Abstract

There is a worldwide trend toward loyalty marketing, and companies are implementing loyalty strategies aimed at cultivating strong relationships with their customers. Due to this increased importance and relevance that is attached to loyalty programmes, most retailers have been committed to sustaining customer loyalty and cultivating an enduring and favoured relationship with customers who are expected to regularly return for additional purchases. This particular study investigates the effectiveness of two different customer loyalty programmes on customer satisfaction and customer retention, and aims to deduce the most important elements of the programmes that influence customer preferences. Two major supermarket retailers in South Africa, Woolworths and Pick n Pay, were used in the study to determine and compare the effectiveness of the two different types of loyalty programmes. The extant literature suggests that customer loyalty programmes’ main objectives are to establish a higher level of customer retention by delivering increased satisfaction and value to certain customers. However, there are a number of critics and studies that suggest that loyalty programmes are wholly ineffective at delivering a competitive value proposition, and merely serve to increasing marketing costs. The contribution of this study gives insight into the effectiveness of different designs of loyalty programmes and, more importantly, points to the elements of the programmes design that influence customer preferences and could be utilized to create the optimal customer loyalty programme.

Key words: Customer loyalty programmes, customer satisfaction, customer retention, accumulated point reward programmes, item-based discount reward programmes, retail, South Africa.