Review of “Effects of Loyalty Programs” (by Yi & Jeon, 2003)

Yi and Jeon (2003)

“Effects of Loyalty Programs on Value Perception, Program Loyalty, and Brand Loyalty”

(Yi, Youjae and Hoseong Jeon.  Journal of the Academy of Marketing Science, Vol. 31, 2003 (3), pp.229–240).

Yi and Jeon (2003) examine how reward program characteristics affect the perceived value of programs and how this affects customer loyalty overall.  Their work examines reward programs with respect to timing and type of reward, and refers to the five point framework of O’Brien and Jones (1995).  Examining the shopping behavior of 262 participants with respect to loyalty programs at a fried chicken store (low involvement service) and a beauty salon (high involvement service), their research suggests that the extent of consumer involvement in a product or service affects the influence of loyalty programs on customer loyalty.

In their research, Yi and Jeon (2003) address a number of questions.  For example, they investigate whether or not reward programs actually increase customer loyalty.  They also try to identify program characteristics that enhance customer perceptions regarding programs and determine whether or not a customer’s opinion of a program actually influences loyalty toward a brand.  And finally, the authors attempt to determine whether “involvement toward [a] product category moderate[s] the relationship between the loyalty program and brand loyalty” (p.230).

Yi and Jeon argue that in low-involvement situations, like a fast food take-out restaurant, immediate rewards are more effective than delayed rewards at enhancing a program’s perceived value.  They also suggest that under these conditions “there is no direct effect of value perception on brand loyalty.”  Under high-involvement conditions, such as a hair salon, direct rewards are better than indirect rewards, and “value perception of the loyalty program influences brand loyalty both directly and indirectly through program loyalty” (p.229).

Yi and Jeon also suggest that, “unlike a short-term promotional program, a loyalty program can focus its marketing efforts on loyal customers and avoid price competition with competitors” (p.232).  They also point out that “price promotion is likely to elicit overstock problems and reward price-sensitive brand switchers rather than loyal customers.  In addition, price promotion does not have a long-term perspective needed for nurturing customer loyalty” (p.232).  Unlike simple discounting and price promotions, the authors argue, customer reward programs not only enhance loyalty but can influence buying behavior in a positive way.

Click here for more on this article published by the Journal of the Academy of Marketing Science.

(Review Source: Customer Loyalty Programs: What Makes an Effective (Community-based) Program, MBA Thesis, 2007).

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