LOYALTY PROGRAMS AND THEIR IMPACT ON REPEAT-PURCHASE LOYALTY PATTERNS

Loyalty programs are currently increasing in popularity around the wor ld. This paper discusses the potential of loyalty programs to alter th e normal market patterns of repeat-purchase behaviour which characteri se competitive repeat-purchase markets. In line with this thinking, a large scale loyalty program is evaluated in terms of its ability to ch ange normal repeat-purchase patterns by generating 'excess loyalty' fo r brands in the program. Panel data were used to develop Dirichlet est imates of expected repeat-purchase loyalty statistics by brand. These estimates were compared with the observed market repeat-purchase behav iour. Overall a trend towards a weak level of excess loyalty was obser ved, although the expected deviation was not consistently observed for all the loyalty program brands. Only two of the six loyalty program p articipant brands showed substantial excess loyalty deviations. Howeve r, these deviations in repeat-purchase loyalty were observed for non-m embers of the loyalty program as well as members and appear likely to be at least partially the result of other loyalty efforts particular t o these brands. (C) 1997 Elsevier Science B.V.