towards a brand may provide only a weak
prediction of whether or not the brand will be bought on the next purchase
occasion because any number of factors may co-determine which brand(s)
are deemed to be desirable (Belk, 1974, 1975; Blackwell et al., 1999; Fazio
and Zanna 1981). Individual circumstances include budget effects (e.g. the
desired brand is too expensive), and time pressure (e.g. the need to buy any
brand in the category at the next available opportunity). Individual
characteristics are reflected in the desire for variety, habit, the need to
conform, the tolerance for risk, etc. Purchase situation effects include
product availability, promotions/deals, the particular use occasion (e.g. gift,
personal use, family use), etc. A three-factor model emerges, based on
antecedents (including weak prior attitudes and characteristics of the
consumer), contingency factors (including type of use occasion and the
purchase situation), and consequences (up-dated attitudes, intentions and the

actual purchase behavior).
The difference between this contingency perspective and the attitude
perspective is that the contingency variables are elevated from the status of
loyalty inhibitors in Model 1 to loyalty co-determinants in Model 3. For
example, in Oliver's (1997, 1999) definition cited earlier, attributes of the
individual and the purchase situation are conceptualized as ``nuisance''
variables that inhibit the natural evolution of customer loyalty, whereas in
the contingency model these variables are seen as playing a primary and
inescapable role in explaining the observed patterns of purchase behavior.
This is even more evident where attitudes are weakly held. Here it is
repeated satisfaction and weak commitment that together with other relevant
contingency variables co-determine future brand choices.
Unified concept of Figure 1 poses two questions about customer loyalty. First, do the three
customer loyalty models suggest different courses of action for marketing managers ±
especially in the context of developing and using customer loyalty
programs? Second, is it possible to combine these three approaches to
develop a more unified concept of customer loyalty and therefore to provide
a more complete guide for program management? These questions are
addressed in sections 3 and 4 respectively.
3. Competing or complementary theories of customer loyalty?

Depending on the model one adopts, the implications for practice can be
significantly different. For example, advocates of the attitude approach
(Model 1) aim to increase sales by enhancing beliefs about the brand and
strengthening the emotional commitment of customers to their brand.
Moving customers up a ``loyalty ladder'' through image-based or persuasive
advertising and personal service (recovery) programs are frequently used
tactics (Brown, 2000; White and Schneider, 1998). Loyalty programs are
also designed to strengthen commitment and create velvet handcuffs to bond
the customer to the brand. This way of thinking has become commonplace in
communications, branding and CRM textbooks.

Consumers have Alternatively, advocates of the behavioral focus (Model 2) suggest that most
split-loyalty portfolios of consumers have split-loyalty portfolios of habitually-bought brands. Here it
habitually-bought brands is assumed that consumers tend to view advertising and other forms of
marketing communication more as publicity that sustains awareness and
offers reinforcement, rather than as highly persuasive information that
fundamentally changes their attitudes and/or levels of commitment
(Ehrenberg et al., 1998). While these customers may participate in loyalty
programs, they are also thought to be less influenced by these programs than
the advocates of Model 1 assume (Dowling and Uncles, 1997). Managers
who adopt this approach try to maintain their share of category sales by
matching competitor initiatives and avoiding supply shortages, and achieve
growth via increased market penetration (by, for example, securing wider
distribution). Under these circumstances, a loyalty program might be
launched for mainly defensive purposes, in a bid to match competitors or as a
publicity generating gesture, but with no expectation of dramatic changes in
customer attitudes and behavior.
Advocates of the contingency approach (Model 3) adopt a slightly different
approach. They emphasize what might seem to be prosaic factors ± such as
avoiding stock-outs, extending opening hours, offering the appropriate
assortment mix (to cater for various usage situations and variety seeking),
having 24-hour call centers, providing online access, etc. They also often use
price promotions, deals and special offers to attract the customers of

competitor brands (e.g. as with gasoline retailers). Here the potential for
loyalty programs to impact demand is very limited. Indeed, the product or
service provider is likely to gain greater loyalty by responding directly to the
contingent factors, and an image-building program may run counter to such a
goal. Nevertheless, loyalty programs have been launched by companies who
operate in markets with very little product/service differentiation ± many of
these can be seen as continuous promotional programs (Palmer and Beggs,
1997).
Choice of theory becomes For management, the choice of theory becomes important when brands
important competing in a category are functionally similar and marketing budgets are
not big enough to fund the tactics implied by all three models. Even where
budgets are large ± allowing for the simultaneous expansion of the sales
base, advertising to encourage more positive beliefs about the brand, and
tactical promotions ± the need for strategic focus may preclude one or two of
these options. For instance, as noted above, the launch of a loyalty program
may run counter to the creation of a price-competitive image (particularly if
it is perceived as an unnecessary expense that inhibits price-cuts from being
passed on to customers). In the next section the conceptual implications of
these different approaches to customer loyalty are explored.
4. Conceptual implications of the different approaches to customer

loyalty
Loyalty patterns profile In Figure 2 we use the three models of loyalty to introduce the notion of a
customers, not brands loyalty continuum. The anchor points are customer brand commitment
(CBC) and customer brand buying (CBB), with customer brand acceptance
(CBA) occupying the densely populated middle ground. All these loyalty
patterns profile customers, not brands per se; that is, consumers are
distributed across the curves with respect to their loyalty to a brand. For
example, most customers may accept a number of airlines, while a few
customers may be committed to one or two airlines, and some others may
buy purely on the price/route combination. These people's air travel
schedules may result in them having quite a few brands in their portfolio.

