Loyalty Programs – Positive and Negative Results

In today's economic space, customer loyalty is very important for every company. In conditions of serious competition, loyalty strategies are quite fast and sophisticated.  However, the result is not always predictable. But for many companies creating a good loyalty continuum means an only opportunity for stable work and development. That's why creating a successful loyalty program is worth the effort. Regular customers form a community that is able to support the company and reduce marketing costs through positive spoken communication. Well sustained customer loyalty will guarantee future sales, price premiums, wallet share and attendance rates. Of cause, it can increase share of purchases.

The main goal of the loyalty program is to capture and retain customers and to continuously encourage them to consume more. Special triggers are placed in the profitable segment of the company, aimed at creating a feeling of greater satisfaction from shopping. Today, loyalty programs are present in many industries, they are in supermarket chains and brand stores, in online services and streaming channels, in hotels and transport systems.

The widespread presence of loyalty programs raises the question of their impact on society. This is a hot topic of discussion that is still being discussed among economists, sociologists, marketing experts. It is clear that most loyalty programs do not turn all clients into regular clients and do not make them exclusively regular. But this does not mean that the loyalty program does not affect the formation of economic and social ties.
Numerous empirical researches reveal mixed evidence of the impact of loyalty programs on loyalty per se. Somel studies have found the positive impact of retail loyalty programs on customer behavior, while other studies have found that loyalty programs have no impact. This heterogeneity in the conclusions leads to a double evaluation of the very phenomenon of the loyalty program, and to criticism of its structures.

Positive Results of Loyalty Programs

In particular, American Marketing Association hase described loyalty programs as "continuity incentive programs that the retailer offers to reward customers and encourage repeat business" (Dorotic et al., 2012, p. 218). Accordingly, the main purpose of loyalty strategies is to create and improve customer relationships to generate a steady income. The vitality of this thesis has been confirmed in studies of loyalty programs for statistical analysis of customer integrity, expanding repeat purchase opportunities and increasing the share of the wallet. The findings of the data convincingly point to the possibility of expanding income and benefits. 

Negative Results of Loyalty Programs

Another viewpoint on loyalty programs negatively evaluates their work. Existing loyalty programs force companies to support them, because elimination of the program will lead to a downgrading of the company's rating in the eyes of buyers.  This relationship between the company and its clients increases the company's activity, but often leads to the forced offer of additional privileges, which leads to lower profits. Loyalty programs also have other negative consequences. Economists argue that loyalty programs are at odds with marketing relationships because they take short-term profits from customers while creating significant liabilities in the future. Escalation of the company's obligations to the client is a very risky methodology. Loyalty prioritization encourages clients to be overly demanding, which can jeopardize the company's performance. We are talking about privileged levels that create a sense of superiority among clients.  The ambivalent work of this feeling is reflected in the fact that people with vip status in the loyalty program feel suitable to attract organizations to additional efforts, that is, to privileges. Other studies have talked about negative results in granting rights to clients. Customer behavior regarding rights can undermine account profitability, for example, by reducing prices, and these actions of privileges increase the cost of services, which ultimately leads to lower profits, negatively affect the physical and mental well-being of employees, reduce consumer loyalty and challenge perceived fairness.

Another reason for criticism is the fact that loyalty programs make product discounts for people who still buy their goods, and the cost of participation in these programs rarely brings a good return on investment. Tougher criticism of loyalty programs is related to the idea of centralization and manipulation. From the perspective of the modern economy, loyalty programs are referred to as centralized virtual currency schemes, and as such can have a direct impact on the logic of buyers. The formation of an objective image of a product is not a direct violation of trading ethics, but reduced prices and gifts can be understood as bribes to manipulate customer loyalty. Thus, it turns out that buying decisions are made under pressure and are manipulative practices.

Curiously, a study conducted in 2015 showed that most loyalty cards in supermarkets in the United States do not offer any real value to their customers as they essentially redirect the customer's money to their own account. The main value of the loyalty program for many companies is a collected database of personal data suitable for further commercial use.  Such use can lead to abuse of personal data and breach of confidentiality. In order to improve the effectiveness of marketing and advertising, the behavioral factors of the loyalty card holder or bonus program member are monitored and processed.

An interesting point of view on centralized loyalty programs is that they can be considered as modern examples of so called kickbacks. Kickback is a contractual scheme that goes back to the archaic structures of society and is directly related to the structures of sacrifice. In the case of loyalty programs, kickback takes the form of a contractual bribe, in which the bribe-giver receives a commission in exchange for services rendered. In this case, the reward is agreed in advance. As a reward can be any objects or services. Reverse payback differs from other types of bribes in that it implies collusion between agents of both parties, and not extortion of a bribe by one party from the other. The purpose of kickbacks is usually to encourage the other party to cooperate. The presence of such a scheme in the modern social and economic space is a separate topic for research.