Do Loyalty Programs Enhance Behavioral Loyalty: An Empirical Analysis Accounting for Program Design and Competitive Effects

Abstract

This paper studies the effects of loyalty programs on share-of-wallet using market-wide household panel data on supermarket purchases.We find that loyalty programs relate positively to share-of-wallet, but the programs differ in effectiveness and some are ineffective.Both a saving component and a multi-vendor structure enhance the effectiveness of a loyalty program, but high discounts do not lead to higher share-of-wallets.Further, if households have multiple loyalty cards, the effectiveness of a specific loyalty program is much smaller.The positive loyalty program effects on share-of-wallet entail substantial additional customer revenues.However, given the high number of loyalty programs already available in the market, our model predicts that a new loyalty program introduction will only lead to small effects on share-of-wallet.