The effectiveness of a loyalty programme across income segments

Abstract

Increased focus on customer relationship management in retail industries has resulted in a growing trend of the use of loyalty programmes to influence customer behaviour. Currently loyalty programmes often fail to return the expected benefit that businesses wish to achieve given the significant costs associated with these programmes. Businesses could seek to increase the effectiveness of a loyalty programme by segmenting its customers and tailoring the loyalty programme design to each segment. Current research offers methods of segmentation based on clients behaviour while on the programme but does not cover any means of upfront segmentation. The aim of this research is to test if level of income can be used as an effective segmentation tool that allows business to segment loyalty programmes customers upfront in an effort to offer them a more effectively designed loyalty programme. Secondary data was collected from a South African retail bank, comprising of two years transactional information for credit card customers. Analysis and statistical tests, in the form of regressions, was performed on the data to determine whether a significant relationship exists between income and effectiveness of a loyalty programme. The results are then used to establish if income provides an effective means of customer segmentation for loyalty programmes.