Download An Abstract Submitted to

An Abstract Submitted to the 2009 Cheung Kong Research Forum
The Impact of An Item-Based Loyalty Program
Els Breugelmans and Jie Zhang
Presenter: Jie Zhang
Primary presenter’s bio:
Jie Zhang is Assistant Professor of Marketing and Harvey Sanders Fellow of Retail
Management at the Robert H. Smith School of Business at the University of Maryland. She
received her Ph.D. in marketing from the Kellogg Graduate School of Management at
Northwestern University. Her general research interest is to apply econometric and statistical
models to study consumers’ purchase behavior and response to various promotion programs, and
then to design innovative decision support tools for marketers based on these models. She is
particularly interested in their applications in the Internet shopping environment. Her recent
research projects focus on online promotion customizations and shopping behavior, and various
topics that aim at improving decision making for retail management in general. Her research has
won the Procter & Gamble Marketing Innovation Research Award and has been sponsored by
the Marketing Science Institute. She has published articles in leading marketing and management
journals such as Marketing Science, the Journal of Marketing Research, and Management
Science.
Email address: [email protected]
Mailing address:
3311 Van Munching Hall, Robert H. Smith School of Business, College Park, MD 20742, USA.
Office phone: 301-405-7899
Fax: 301-405-0146
Abstract:
Loyalty programs are playing an increasingly important role in retailers’ customer
relationship management efforts. They have also been studied extensively by marketing
academics. Conventional retail loyalty programs usually determine rewards based on the total
amount that a consumer has spent at the store level. In these programs, consumers receive points
based on the total amount they spend in a store and can obtain rewards once the points collected
exceed a certain threshold. Prior research on retail loyalty programs has mainly focused on this
type of programs.
In this study, we examine a new retail loyalty program design that is geared towards
purchases of specific product items. Under this design, consumers earn extra reward points for
purchases made on specific items, in addition to points collected based on total spending at a
1
store. Like in a conventional loyalty program, the total points collected can be redeemed for
purchasing any merchandise in the store. But unlike in the conventional setting, price discounts
are replaced by reward points that need to be cumulated and redeemed later. We call this new
design an item-based loyalty program (IBLP).
We conduct an empirical investigation on the impact of adopting an IBLP on various
aspects of a retailer’s business. Our data are provided by a European online grocery retailer that
implemented a store-wide IBLP in September 2005. Before the change, the retailer had a
conventional loyalty program in place. After September 2005, it replaced price discounts by
reward points in the entire store, and the reward and threshold remained the same. Our dataset
includes detailed purchase information of over 4,000 households during time periods before and
after the change of LP design. It provides a unique opportunity to study the impact of the new
program on various aspects of consumer patronage and purchase behavior. Specifically, we
investigate its impact on 1) acquisition of new customers and LP membership conversion; 2)
attrition from the store; and 3) individual consumers’ store visit frequency and shopping trip
spending. We also examine how these effects may differ between LP members and nonmembers.
We find that, overall, the IBLP has led to positive outcomes on the retailer’s
performance, but LP members and non-members responded quite differently. The new design
increases customer acquisition and has a modestly positive effect on customer retention (i.e.,
reducing attrition). By and large, it entices consumers to be more responsive to promotions in
their store purchase decisions. We also find substantial differences among consumers, especially
between current LP members and non-members in their responses to the new program. These
findings are not only valuable for retailers, but also provide insights for manufacturers as they
explore new ways to work with retailers in loyalty program designs.
2