Loyalty program and relationship marketing
Today relationship marketing has become very popular among marketers all over the globe. The concept of relationship marketing has been developed from the idea that 4 P’s of marketing is not an adequate model to satisfy changing needs of various companies. Gronroos, (1996) stated that today various terms like marketing orientation or point of marketing have been very popular and famous among marketers. Today companies are focused on providing more and more services to their customers so as to satisfy their changing needs and wants and thereby develop loyalty and commitment among them through loyalty program. Morgan and Hunt, (1994) stated that customer that make their purchase 10 times from one company are more profitable than 10 people making their purchases from the same company. In today’s competitive business environment, companies are not only focused on attracting new customers but retaining their existing customers because the cost of gaining one new customer is more than the cost of retaining 5 existing customers of the company. Shoemaker and Lewis, (1998) stated that today due to tough competition in the market, companies are shifted their focus from customer attraction to customer retention. Existing customers help companies to earn more profit as the cost of managing new customers reduces.
Today loyalty marketing has become famous topic in the service industry including hotel industry. Due to competitive business environment companies are interested to build loyalty among their customers. Take the example of airline industry, where the cost of loyalty program that is of frequent flyer is higher than the cost of advertising. Asian Business (1993) stated that the around 3 percent of revenue is generated from advertising programs in airline industry whereas around 6 percent of revenue is generated from frequent flyer programs. Frequent flyer programs are example of loyalty program in airline industry. Companies are also providing various facilities to their customers like service guarantees or management of complaints of their customers in order to develop loyalty among them (Dwyer et al, 1987). The main objective of company to introduce loyalty program is to attract more and more customers in their company. Dunn, (1997) has identified some of the benefits of introducing loyalty program in companies are to provide competitive advantage in the market, to attract customers from competitors, to retain existing customers of the company and so on.
Rob Smith, (1998) defined loyalty as strong feelings of customers to meet his or her needs and wants only from his company product or services other than the competitors products or services. Whereas Bowen and Shoemaker, (1998) stated that loyalty is willingness of customers to become partners of the company by spending their most of the time in the company’s premise and provide solutions to the company when there is any problems. Griffin, (1995) stated that there are two important factors of loyalty that is emotional attachment of customers and their repeat purchases. Based on these two factors there are four types of loyalty that is premium loyalty
Loyalty program helps company to develop loyalty among their customers who use company’s products and services frequently. Passinghan, (1998) stated that the concept of loyalty program has created a tough competition for various companies in the same industry. Apart from this, most of the time, customers join various loyalty programs of various companies with in the same industry like hotels, airlines, credit card providers and so on. From our research we have analyzed that there is limited secondary research available on this topic. Sharp and Sharp, (1997) stated that there is limited effective measures of loyalty program available whereas Bolton et al, (2000) stated that there is no research available to evaluate effectiveness of loyalty program on the consumer purchase behavior and how it impact the profitability of the company.