Figure 2. Summary of the different approaches to customer loyalty
Nevertheless, the nature of the market in which customers buy and brands
compete will govern what is normally observed ± thus, in highly competitive
repeat-purchase markets acceptance is to be expected more often than the
other models. We elaborate below.
Brand distinctiveness The concept of CBA is the base case of customer loyalty in competitive
affected repeat-purchase markets. It draws heavily on Model 2, but also brings

together some elements of Models 1 and 3. The contribution of Model 2 is
that customers exhibit loyalty to a number of brands because there is little
reason to develop exclusive attitudinal loyalty to any one of the brands
purchased. A prime reason for this is that a proliferation of brands in most
markets has destroyed one of the key reasons for exclusive loyalty, namely
brand distinctiveness. Weilbacher (1993) and Ehrenberg et al. (1997) argue
that in many product categories, both the functional and the perceived
differences among competing brands are small, so it is not surprising that
customers perceive few critical and meaningful differences across competing
brands. For many of these brands the advertising messages and loyalty
programs are fundamentally similar too (compare the similar car hire
advertisements in travel magazines or the near-identical benefits of
alternative airline frequent-flier programs).
Need arousal is a trigger to Figure 3 summarizes the concept of CBA in terms of the familiar five-stage
the purchase process model of consumer choice. Need arousal is included as a trigger to the
purchase process ± but this operates mainly on product category decisions,
not brand-based ones. For instance, because of a desire to stay sober the need
is for low-alcohol beer, but not necessarily for any particular brand of low-
alcohol beer. Since this is a model of ongoing CBA for frequently-purchased
products, the (external) information search and evaluation stages are
assumed to have been completed after the initial one or two purchases in the
category, and so are not explicitly included in the diagram. Choice among
the functionally equivalent alternatives will reflect the accessibility,
availability and conspicuousness of a brand at the point of purchase. Most
likely, this will be seen as a set of acceptable brands that are ordered as first
favorite, second favorite, third favorite, and so forth (Hammond, 1997)[4].
Typically, the relative likelihood of buying each brand will endure over
successive purchase cycles, assuming the brands remain functionally
adequate and accessible. Satisfaction with past purchases, and any
consequential habit formation, explain most of a person's ongoing
propensity to buy one or a number of acceptable brands.

Figure 3. Customer brand acceptance
Unexpected purchase situation circumstances (e.g. an existing brand being

on sale) may influence the actual brand chosen on a specific purchase
occasion (drawing on Model 3). The introduction of new brands or the
reformulation of current brands may alter the purchase propensities, although
the aggregate impact on short to medium-term brand loyalty is likely to be
marginal.
Similar attitudes reported This is not to suggest that attitudes will not form towards these brands over
for descriptive attribute time (Model 1), but they will be of secondary importance to the functional
beliefs adequacy of the brand. Indeed, for the markets which are the focus here,
research shows that these beliefs may simply be a playback of the message
content of the brand's advertising or publicity ± that is, simple learning
(Barwise and Ehrenberg, 1985; Castleberry et al., 1994). This can be seen in
the very similar attitudes reported for descriptive attribute beliefs (e.g.
``Volvos are safe'', `Ùnited Airlines is friendly'', ``Woolworths offers fresh
food'') by both brand users and non-users (Dall'Olmo Riley et al., 1997;
Hoek et al., 2000).
Furthermore, the discussion of CBA suggests that having a favorable set of
beliefs about one brand does not preclude having an equally favorable set of
beliefs about other functionally similar brands in the category ± and their
almost identical loyalty programs (as is the case with many airline and
retailer programs). For customers who are buying on a routine and mundane
basis, it is not necessarily important to have a set of strong value-laden
beliefs towards the brands that are purchased, as long as these brands are
believed to ``do the job''. Research suggests that to the extent that a customer
does express a consistently favorable attitude about a brand, it is more likely
to be based on frequent satisfied use than on value-laden beliefs (Dall'Olmo
Riley et al., 1997).
CBC
Brand component that The first exception to CBA concerns those consumers who value
drives choice and psychological and social value more than function. This is easiest to see
commitment when these consumers are buying high-identity products (luxury goods,
expensive cosmetics, etc.) and thinking of life-choices (education, sporting
allegiances, etc.). Here there may be a brand component that drives choice
and commitment for a significant number of customers, especially the initial
adoption of some distinctive brands such as the Apple Macintosh, the Sony
Walkman and Harley-Davidson motorbikes. We label this CBC. In this

situation, attitudes, values and social norms are seen as having a major
influence, and the consumer can develop a relationship with the brand ± in
keeping with Model 1. Because these relationships are defined in the
consumer's head, they may help to differentiate one brand from another and
they may support a price premium for that brand (Kapferer, 1999). It is
presumed consumers have a consistently favorable set of stated beliefs
towards the brand purchased.
Frequent flyers tend to use However, none of this is guaranteed ± especially when the focus is on
a number of different frequently-bought brands. First, even for cases where the level of consumer
airlines involvement is high, differentiation among brands may be relatively low
(such as with most airlines and hotel chains) ± resulting in the type of
behavior best described by CBA. For example, frequent flyers tend to use a
number of different airlines; research on international travelers indicates that
these people are typically members of multiple frequent-flyer programs and
therefore show multi-brand loyalty to both the airlines and their programs
(OAG, 1998). It is mainly the infrequent flyers who are loyal to a single
frequent-flyer program, but invariably, these are the less profitable
customers. In most markets, the socio-psychological elements of competing
brands may in fact offer limited scope for creating meaningful
differentiation.
Second, when a brand is designed to have a distinct and unique personality, it
does not mean customers will recognize and value this. Likewise, a manager
may want to create a meaningful relationship between the brand and the
customer, but customers do not necessarily desire this or reciprocate
(Fournier et al., 1998; Hart et al., 1999; Horne and Worthington, 1999).
When the type of loyalty is defined by the customer, it means that the same
brand may be the object of commitment for one person but merely
acceptable to another.
Harley-Davidson was Third, even where a relationship develops, it may not be the only one in a
forced to instigate a quality particular product category. For example, Fournier and Yao (1997) quote
improvement program instances of customers having ``compartmentalized friendships'' with
different brands of coffee ± perhaps Starbucks in the morning and Folgers in
the afternoon. Moreover, with CBC, while the non-functional sources of
value may be strong, they will not eliminate the need for the brand to ``do the
job''. Harley-Davidson, one of the strongest personality-relationship brands,
was forced to instigate a quality improvement program to save the brand
from Japanese competition.
CBB
The second exception to CBA concerns those consumers who exhibit very
low levels of loyalty. Their choices are shaped by considerations of
immediate availability, price, promotions, etc., and ± at most ± weak
attitudes (e.g. users of an online travel agency may express liking for it
because it obtains for them best price airfares). The concept of CBB is
closely allied to Model 3, where contingencies are the co-determinants of
choice, and not simply nuisance factors.
In summary, our contention is that CBC and CBB are the exceptions rather
than the rule in most repeat-purchase markets. One way to see this is as a
sampling problem (Figure 2). Consider the example of car rental: if we were
to draw from a large sample of the population, most customers of Avis or
Hertz would be characterized by CBA, and only a few by CBC (committed
to my Hertz) or CBB (renting from literally any car hire firm that happened
to be discounted at the time of purchase). Some researchers however have

