Customer loyalty schemes have attracted considerable interest as companies practice one of marketing’s most familiar strategies — “If you see a good idea, copy it.” Some banks have offered regular customers credit cards with a range of valuable benefits. In business-to-business markets, loyal customers have traditionally been treated better than those who buy on the spot market. Other well-known customer loyalty schemes are the frequent-flyer programs of the major airlines. These and other well-patronized programs were originally hailed as imaginative ways to instill and maintain loyalty, but, over the years, more and more doubt has been cast on them. Both the academic and trade press have criticized the programs with headlines such as: “A Failure in Competitive Strategy,” “War in the Air: The Scramble for Points Hits Turbulence,” “Frequent Flyer Offers Fail to Boost Loyalty.”1
Loyalty programs that seek to bond customers to a company or its products and services by offering an additional incentive pose an interesting dilemma. Although these schemes often attract widespread customer interest, they are difficult to support, using our current knowledge of competition and buyer behavior. This research suggests that most schemes do not fundamentally alter market structure. They might help to protect incumbents and might be regarded as a legitimate part of the marketer’s armory, but at the cost of increasing marketing expenditures.
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