An Analysis of Factors Affecting the

Effectiveness of Loyalty Programs

A Comparative Study of Standalone and Coalition Programs

Meher Bhagat
Masters in Fashion Marketing
Semester 3
 Loyalty programs a dominant tool for loyalty
marketing worldwide. An effective way to increase
a firms customer-retention levels.
Costs up to 5 times more to acquire a new
customer than to retain an existing one.
Most Indian retailers offer some type of loyalty
program. However, the sheer volume of loyalty
programs may have reached a saturation point.
a. What are the factors that lead to the
effectiveness of loyalty programs?
b. Do loyalty programs lead to an impact on
consumer buying?
Important to understand whether loyalty programs
really deliver the benefits that they claim to
deliver to the customer.
 RESEARCH OBJECTIVES
Many factors lead to the effectiveness of loyalty programs but they have not been
appropriately tested within the Indian market. The research further delves into the
concept of standalone and coalition loyalty programs and aims to conduct a comparative
analysis of both types of programs.
To study the concept of loyalty programs and customer loyalty in the fashion and lifestyle
industry (global & Indian scenario).

Conduct and in-depth comparative study

between standalone (single-vendor) and
coalition (multi- vendor) loyalty programs.

To study and analyze factors that lead to the

effectiveness of loyalty programs and how they
impact consumer behavior.
 Close-ended questionnaires were floated among 200 respondents, all of whom
were members of at least one or more loyalty programs.

The aim of the questionnaire was to test the factors that lead to the effectiveness
of loyalty programs. Personal interviews were also conducted among 20
respondents in order to get their opinion on the use of loyalty cards and whether
they were more likely to use a standalone program or a coalition loyalty program.

Once the factors have been tested, they can be applied within the Indian context
and can be used too increase consumer spending through loyalty programs. There
is a difference in the way men and women of different age groups perceive loyalty
cards and their usage. The research aims to target very segment and devise
loyalty programs that can be of benefit to everyone alike.
Findings and Analysis

Number of Loyalty Cards Owned Factors Affecting Consumers Buying

More than 4 Decision
18%
140 129
120 103
Atleast 1 100 88 89 87
44% 80 65
56 57
60 43
40 23 28
15 10
20 7
0 0 0 0 0 0
Between 2-4 0
38% Variety of Service Product Price Loyalty Card
Products

Atleast 1 Between 2-4 More than 4 Strongly Agree Agree Neutral Disagree Strongly Disagree

Out of 200 respondents, 89 have at least 1 65 out of 200 respondents agreed that loyalty
loyalty card. programs affect their buying decision while shopping.
Immediate rewards are those that offer The following graph shows that out of 200
discounts/rewards at the time of the transaction. respondents, 130 show a preference towards
Delayed rewards require one to collect schemes that let them use their loyalty cards at
points/rewards and redeem them at a later stage. multiple locations than those that can be used only
The following graph shows that out of 200, 150 a one store/brand. Most customers prefer a
respondents prefer immediate rewards and therefore coalition (multi-vendor) program to a standalone
it is important for loyalty schemes to keep this (single-vendor) program.
factor in mind.
I prefer immediate I like loyalty cards which offer
discounts/rewards to delayed rewards at multiple stores than a
rewards single store
160 140
140 120
120 100
100 80
80 60
60 40
40 20
20 0
0 Agree Neutral Disagree
Agree Neutral Disagree
I like loyalty cards which offer rewards at multiple stores
I prefer immediate discounts/rewards to delayed rewards than a single store
 Most people opt out of a loyalty program due
to lack of attractive options to redeem their
rewards. therefore, it is important for a
loyalty scheme to offer a wide variety of
options to redeem a consumers accumulated
rewards. Out of 200 respondents, 77 agree to I prefer a loyalty card for
this point while 115 are neutral.
9 The Indian society is very
22
discount-driven and
The choice of rewards available for customers are always
39
redeeming my points affects my 112 attracted to schemes that
behavior 18 offer them instant discounts
140 on every purchase. The
120 following graph proves the
Discounts
100 statement, since out of 200
80 Special Offers
60 respondents, 112 prefer
Cashback
40 discount schemes as
Preferential Treatment
20
To remain updated about new arrivals
opposed to other options.
0
Agree Neutral Disagree
The choice of rewards available for redeeming my points affects
my behavior
 Retailers need to focus on selling experience along with products. Customers find it difficult to carry
different loyalty cards every time they go shopping. A one card for all scheme would ease the burden of
carrying multiple cards.

Global brands like Starbucks, Sephora, Warehouse, Gap etc. share one critical consumer loyalty strategy :-
each has a mobile app. The world is taking a more digital approach and with the ever-increasing number of
tech-savvy consumers, mobile apps are gaining momentum.

Consumers get convenient access point to loyalty program features within a brands mobile app. Mobile
loyalty apps offer on-demand, on-the-go access to loyalty point information and redemption tools.

Ideal approach for Indian retailers :- adopt mobile-based strategy to provide an experience to the consumer
as well as a detailed consumer profile to the retailer.

Coalition or multi-vendor loyalty programs should not be established if the companys aim is to increase
customer loyalty. These programs are more beneficial to the consumer but do not generate loyalty.