used highly selective sampling to highlight the exceptions and thus convey a
very different impression of the relative importance of CBA, CBC and CBB
in repeat-purchase markets (a point previously noted by Uncles and Laurent,
1997). A distinction must be drawn between the loyalty of some customers to
some brands, and the loyalty of most customers to most brands.
Our review of customer loyalty provides the necessary basis from which to
evaluate the aims and potential commercial effectiveness of loyalty
programs ± at least in terms of the customer-related (demand-side) issues.
5. Implications for the management of customer loyalty programs

Loyalty resembles habit What gives poignancy to the concept of customer loyalty is the supposed
justification it gives for managers to spend millions of dollars on CRM
programs and the costly customer databases that support these. Customer
loyalty programs are a current manifestation of this trend. Proponents tend to
focus on the psychological bonding that eventuates from membership (a
customer benefit), and the enhanced customer insights that can be gained
from analyzing the program database (a firm benefit) (Brown, 2000; Pearson,
1996). Critics argue that the loyalty ± both attitudinal and behavioral ± for
most customers is quite passive and resembles habit rather than serious
commitment. Also, they argue that these programs are expensive to set up
and maintain and that there is little or no evidence that any changes in
behavior justify the expenditure (Dowling and Uncles, 1997). These are
strong claims and counter-claims, and to a large extent they rest on the
different models of customer loyalty we have outlined above.
Supporters of loyalty programs have in mind Model 1, where the program is
seen to reinforce CBC-type outcomes. Or they envisage a combination of
Models 3 and 1, where consumers with no loyalty (CBB-types) are converted
into single-brand loyal CBC-types because of the customer benefits of the
program. Critics favor the multi-brand divided-loyalty model (Model 2), and
assume most customers are CBA-types who are not strongly swayed by the
program. In evaluating the aims and demand-side success of loyalty
programs, we take account of these somewhat contradictory positions. We
examine the issues from the perspective of individual customers, markets,
and touch on the contribution to profits of such schemes[5].
Loyalty programs from an individual's perspective

Loyalty programs can Where the focus is on individual customers, loyalty programs can be seen as
increase single-brand vehicles to increase single-brand loyalty, decrease price sensitivity, induce
loyalty greater consumer resistance to counter offers or counter arguments (from
advertising or sales-people), dampen the desire to consider alternative
brands, encourage word-of-mouth support and endorsement, attract a larger
pool of customers, and/or increase the amount of product bought. For
instance, Bolton et al. (2000) found that members of the loyalty program of a
financial services company were generally less sensitive than other
customers to perceptions of lower service quality from their company and
any price disadvantage relative to competitors.
In keeping with this focus, the rhetoric of many consultants suggests that the
aim of a loyalty program should be to create a bigger group of single-brand
loyal customers (consistent with Model 1). But the review of customer
loyalty presented in the previous section and the empirical evidence cited,
suggests that this is both undesirable for most customers and unachievable
for most firms (the implication of Figure 2). Indeed, if customers are already
single-brand loyal, the scheme will only be sales effective if it can get these

people to buy more of the brand. This is not easily achieved when so many
single-brand loyal buyers are light users ± in these circumstances they must
be persuaded to buy more of the brand and more of the category or other
categories offered by the same firm (Ehrenberg et al., 2003). Something that
is exceedingly hard if customers are not particularly motivated by the brand,
category or program.
Most people only buy what Significantly, in Bolton et al.'s (2000) study, 43 percent of respondents did
they need not use their ``loyalty-building'' credit card during the one-year study period
and a further 36 percent used their card on fewer than six occasions ± the
program could not be described as particularly motivating. Similarly, Wright
and Sparks (1999) found that as many as a fifth of retail loyalty card-holders
did not make any use of their card over a three-month period. In general,
enhancing the bond between customers and their brands and expecting that
this will automatically stimulate more demand for the product category is not
a sustainable outcome. Why? Because most people generally only buy what
they need.
At the other extreme, it is possible that a loyalty program could be offered to
people who do not buy the target brand (but do buy from the category). If the
program is sufficiently appealing, then it might entice customers to switch
brands (creating a new group of single-brand loyals, as in Model 1) or to
include the brand in their repertoire of acceptable brands (making them
polygamous loyals, as in Model 2). However, in this case the substantial

