The Loyalty Card: Issues in Evaluating Loyalty Program Effectiveness

Abstract

The present paper addresses the issue of correctly evaluating the impact of a loyalty program in retail stores when it is difficult to establish causality relations in what concerns joining a particular program. Since there are numerous costs related to technology, human resources and promotion associated with the choice of introducing a loyalty card, retail managers are faced with the very difficult and essential task to estimate the future benefits. The research conducted as a support for this article is aimed at demonstrating that there are no direct connections between some common methods of evaluating a customer's worth and their belonging to a loyalty program. A questionnaire has been applied to 132 respondents from Bucharest, half of them being part of a loyalty program at their favorite store and half at a store different to that which they are loyal to. The starting point of the research stems from prior controversy related to the actual reasons for joining such a program which can be found in scientific literature. Although the sample is a convenience one, the results indicate that loyalty may not be derived from the program itself and that it may be a prerequisite for joining it, as well as pointing out the fact that a longitudinal evaluation of customers is more appropriate for determining the impact of such a program. The findings can be used as a starting point for a more extensive store based experiment in which a customer's value before and after joining the program can be compared and used to evaluate the efficiency of that program. The usefulness of considering the causality relations proposed by this paper lies in the need of a retail store manager to correctly evaluate a time and money consuming CRM program.