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Research Focus: Effectiveness of Grocery Retail Loyalty Programs

Posted on September 10, 2019September 10, 2019

Are loyalty programs effective? With the amount of money invested in customer loyalty programs, this is a question that matters greatly to a lot of stakeholders. We may now finally have some scientifically sound answers, at least as it relates to grocery retail loyalty programs. In the largest scale academic study of 358 retail brands across 27 different countries, Professor Bombaij from Tilburg University and his coauthor found some good and some bad. Their research findings are reported in a paper to be published in International Journal of Research in Marketing. In this research focus feature post, I would like to discuss the key findings from the research and what they may mean to your loyalty program management.

Overview of the Research

The two researchers were interested in finding out if loyalty programs really work, what program designs are effective, and if program impact depends on the retail type and on country and cultural differences. They started with the top 15 grocery retail brands in 27 countries (17 in Western Europe and 10 in Eastern Europe). For each brand, they tried to gather information on its sales, loyalty program design (if there is one), and other business characteristics. Combined with country level information, these data allowed the researchers to systematically analyze the impact of different factors on each brand’s sales per square meter. Importantly, they used rigorous statistical methods to make sure that any differences found are real differences due to the loyalty program, not because of some other things mixed in there.

Research Focus: Who Benefits in a Coalition Loyalty Program?

Posted on March 25, 2019March 25, 2019

Many loyalty programs do not stand alone. Frequent flyer programs and hotel loyalty programs take on partners such as other airlines, hotels, restaurants, banks, and retailers. Other programs, such as Fuel Rewards in the US and Air Miles in Canada, are by design a coalition of businesses that come together to share a common program currency and reward structure. For consumers, such coalition programs are great because they allow consumers to earn points faster through many different means. But what about the participating businesses? Is it worthwhile to be part of such a program? If you do, should you set a generous point earning and redemption policy? In today’s Research Focus feature, I find some answers in a recent Marketing Science Institute Working Paper (Report No. 19-101) by Professor Stourm and her colleagues.

What Did They Do?

The researchers looked at a credit card based coalition loyalty program in Europe. In the program, card holders earn points by shopping at various partner businesses. Each participating business decides its own reward ratios, from less than 1% up to 3%. When a preset reward threshold is reached, consumers are automatically issued a reward voucher that they can use toward future purchases. Participating businesses can choose whether they accept reward vouchers or not. Accepting reward vouchers comes at a short-term cost as the program operator reimburses only 90% of the values of the vouchers.

In their analyses, the researchers focused their attention on one particular European city. They studied 1,636 consumers that used their card at least once across 40 partner stores located in the city. The research team was interested in finding out whether offering rewards created positive or negative impact among these partner stores, what businesses benefited, and how point devaluation as a result of an overall program policy change affected the landscape.

Research Focus: Gamify Your Loyalty Program

Posted on February 19, 2019

Author’s note: With this post, I am restarting a previous tradition on my blog to report from time to time the findings from a single research paper. Now named “Research Focus”, these slightly shorter posts will summarize each research paper in accessible and practically relevant lingo. The focus is on what the research findings mean to practice. The research papers featured will be chosen from recently published or soon-to-be-published work as well as significant working papers that I consider to be highly relevant to loyalty marketing practice. The goal is to facilitate the dissemination of scientific research, build practice knowledge, and speed up the scientific discovery to practice cycle time. I hope you will enjoy the feature!

Loyalty program is everywhere, yet engaging consumers in a loyalty program remains elusive to businesses. Look at your own wallet or key ring, and you are likely to see at least a few loyalty cards that you no longer use. You are not alone. The 2017 Colloquy Loyalty Census reports that as many as 54% of loyalty program memberships in the US are inactive. A more recent loyalty program engagement survey of 1000+ consumers by CodeBroker shows that 65% of those surveyed are engaged with less than half of their loyalty programs.

The loyalty program (dis)engagement problem has various possible solutions. One solution is gamification, that is, introducing gaming into a loyalty program. Examples of this approach abound in practice, offered by familiar brands such as Victorial’s Secret, Domino’s Pizza, and Starbucks (see the picture at the beginning of this post for a screenshot of the currently running Starbucks Bonus Star Hopscotch game). In today’s Research Focus paper, to be published in Journal of Business Research, Professor Jiyoung Hwang and her colleague studied when and how gamification helps in a loyalty program context. Continue reading “Research Focus: Gamify Your Loyalty Program”