Liu, Yuping and Rong Yang (2009), “Competing Loyalty Programs: Impact of Market Saturation, Market Share, and Category Expandability,” Journal of Marketing, Vol. 73 (1), 109-121. [Download Full-Text PDF]
Abstract: Loyalty programs have become an important component of firms’ relationship management strategies. There are now some industries where numerous rival loyalty programs are offered, inducing intense competition among these programs. Existing research on loyalty programs, however, has often studied such programs in a non-competitive setting and has often focused on a single program in isolation. Addressing this gap, the current research examines the effect of a firm’s competitive positioning and market saturation on the performance of the firm’s loyalty program. Using firm- and individual-level data from the airline industry, our results indicate that bigger firms tend to benefit more from their loyalty program offerings than smaller firms. Moreover, when the product category demand is rigid, the impact of an individual loyalty program decreases as the marketplace becomes more saturated with competing programs. However, when the product category is highly expandable, saturation effect disappears. Under such situations, loyalty programs can help an industry gain competitive advantage over substitute offerings outside the industry, and multiple programs can effectively coexist even under a high level of market saturation.