Implications of loyalty program membership and service experiences for customer retention and value

Companies that offer loyalty reward programs believe that their programs have a long-run positive effect on customer evaluations and behavior. However, if loyalty rewards programs increase relationship durations and usage levels, customers will be increasingly exposed to the complete spectrum of service experiences, including experiences that may cause customers to switch to another service provider. Using cross-sectional, time-series data from a worldwide financial services company that offers a loyalty reward program, this article investigates the conditions under which a loyalty rewards program will have a positive effect on customer evaluations, behavior, and repeat purchase intentions. The results show that members in the loyalty reward program overlook or discount negative evaluations of the company vis-à-vis competion. One possible reason could be that members of the loyalty rewards program perceive that they are getting better quality and service for their price or, in other words, “good value.” Ruth N. Bolton is Ruby K. Powell Professor of Marketing in the Michael F. Price College of Business at the University of Oklahoma. Her current research is concerned with high-technology services sold to business-to-business customers. Her most recent work in this area studies how organizations can grow the value of their customer base through customer service and support. She previously held positions at the University of Maryland, GTE Laboratories Incorporated, the University of Alberta, Carnegie-Mellon University, and the University of British Columbia. Her business experience involves a variety of consulting projects addressing services marketing, customer satisfaction, and quality management issues in the telecommunications and information services industries. Her earlier published research investigates how organizations' customer service and pricing strategies influence customer satisfaction and loyalty. She received her B.Comm. with honors from Queen's University at Kingston and her M.Sc. and Ph.D. from Carnegie-Mellon University. She currently serves on the editorial boards of theJournal of Retailing, theJournal of Marketing, Marketing Science, Marketing Letters, theJournal of Marketing Research, and theJournal of Service Research. She has published articles in these and other journals. P. K. Kannan is Safeway Fellow and Associate Professor of Marketing in the Smith School of Business at the University of Maryland. He received his Ph.D. from Purdue University. His research and teaching interests are in electronic commerce, and marketing research and modeling. His research on competitive market structures, consumers' loyalty, variety seeking, and reinforcement behaviors, and the effects of promotions on competition have appeared inMarketing Science, Management Science, Journal of Business Research, andInternational Journal of Research in Marketing. His current interests center on the marketing of information products such as market research, software, and data products using electronic channels such as the Internet covering issues of strategy, pricing, and product reliability. Articles focusing on these issues have appeared or are forthcoming inCommunications of the ACM, International Journal of Electronic Commerce, and theHandbook of Electronic Commerce. He is a member of the American Marketing Association, the Institute of Management Science, and the American Statistical Association. He has corporate experience with Tata Engineering and Ingersoll-Rand and has consulted for companies such as Frito-Lay, Pepsi Co, SAIC, and Fannie Mae. Prior to joining the University of Maryland, he was on the faculty of the University of Arizona, Tucson. Matthew D. Bramlett is a doctoral candidate in the Department of Sociology and a faculty research assistant in the Department of Marketing at the University of Maryland, College Park. His dissertation is an event history analysis of the effects of children on the stability of marriages and cohabitations. His current research focuses on high-technology services sold to business-to-business customers. His other research interests include the commodification of sports and the exploitation of the consumer in professional sports, and the fertility effects of family planning programs in developing countries over time. He is a member of the Population Association of America and a member of the Family, Sociology of Population, and Race, Gender, and Class sections of the American Sociological Association. His work on the exploitation of the consumer in the National Football League will be published as a chapter in the forthcoming bookConsumers, Commodification and Media Culture: Perspectives on the New Forms of Consumption, edited by Mark Gottdiener, University of New York at Buffalo.