Do Customer Loyalty programs work ?

In a report by Knowldge@Wharton customers are hard to attract and even harder to keep. As increasing numbers of companies pack themselves into already crowded markets, consumers are spoilt for choice and are becoming ever more willing to switch from one brand to another.
Companies often try to secure their customers' loyalty through reward programmes.

At American Airlines' AAdvantage e-shopping site, for example, more than 200 vendors, including Bergdorf Goodman, Home Depot and Petco, offer bonus miles to shoppers. At the Apple Store, a dollar spent earns a mile, while Hallmark offers ten miles per dollar spent. Gexa Energy of Houston.

But according to this report, while such programmes are increasing in number and size, their effectiveness in securing customer loyalty is dubious. "The programmes are growing but they are not necessarily successful," says Wharton University marketing professor Xavier Dreze. He adds that setting them up "is now just an added cost of doing business, not a true loyalty programme. The retailer does not have loyalty from the customer; the airline has it."

According to Stephen Hoch, another Wharton marketing professor, very few retailers have successfully built their own loyalty programmes. The hotel and airline industries are much better placed to profit from these programmes because they offer rooms and seats that, in most cases, cost little or nothing to provide - as opposed to hard inventory. There is also a big spread between light and heavy users in the travel industry, making it easy to identify and cultivate the big spenders.


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