Do loyalty programs actually create loyalty? | R bloggers

Today’s article is Byron Sharp’s 1997 ‘Loyalty Programs and Their Impact on Repeat Purchase Loyalty Patterns’ – a classic that remains surprisingly relevant.

Takeaways for marketing professionals?

1. Loyalty programs do not create “excessive loyalty”The core finding – that loyalty programs do not generate significant loyalty beyond what is expected for a brand’s market share – remains empirically supported. You cannot ‘buy’ loyalty with points alone.
2. Focus on penetration, not retention: To get more loyal customers, you first need more customers. The ‘Double Jeopardy’ law applies: smaller brands have fewer buyers, and those buyers are slightly less loyal. It’s not a problem that you solve with a loyalty program.
3. Consumers are polygamous: Even Gold status fliers fly with competitors if the price or schedule is better. Loyalty cards do not fundamentally change purchasing patterns: people buy from a repertoire of brands.
4. Modern loyalty programs have a different value: If the core behavioral findings still hold, why do brands continue to invest? The value proposition has shifted from plastic card discounts to digital data collection. First-party data, personalization and keeping brands “available” on customers’ phones may be the real benefits – not the points themselves.

Long version:

I recently read Byron Sharp’s 1997 article from the International Journal of Marketing Research. A clear question is being asked: do loyalty programs actually generate “excessive loyalty,” meaning customers buy more from a brand than you would expect given its market share?

The answer, then and now, is no.

Sharp applied the “Double Jeopardy” law to loyalty programs. This law, which is well established in marketing science, states that smaller brands suffer a double penalty: they have fewer buyers, and those buyers are slightly less loyal. The newspaper investigated whether loyalty programs could help smaller brands break this pattern.

They couldn’t.

The data showed that loyalty program members did not deviate from expected purchasing patterns based on their brand’s market share. A brand with a 5% market share had the loyalty profile you would expect from a brand with a 5% market share – regardless of whether it had a loyalty program.

This finding has held up remarkably well. The Ehrenberg-Bass Institute continues to publish research showing that loyalty is largely a function of penetration. You get loyal customers by getting more customers, not by bribing existing customers with points.

But if the science is clear, why is every brand launching a loyalty app?

This is where the conversation has evolved since 1997. The paper evaluated loyalty programs in their original form: plastic cards with delayed rewards. The mechanics were simple: buy more, earn points, and eventually redeem for something. The goal was retention.

Today’s loyalty programs are fundamentally different. Starbucks isn’t really trying to get you to drink more coffee through points; they build a direct channel to you. Nike’s app is not about shoe discounts, but about first-hand data.

There are two camps in the current research:

Camp A (the scientific view): Sharp’s findings still apply. Meta-analyses show only weak correlations between loyalty programs and repeat purchase behavior. People remain polygamous buyers regardless of their loyalty status. A loyalty card on your keychain (or app on your phone) doesn’t fundamentally change the way you make purchasing decisions.

Camp B (the relationship marketing vision): It is true that behavioral loyalty is difficult to change. But loyalty programs are now a success mental availability (notifications keep brands top-of-mind) and physical availability (which makes purchasing easier). The value lies in data-driven personalization and targeted media spend, not the points themselves.

Here’s my take: Both camps have a point.

If you launch a loyalty program expecting it to fundamentally change customer purchasing behavior, the evidence suggests you will be disappointed. The patterns of purchasing behavior that Sharp described in 1997 – the predictability of loyalty given market share, the polygamous nature of consumers – remain true.

But if you’re building a loyalty program as a channel for data collection and customer engagement – ​​to understand your customers, personalize their experience, and remain accessible when they’re ready to buy – that’s a whole different story. Just don’t confuse that with ‘creating loyalty’.

The article remains important because it challenges the fundamental assumption that loyalty programs generate loyalty. They don’t. They can generate data, engagement and convenience. But if you want more loyal customers, it’s better to focus on growth.

Reference: Sharp, B. (1997). Loyalty programs and their impact on repeat purchase loyalty patterns. International Journal of Marketing Research, 14(5), 473-486.

Note: AI-assisted content.

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