appeal of the program can actually be its weakness. First, this course of
action is likely to induce a quick counter-response from managers whose
brands start to loose share. Second, when the program is attractive,
customers may come to build a relationship with the program rather than the
brand. Then a large part of the brand's equity becomes dependent on
something that might have little directly to do with the brand, as well as
something that is vulnerable to competitive responses.
Most consumers buy more In between these extremes, recall that over a number of purchases, most
than one brand in the consumers buy more than one brand in the category. For these consumers
category there is some scope for bringing about a reallocation of purchasing without
demanding any fundamental shifts in attitudes or behavior towards the
brands bought or the product category. However, if consumers have good
reasons for being multi-brand loyal, then it is unrealistic for brand managers
to expect them suddenly to become single-brand loyal. Empirically,
consumers appear not to want to watch one television station, eat at one
restaurant, patronize one hotel chain, drink one brand of wine, get all their
business news from one magazine, go to one holiday destination, buy one
brand of petrol, only attend one theatre, always shop at the same bookstore,
etc. Hence, it is a major challenge for brand managers to convince enough
people to reduce their repertoire of brands such that the propensity to buy
their particular brand increases enough to cover the full costs of the program.
Program to address the In these circumstances, the best way for customers to reallocate some of their
underlying reasons for category purchasing to a particular brand is for a program to address the
polygamy underlying reasons for polygamy. Thus, program members might be given
greater access to the brand, offered more variety, or helped to consolidate
their purchases with fewer business providers/brands. The launch of the One
World Alliance in international airlines can be seen as an example of this
strategy, although the existence of competing alliances ± notably the Star
Alliance ± shows the difficulty of devising a unique and well-differentiated
program in highly competitive, repeat-purchase markets. It also shows how
difficult it is to separate purely functional and economic benefits (more

routes and flexible schedules in the case of airlines) from membership
benefits (Driver, 1999; Goh and Uncles, 2003).
The loyalty program is seen An important component of many loyalty programs is the scope for cross-
as a brand extension aid selling, in an attempt to increase share-of-wallet, rather than market share
(Peppers and Rogers 1997). Loyalty-program members are encouraged to
buy products they would not normally have bought from that provider. In
essence, the loyalty program is seen as a brand extension aid. For example,
through their respective programs, United tries to interest customers in car
hire and hotels, while Tesco attempts to expose its Clubcard members to
high-margin wines, financial services and electrical goods, as well as lower-
margin groceries. One issue is that many of the cross-selling opportunities
are themselves in highly competitive markets ± hotels, car hire, restaurants,
financial services, etc. ± and often these markets support other loyalty
programs.
The implication here is that only a truly exceptional program will change the
purchasing behavior of customers to increase sales revenues significantly.
Loyalty programs from a market perspective

Most brands exhibit a At an aggregate level, repeat-purchase markets typically have a well-defined
double jeopardy (DJ) effect structure ± namely, most brands exhibit a double jeopardy effect whereby
small brands have fewer buyers who buy them less often than big brands
(Ehrenberg et al., 1990). Whatever their market shares, it is to be expected
that, for all brands, there will be some CBB and CBC buyers, and a majority
of CBA buyers. This market structure gives rise to three strategies for
enhancing the observed level of repeat-purchase or loyalty of a brand. A
possible fourth strategy is considered too.
The first strategy is to try to grow the size of the brand. This can be achieved
by making the brand acceptable to a larger number of potential customers ±
in keeping with Figure 3 and the focus on CBA. Tactically, this means
exposure at the point of purchase, offering greater perceived value, gaining
wider distribution, suggesting more usage occasions, etc.
Niche brands The second strategy is to create a niche brand by aiming to keep the numbers
of buyers relatively low but at the same time increasing the average amount
bought by these buyers. This could be achieved by reducing the distribution
coverage of the brand and using the money saved to better support/promote
the brand to current customers. This strategy implies a higher proportion of
behaviorally-loyal and committed buyers (CBCs) for the level of market
share than predicted by the DJ effect. In its early years, the Body Shop was a
successful niche brand.
The third strategy is for a big brand to become a ``super-loyalty brand''.
These are brands that exhibit signs of strong commitment and that have
higher than expected (using the DJ model) repeat-purchase (Fader and
Schmittlein, 1993) (i.e. an above-average number of CBCs at a high level of
market share). During the early 1990s, icon-status Nike appeared to be such
a super loyalty brand.
Desire for change-of-pace A fourth strategy implied by the DJ effect is to exploit the desire of
customers for change-of-pace. Here the penetration is higher and the repeat-
purchase rate lower, than predicted by the DJ effect (Kahn et al., 1988).
Some imported and premium beer brands fall into this category, though the
typical beer brand of this type is simply small. This is primarily a penetration
effect and cannot be seen as loyalty building unless an organization offers a

portfolio of these brands (in which case the portfolio can again be expected
to conform to the DJ pattern).
Successful instances of strategies two and three are uncommon (by
definition, they are deviations from the norm). They already have above-
average shares of loyal (CBC) customers, and therefore a loyalty program
would have to be unusually effective to raise loyalty levels further (although
it may help to maintain the deviation). The first strategy is more common ± it
implies offering better value than competitors and growing the size of the
brand. The easiest, and most cost-effective role for a loyalty program here is
to improve the accessibility, availability and conspicuousness of a brand (e.g.
its top-of-mind awareness or salience). This can be achieved initially by
advertising and publicizing the program; this provides something
newsworthy to say about the brand. Thereafter, periodic communication with
members can take place. If this is successful the program will help the brand
to grow and repeat purchase will be a natural outcome ± although subject to
the DJ constraint. The consumer may even re-evaluate the brand, moving
from some weakly-held attitudes to more strongly held ones. However, to
expect that the program will be sufficiently powerful to create single-brand
commitment from initial divided loyalty for enough people to cover its full
costs is a considerable challenge.
FlyBuys loyalty program An example illustrates the point. Sharp and Sharp (1997) used consumer
panel data and stochastic modeling to establish normal patterns of consumer

