17 Aug Loyalty Programs, CLV, and RFM
In a recent INFORMS Marketing Science article, Arun Gopalakrishnan of Rice University and his colleagues completed a study based on a national hair salon regarding the impact of a simple loyalty program. The big surprise to Professor Gopalakrishnan was that the loyalty program “didn’t increase the value of this program by getting people to go to the stores more often or spend more money on their visits, the main upside of the program was it got people to stick around with the firm as opposed to walking out and taking their business to other competitors.”
Listen to a 10 minute interview about the study at the following INFORMS link. Also some interesting research technique challenges associated with studying loyalty programs.
The conclusion from this study (and, of course, one can’t directly apply these results to other program types or industries) is the importance of understanding how businesses can drive the underlying CLV of customers through various promotions or, more generally, relationship enhancing initiatives with customers. One may also want to analyze current customers to know what types of promotions may be most effective as well (though the study discusses benefits of this particular loyalty program across many customer types – high loyalty, high use as well as the more infrequent purchaser).
If you’d like to better understand the underlying dynamics of these business marketing strategies, MBTN Academy offers several modules that are applicable – CLV 1 and 2, RFM Analysis (New!), Promotion Profitability, and Marketing ROI, as well as our certificate in CLV Metrics.