Special Session Summary Consumer Loyalty

ABSTRACT - Recent years have seen an upsurge of interest in consumer loyalty. This series of papers on customer loyalty relate to two topics of current concern to marketers, Loyalty Programs and Relationship Marketing, both of which have been claimed to bring about enhanced levels of customer loyalty.

Citation:

Byron Sharp and Anne Sharp (1996) ,"Special Session Summary Consumer Loyalty", in AP - Asia Pacific Advances in Consumer Research Volume 2, eds. Russel Belk and Ronald Groves, Provo, UT : Association for Consumer Research, Pages: 66-67.

Asia Pacific Advances in Consumer Research Volume 2, 1996      Pages 66-67

SPECIAL SESSION SUMMARY

CONSUMER LOYALTY

Byron Sharp, University of South Australia

Anne Sharp, University of South Australia

ABSTRACT -

Recent years have seen an upsurge of interest in consumer loyalty. This series of papers on customer loyalty relate to two topics of current concern to marketers, Loyalty Programs and Relationship Marketing, both of which have been claimed to bring about enhanced levels of customer loyalty.

The first paper in this session "Loyalty Programs and Their Impact on Consumer Behaviour" examines the impact of such programs on consumers loyalty. It begins with a critical discussion of a variety of alternative methodologies for evaluating changes in loyalty. Then it presents the methodology used to evaluate Fly Buys Australia’s largest loyalty program.

The second paper in the series "The Role of Reward Programs versus Relationship Efforts in Creating Customer Loyalty". Here the focus is on small business customers. Qualitative focus group discussions were used to examine the relationship between provider and customers, to gather impressions of loyalty program that was in place, and to test alternative implementations of the program. An unexpected finding was the degree to which small business customers valued relationships with service provider staff, in many cases this was seen as far more likely to influence their loyalty (eg continuity of purchasing) than rewards/incentives.

The final paper in the series also addresses loyalty in a business-to-business setting, this time the buyers (and respondents) were senior managers in large businesses. The research measured customers’ impressions of Relationship Quality and Service Quality. Structural equation modelling was used to test a theory concerning the independent effects of these variables on Service Satisfaction and Loyalty.

 

LOYALTY PROGRAMS AND THEIR IMPACT ON CONSUMER BEHAVIOUR

Byron Shar, University of South Australia

Anne Sharp, University of South Australia

In recent years there has been a rise in the use of loyalty programs by marketers and academic interest in measuring consumer loyalty. This change has been stimulated by beliefs that marketing has not paid sufficient attention to customer retention, that increased rates of retention lead to significantly increased profitability and by the belief that decreased differetiation and increased cynicism on behalf of customers has lead to an overall erosion in "natural" loyalty levels which therefore require special marketing attention to restore loyalty.

How are loyalty programs to be distinguished from other promotional efforts in their effect on consumer behaviour? Do consumers actually become more loyal in the presence of a loyalty program? The paper begins with a brief explanation of the rise in popularity of loyalty programs. We then present a case for setting behavioural loyalty objectives for loyalty programs and in doing so we distinguish loyalty programs from other marketing efforts which are primarily concerned with gaining creases in market share.

In line with this view a methodology for assessing the impact of loyalty programs on behavioural loyalty is outlined. In order to test if a loyalty scheme is having an effect in a market it is necessary to know what consumer behaviour could "normally" be expected. The necessary behavioural benchmarks are able to be set using the Dirichlet and NBD models of repeat-purchase patterns. These models and accompanying empirical generalisations are some of the most widely tested and supported in marketing, having been observed for over 30 years and across European, US, Asian and Australian markets.

The paper concludes with a discussion of why the impact of a successful loyalty program, the "excess loyalty", will be seen more in through consumers’ average purchase frequency rather than in an increase in buyers to the participant brand.

 

THE ROLE OF REWARD PROGRAMS VERSUS RELATIONSHIP EFFORTS IN CREATING CUSTOMER LOYALTY

Anne Sharp, University of South Australia

Byron Sharp, University of South Australia

The recent rise in the use of loyalty programs by marketers seems based on the assumption that in order to gain consumer loyalty and to encourage them to place a greater share of their business with you, it may be necessary to offer rewards or incentives in the form of a loyalty program. However, there has been little research into how much value consumers perceive in loyalty programs and how they compare to other marketing mix adjustments such as improved levels of customer service relationship quality.

This paper outlines exploratory research undertaken into customers’ perceptions of loyalty programs, especially in relation to other marketing efforts such as improved customer service. The research involved the examination of an existing loyalty program offered by a well-known national service organisation that targets small businesses. A series of indepth interviews with those responsible for the program’s implementation and four focus groups with customers, three consisting of program participants and one, not identified that consumers are sceptical of loyalty programs and, in this instance, are more responsive to an organisation that demonstrates high personal selling and relationship building skills rather than a loyalty program.

These early results would tend to support the notion that while loyalty programs can supplement a firm’s marketing efforts, in themselves they are insufficient to hold customer loyalty if other relationship elements are missing, at least in a business-to-business market.

 

RELATIONSHIP QUALITY AND LOYALTY

Byron Sharp, University of South Australia

Narelle Page, University of South Australia

Traditionally marketing has viewed exchange relationships as a series of discrete transactions and to a large degree the human factor in exchange relationships has been ignored.

The Marketing Science Centre takes a contrary view, taking the perspective that relationships in business exchange are primarily formed over time between individual people within organisations and their clients.

The Marketing Science Centre believes that relationship quality strategies are not rlevant in all industries. We believe that it is appropriate in professional service industries where there is a high degree of repetitive personal interaction.

In-depth interviews in a range of industries found that our perspective was supported. The qualitative interviews also lead us to hypotheses that having strong relationships with customers can be a competitive advantage. However, in some industries switching costs can be prohibitive, even though the customer has high dissatisfaction with the product, service or relationship aspects of the exchange.

The qualitative research was followed by 408 interviews with senior managers who were clients of a large supplier. The analysis found that our defining elements of relationship quality did hold in all but two cases and the combined elements were far better predictors collectively than as individual constructs. Global constructs such as service quality, relationship quality and loyalty were also measured and multiple regression conducted. Loyalty is strongly influenced by switching costs, but is also influenced by relationship quality. Thus, our earlier findings regarding high relationship quality leading to competitive advantage may also be interpreted as high relationship quality leads to loyalty.

This research is now being replicated in the finance and communication industries. Qualitative interviews have been conducted with customer groups and the results have so far supported our initial findings.

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