repeat-purchasing as a benchmark and then looked for departures from these
predictions as evidence of the impact of the Australasian FlyBuys loyalty
program on creating excess loyalty. Two conclusions from this study are
noteworthy. First, Sharp and Sharp (1997, p. 479) state that they ``do not
observe the consistent finding of FlyBuys brands showing higher levels of
average purchase frequency given their individual levels of penetration''.
Second, they find that: `Òf the six loyalty program brands, only two showed
substantial repeat-purchase loyalty deviations and both of these showed this
deviation for non-members of the loyalty program as well as members''
(Sharp and Sharp, 1997, p. 485). Given that FlyBuys was a particularly large-
scale and bold attempt to use a loyalty program to re-engineer patterns of
repeat purchase, these results are not encouraging.
Tesco Clubcard scheme From a market perspective, a major implication is to see whether loyalty
regarded as a financial programs have the potential to help grow the size (and thus sales revenue) of
success a typical brand ± when used in combination with other marketing programs.
This is precisely the approach adopted by the UK retailer Tesco. The Tesco
Clubcard scheme is regarded as a financial success, especially in terms of
cross-selling and up-selling, although this success is also closely linked to
high-profile advertising, product range extension, and strategic
developments in the management of Tesco (Broadbent, 2000; East and
Hogg, 1997).
Loyalty programs and profitability

Firms employing loyalty programs should expect them to be profitable. On
the cost side of the profit equation, accurate estimates are difficult to obtain ±
even within corporations. One reason for this is that marketing programs in
general, and loyalty programs in particular, seldom are fully costed. There
are establishment costs (often including new advertising and promotional
activity), enrollment costs, IT hardware, database creation and maintenance
costs, servicing costs, management costs, editorial and production costs of
loyalty magazines, the direct costs of rewards, and the opportunity costs of

spending money on a loyalty program instead of on other marketing
initiatives (e.g. new product development). A formula for factoring-in some
of these costs is provided by Niraj et al. (2001).
Interpreting information is Many different types of information are available about the sales effects of
difficult loyalty programs. But interpreting this information is difficult: often there is
too much of some types of sales information and too little of other types; the
evidence from sales is contradictory; and much of the data are gathered from
poorly designed studies.
Turning to the first of these problems, a purported benefit of loyalty
programs is that they provide vast amounts of data that allow both a better
insight into customer behavior and greater efficiency in targeted marketing.
This information provides the analytical basis for Model 1 and CBC
outcomes. Typically, information is obtained on demographics and lifestyle
at the time of joining the program; subsequently, product purchasing and
responses to targeted marketing initiatives are documented for each purchase
occasion. In practice the danger is that rather too much of this information is
acquired. A scheme with millions of active members (such as those run by
national grocery chains, multinational automobile companies, banks and
airlines) gathers more EPOS data than it can usefully analyze or use for
targeting purposes.
Problems collecting right Second, few of these programs collect data about the complete customer
kind of data experience or the portfolio of brands bought (i.e. little information on either
decision-making or total category expenditure). Nor do they have much to
say about the total market and competitor marketing activity (e.g. non-
customers are ignored). Yet, our discussion in the first part of the paper
shows that this information is essential for anything other than a superficial
and possibly inaccurate understanding of customer loyalty. Specifically, a
thorough and accurate understanding of Models 2 and 3 requires data that are
rarely available from loyalty-program databases. Here, the problem is that
too little of the right kind of data are collected.
Successful schemes quickly A third area of concern is that data come from two sources ± these often
copied by competitors provide contradictory evidence. One source is the companies that have
introduced these schemes. Not surprisingly, many suggest that their schemes
are successful (publicly at least). The effects are reported as one or more of
the following: increased sales of the target brand, higher levels of cross-
selling, fewer customer defections, and more satisfied customers (e.g.
Rayner (1998) reports on a number of UK schemes). However, researchers
are beginning to question the accuracy of these effects (e.g. Reinartz and
Kumar 2000, 2002). Notwithstanding the various initiatives that have been
tried over the years, the empirical regularities of purchase incidence noted
earlier (namely, DJ effects) have been robust to attempts by loyalty schemes
to change them. One reason for this is that if a scheme looks as though it
might be successful in increasing levels of accessibility, availability and
conspicuousness, or in adding to the perceived value of the brand, it is
quickly copied by competitors. The classic example of such imitation is the
airline frequent-flier programs ± there are now no major airlines without
such a scheme. When widespread copying happens, any benefit gained is
likely to be ephemeral.
A fourth area of concern is that evaluations on the sales effectiveness of
loyalty programs are often based on a poor quasi-experimental design. When
quantitative measures of effectiveness are developed they typically compare
post-program levels of sales, customer retention, customer satisfaction, etc.

with pre-program measures. Thus, there is often no control group (that is, no
group subjected to the same new service regime, but without the ``benefit''
of a loyalty program). Hence, program effects are confounded with the
effects of other marketing initiatives. In Rayner's (1998) review she reports
that all the programs she describes were introduced as part of more
wide-ranging marketing initiatives. For example, the oft-cited success of
Tesco's loyalty scheme is difficult to determine because it was introduced as
part of a much broader program of new business development and store
acquisition (East and Hogg, 1997). This is not to criticize what was done;
indeed, the paradox is that good business practice is based on an integrated
approach to marketing that will most likely give rise to confounded measures
of success. Unfortunately, echoing Cook and Campbell's (1979) warning, we
should be wary of making causal inferences from studies with weak
experimental designs.
Choice of benchmark A final potential problem is the choice of benchmark. The typical
critical benchmark consists of conditions prevailing before the program was
introduced. A much tougher test of the effectiveness of the loyalty
program would be to compare the post-program results with what may
have been achieved had the full costs of the program been used in
another way ± such as establishing a policy of everyday low prices, a
new product introduction, more direct forms of brand extension, an
increase in advertising spend, or improvements in the channels of

distribution. The literature on good decision-making suggests that this
type of comparison is likely to produce better management outcomes than
evaluations based on one alternative versus the status quo (Hammond
et al., 1999).
Cost-effectiveness of these The major managerial implication from looking at the potential
schemes should be treated profitability of loyalty programs is that, in most cases, the jury is still
with caution out ± but the early signs are not encouraging. The jury is still out
because much of the evidence relied on to support customer loyalty
programs is not scientifically valid. The early signs are not
encouraging because two of the better scientific studies, namely those
of Sharp and Sharp (1997) and Reinartz and Kumar (2000) do not
support the widespread use of customer loyalty programs. In fact, the
Reinartz and Kumar study suggests a very weak association between
customer profitability and long-life (loyal) customers. Thus
managers should be cautious of claims extolling the cost-effectiveness of
these schemes.
6. Whither loyalty programs?

We have discussed how loyalty programs might have an impact on
customer loyalty in established repeat-purchase markets where there are
directly competing branded products and services. In these markets
CBA is believed to describe the loyalty of most customers to most of the
brands they buy. CBC and CBB by some customers in some categories
exists, but these are not necessarily widespread. The notion of brand
acceptance draws heavily on behavioral definitions of loyalty, while
allowing for weak attitude formation and the influence of major
contingencies. It is within this context that most firms should assess their
loyalty programs. Taking account of all considerations in this paper, the
checklist, below, is designed to help managers when considering the
strategic and operational implications of starting or evaluating a
loyalty program:

(1) Context:
. Established repeat-purchase markets.
. Where there is direct competition between branded products and
services.
. Demand-side success is assumed to be of crucial importance.
(2) Assessing customer loyalty:
. What underlying model of customer loyalty is being assumed ±
model 1, 2, or 3? (Section 2, Figure 1.)
. How is this assumption influencing thinking about loyalty-building
initiatives ± explicitly and implicitly? (Section 3.)
. Know your customers ± what are the relative sizes and distinguishing
features of the CBCs, CBAs and CBBs? (Section 4.)
. What steps have been taken to address the sampling problem?
(Section 4, Figure 2.)
(3) Assessing loyalty programs:
. What demand-side goals are there for the loyalty program ±
maintaining customer loyalty or enhancing it? How will these goals
be set and assessed? (Section 1.)

. In general, will the program focus on the most profitable customers?
What time frame is to be used to assess their profitability?
(Section 4.)
. What is the appeal of the program for these customers? (Section 5 (a).)
. How will the program be used in combination with other marketing
activities? (Section 5 (a).)
. Will these initiatives grow share and sales revenues? (Section 5 (b).)
. Can the customer data be analyzed in useful ways? (Section 5 (c).)
. Are the sales and cost data reliable? Is the evidence contradictory?
Are you relying on studies with weak experimental designs? (Section
5 (c).)
. What benchmarks have been chosen to assess the loyalty program
and are these appropriate? (Section 5 (c).)
. How will the overall profitability of the program be calculated?
(Section 5 (c).)
(4) Assessing major traps:
. Are there, in fact, too few customers who will actually use it? Does
the scheme have little appeal for customers? (Section 5 (a).)
. Or, has the scheme been too indiscriminant ± perhaps all three types
of customers have joined because they see it as a (relatively) free
option and/or a reward for their current purchase behavior? (Section
5 (a).)
. Are customers more loyal to the scheme than the brand? Is this a
problem and, if so, what can be done to rectify the problem? (Section
5 (a).)

. What are the chances of a competitor retaliating to nullify the impact
of the program? Have competitors already launched a counter-
initiative (Section 5 (b)?)
. Do you simply want to maintain the status quo (at a higher cost to all
competitors)? (Section 5 (c).)
. Is the need to service large numbers of members driving up running
costs? (Section 5 (c).)
Our review suggests that the demand-side success of many of these programs
has been over-claimed by their advocates. This conclusion is based on two
main observations:
(1) established patterns of repeat-purchase behavior appear to be robust to
the attempts of even large, well-financed programs to change them (e.g.
major retail schemes or the airline frequent-flier programs); and
(2) many high-profile programs are either quickly copied or induce a direct
counter-response from competitors, thus nullifying much of their
potential impact (which, of course, is often the case with marketing and
communications initiatives in established markets).
More loyalty programs are Notwithstanding our cautious assessment, the fact remains that many loyalty
being introduced programs are in operation and more are being introduced. We conclude by
briefly considering why is there so much momentum behind these programs.

First, it is possible to see loyalty programs as vehicles for maintaining
customer loyalty (i.e. for keeping the brand in the customer's repertoire) or
for maintaining brand share (where the program works in combination with
other valued enhancements, including product and service improvements).
Here, rather than trying to induce single-brand loyalty from customers who
previously have exhibited divided-brand loyalty, a more realistic aim is to
build on existing levels of CBA. If customers feel the need for affinity, or
desire an explicit reward for their loyalty, they will join the programs of the
brands they buy. The critical issue then is for the program to reinforce the
value proposition of the parent brand ± enhancing brand equity, not just
building loyalty-program equity. The critical task for the program manager is
to design a cost-effective scheme to achieve this aim.
Brand accessibility and Second, another role for loyalty programs can be to improve levels of
market conspicuousness accessibility and market conspicuousness for a brand. This can manifest
itself as a more credible proposition to retailers in order to secure more
shelf-space and benefit from ``retail push''. In other cases it may provide
more opportunities to talk with customers and, perhaps, more opportunity to
sell brand extensions to customers. In either case, the aim of the program is
to get the brand into the customer's set of acceptable brands. This, however,
is not a substitute for the inherent functional, psychological and economic
value designed into the brand, but rather it simply makes the brand easier to
consider. If for some people the program provides additional emotional
value, then this is a bonus.
``Me-too'' pressure A third major factor is the me-too pressure to follow others who have
embarked on this path. Moreover, once these programs have been
introduced, managers seem very reluctant to cancel them ± even if their
claimed benefits are not being realized. For example, there are persistent
rumors that many airlines would like to end their frequent-flier programs if
they could find an acceptable way to do this. So far, that goal has proved
elusive, although the need to respond to deep discounting by companies such

as Southwest and Virgin may force the hand of some operators. Just as there
may have been first-mover advantages in creating a loyalty program, there
also might be first-mover drawbacks from snatching away much heralded
customer benefits. However, there are instances of card-based loyalty
programs having been dropped (e.g. schemes operated by the DIY group
Do-it-All and the grocery store Safeway in the UK, also Ford USA withdrew
its credit card reward program).
Despite all the problems surrounding loyalty programs, they are likely to be
in the marketer's toolkit for a long time yet, which is a powerful reason for
carefully thinking through the issues discussed here.
Notes
1. Loyalty programs are schemes offering delayed, accumulating economic benefits to
consumers who buy the brand. Usually this takes the form of points that can be exchanged
for gifts, free products, or aspirational rewards such as air miles. Airline frequent-flier
programs have been a prototype for many of the schemes. Affinity programs are a
specific type of loyalty program. They are designed to enhance the emotional bond
between customer and brand. Mechanisms are set up to enhance two-way communication
in order for the customer to get to know the brand (or company that stands behind it)
better, and for the company to learn more about the customer. No direct economic benefit
is offered to the customer. Examples include telephone help lines, club memberships,
alumni associations, newsletters, Web site ``chat'' groups, etc. Hybrids also exist. For
instance, where the focus is on enhancing the emotional bond between customer and
brand, and a third-party (e.g. a charity) receives a financial benefit. Or the establishment
of a club where consumers pay for membership, in return for access to special events and
offers. This latter format is prevalent in countries like Germany where privacy and trading
laws prohibit incentive-based schemes, e.g. Volkswagen Club, Swatch the Club,
Mercedes Mastercard (Butscher, 2002).
2. See, for example, Reichheld (1996). While this generalization is often made by
consultants, it takes no account of the company's specific circumstances, particularly its
target market, marketing strategy and cost structures (Niraj et al., 2001; Shaw, 1998).
Indeed, there is some evidence to suggest declining profitability from long-term
customers in the context of catalogue buying in the US (Reinartz and Kumar, 2000,
2002).
3. In this context, use of the word ``loyalty'' is debatable. Some prefer to use the term
``spurious loyalty'', in that any pattern of buying here is likely to result from the
recurrence of contingent factors (e.g. Mellens et al., 1996). It is pointed out that if the
contingent factors are removed, buying may change. Nevertheless, we argue that Model 3
is the basis of brand acceptance and weak loyalty, neither of which should be regarded as
spurious.
4. The main exception ± where exclusive buying is observed ± is among consumers who are
light buyers of the product category and therefore of any brand in the category. Among
these buyers, monogamous ``loyalty'' may merely reflect a very limited number of
purchase occasions (e.g. the infrequent holiday traveler versus the international business
executive). Exclusive loyalty is also a function of the length of the observation period ± in
a short period most people will appear to be exclusively loyal because they have had so
few opportunities to buy.
5. The bias is towards a consideration of customer issues, reflecting the customer-focus
logic of marketing. Therefore, our comments about the contribution of loyalty schemes to
profits focus largely on consumer-related demand-side issues. It would be useful for
others to consider other perspectives. For example, some of these programs could be
viewed as a form of indirect price cut that is desired by one segment of customers but is
ultimately paid for by all customers. Programs that offer air miles as their reward could be
viewed as the outcome of airlines wanting to sell excess capacity at a price greater than
marginal cost. There are also broader issues of business policy and marketing strategy
that need to be addressed. For instance, from the perspective of one business partner in a
loyalty program, the success of the endeavor may depend on an ability to negotiate a
particularly attractive deal with the other business partners ± irrespective of whether the
program has much impact on customer loyalty. We regard this as a very important, but
separate, issue.

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&

This summary has been Executive summary and implications for managers and
provided to allow managers executives
and executives a rapid
appreciation of the content Loyalty or cupboard love?
of this article. Those with a Like many people I have my doubts about whether it's possible to be loyal to
particular interest in the a particular brand of tomato soup. Indeed there are times when the idea of
topic covered may then read ``customer loyalty'' seems more suited to the purposes of consultants than
the article in toto to take the objectives of marketing management. There are a number of problems
advantage of the more and issues with the concept of loyalty and, in this article, Uncles, Dowling
comprehensive description and Hammond provide a very helpful and thoughtful review.
of the research undertaken The first problem, it seems to me, lies in the definition of loyalty in that it
and its results to get the full sometimes means `ùnquestioning'' repeat purchase and sometimes relates to
benefit of the material a more nebulous relationship with the particular brand or organization. As
present everybody recognizes, some types of brand (in the widest sense) are more
likely to attract loyalty than others.
Can a chocolate bar be like a football team?

The classic examples of ``super-loyalty'' are seen with sports teams. The
dedicated Manchester United fan refers to the team as ``we'' and the
performance of the team affects mood, behaviour and attitude. At times the
``loyalty'' seems almost pathological with the performance of the team
seemingly the most important thing in the fan's life. I think it is safe to say
that, outside the area of mental illness, such dedication is unlikely to be
directed towards a chocolate bar or department store.
The question for marketers is whether some of the characteristics we see in
this super-loyalty might be applied to these more prosaic brands or whether
loyalty as an idea detracts from the primary function of brand marketing.
Certainly, Uncles et al. seem to question the effectiveness that many of the
loyalty marketing schemes run by businesses such as airlines and
supermarkets. Indeed the authors suggest that some airlines would like to
drop frequent flyer promotions and that the jury remains out on the success
or otherwise of loyalty schemes such as the Tesco Clubcard (we should note
that the company still insists this is a success and as the UK's most
successful supermarket in recent years it is difficult to argue with their
strategy). As the authors succinctly put it; ``loyalty is a function of people
rather than something inherent in brands''.
Consumers have divided loyalties

Uncles et al. also refer to the issue of double jeopardy and the concept that
consumers select from a portfolio of brands rather than being loyal to just
one brand. Indeed the most promising customers (those that buy more, more
regularly) are portfolio buyers with ``many single-brand loyal buyers'' being
light users. As the authors describe:
. . . consumers appear not to want to watch one television station, eat at one restaurant,
patronize one hotel, drink one brand of wine, get all their business news from one magazine, go
to one holiday destination, only attend one theatre, always shop at the same bookstore, etc.
These divided loyalties make it more difficult for marketers to take actions
aimed a promoting loyalty. It would seem the case that the focus on loyalty to
the exclusion of other elements in consumer behaviour could result in
misplaced marketing strategies. Moreover the loyalty strategies employed by
different brands are very similar. I suspect that many consumers do not
distinguish between loyalty campaigns and other forms of sales promotions.
We know that the point of frequent flyer programmes, for example, is to

encourage us to use one particular airline and we make the choice to do so
because we receive some reward (discounts, incentives or other benefits).
The consumer acts out of self-interest rather than pure loyalty.
This selfish motivation does not mean that the loyalty programme is
ineffective since offering incentives to existing customers can represent a
better sales promotion strategy than the use of general or new customer
targeted promotions. Identifying good customers can be a way to
maintaining market share and reflects that decades old argument from direct
marketers that making a further sale to an existing customer is far easier
than recruiting a new customer. But it remains the case that marketers have
to recognise that their customer might be equally ``loyal'' to another
competing brand.
For ``loyalty'' read ``customer retention''

For most brands (exceptions can be made for brands such as Harley
Davidson) the object of the loyalty strategy is to secure a greater share of
choice from within a limited portfolio of brands. Assuming that those who
buy from us have our brand in their choice set, the loyalty programme
provides an incentive for these buyers to repeat their purchase with us rather
than switch (possibly temporarily) to another brand.
As ever we need to make a clear distinction between different types of
market. Chocolate bars differ from supermarkets which, in turn, differ from
hotel chains or holiday destinations. A loyalty strategy for a brand that has
genuinely loyal customers will be very different from a strategy aimed at
getting our product greater attention from actual and potential buyers (i.e.
those who have our brand in their portfolio of possible brands to purchase).
For some investing time and money in securing a ``closer bond'' with
customers makes sense whereas for other's the focus should be on the
aggregate effect of our promotions ± ``loyalty'' is a lovely idea but in many
cases it can result in the wrong promotional strategy.
Uncles et al. provide marketers with food for thought about loyalty and raise
questions and doubts about the use of loyalty programmes in a range of
settings. Indeed the authors' conclusion that the demand side success of
many loyalty programmes ``. . . has been overclaimed'' is a clear indication
that marketing must move on to a more informed approach to repeat
purchase promotions and loyalty programmes.
(A preÂcis of the article ``Customer loyalty and customer loyalty programs''.

Supplied by Marketing Consultants for Emerald.)

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Journal of Consumer Marketing

Customer loyalty and customer loyalty programs

*Related content and download information correct at time of download.

Keywords Relationship marketing, Customer loyalty, Consumer behaviour

these to a framework for understanding customer loyalty that encompasses customer

The Emerald Research Register for this journal is available at

Loyalty as primarily an attitude that sometimes leads to a relationship with

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Loyalty mainly expressed in terms of revealed behavior (Model 2)

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Buying moderated by the individual's characteristics, circumstances, and/or

purchase situation), and consequences (up-dated attitudes, intentions and the

3. Competing or complementary theories of customer loyalty?

298 JOURNAL OF CONSUMER MARKETING, VOL. 20 NO. 4 2003

price promotions, deals and special offers to attract the customers of

4. Conceptual implications of the different approaches to customer

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affected repeat-purchase markets. It draws heavily on Model 2, but also brings

300 JOURNAL OF CONSUMER MARKETING, VOL. 20 NO. 4 2003

Unexpected purchase situation circumstances (e.g. an existing brand being

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302 JOURNAL OF CONSUMER MARKETING, VOL. 20 NO. 4 2003

5. Implications for the management of customer loyalty programs

Loyalty programs from an individual's perspective

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polygamous loyals, as in Model 2). However, in this case the substantial

304 JOURNAL OF CONSUMER MARKETING, VOL. 20 NO. 4 2003

Loyalty programs from a market perspective

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panel data and stochastic modeling to establish normal patterns of consumer

Loyalty programs and profitability

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increase in advertising spend, or improvements in the channels of

6. Whither loyalty programs?

308 JOURNAL OF CONSUMER MARKETING, VOL. 20 NO. 4 2003

be set and assessed? (Section 1.)

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briefly considering why is there so much momentum behind these programs.

310 JOURNAL OF CONSUMER MARKETING, VOL. 20 NO. 4 2003

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312 JOURNAL OF CONSUMER MARKETING, VOL. 20 NO. 4 2003

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314 JOURNAL OF CONSUMER MARKETING, VOL. 20 NO. 4 2003

Can a chocolate bar be like a football team?

Consumers have divided loyalties

JOURNAL OF CONSUMER MARKETING, VOL. 20 NO. 4 2003 315

For ``loyalty'' read ``customer retention''

(A preÂcis of the article ``Customer loyalty and customer loyalty programs''.

316 JOURNAL OF CONSUMER MARKETING, VOL. 20 NO. 4 2003

study. Journal of Retailing and Consumer Services 14, 35-44. [CrossRef]

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