Loyalty Essay

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Loyalty, or customer  loyalty, means  that  customers exhibit a commitment to, or a relationship  with, an organization  such as a retailer, a leisure service provider, a bank, or an airline. Loyal customers  mean that the organization  has a higher level of customer retention and thereby a more stable customer  base. The longer a customer  “stays” with an organization, the greater their experience of, and engagement with, the organization.  For the organization,  this leads to lower customer price sensitivity, reduced expenditure on attracting new customers, and improved organizational profitability. A loyalty business model is a strategic approach in which resources are deployed with the aim of increasing the loyalty of customers.

Customers  may exhibit  behavioral  or  attitudinal loyalty. Behavioral loyalty is exhibited by staying with a provider and/or  by increases in the number  or frequency of their purchases or both, leading to increased customer  spending. Attitudinal  loyalty is associated with a positive identification  with the organization, which may lead to customers  acting as advocates for the  organization  and  thereby  influencing  the  decisions of others. Both types of loyalty can be exhibited in relation to a brand, a retailer or their organization, or to a specific service or retail outlet.

Scholars have proposed four different segmentations of loyalty orientation that can be used as a basis for  segmentation:  (1)  loyalty, associated  with  high relative attitude  and high repeat patronage; (2) latent loyalty, associated with high relative attitude,  but low repeat patronage; (3) spurious loyalty, associated with low relative attitude,  but with high repeat patronage; and (4) no loyalty, associated with low relative attitude, and with low repeat patronage. J. Rowley develops this segmentation  recognizing that some staying behavior is based on inertia  rather  than  positive engagement with an organization,  and suggests the following loyalty categories: captive, convenience-seeker, contented, and committed.

Loyalty schemes are one of the ways by which organizations seek to enhance customer spending and advocacy. Members  give basic  demographic  details when  they  register  as members.  In  exchange,  they receive a plastic loyalty card, rewards card, point card, club card, or discount card. This card is then used as a form of identification when purchases are made so that rewards or points can be registered  to the member’s account or discount granted. While these rewards are intended to incentivize members to exhibit behavioral loyalty, some organizations also capitalize on the opportunity to link purchase behavior to demographic  data, which allows them to segment their customer base and thereby to better  target their offers. Loyalty schemes have become a widespread feature of the retail and service landscape. Major categories are in retail and operated  by single retailers  (e.g., Boots Advantage Card, Tesco  Clubcard,  Priceline  Club  Card); travel, which reward  travelers  with discounts  or enhanced  service (e.g., AAdvantage Program, Hyatt Gold Passport); and financial  services, typically associated  with  store  or credit or debit cards (e.g., American Express Membership Rewards, HSBC Premier). Coalition schemes are where a managing agent operates a scheme on behalf of a number  of retail and service sector partners  (e.g., AirMiles, Nectar).

Tesco Clubcard, managed by DunnHumby, is a particularly sophisticated loyalty scheme that builds brand awareness and engagement with the Tesco brand. Tesco regards Clubcard as a “thank you card,” which has an underlying contract  and promise that if members join the  Clubcard,  they become  a long-term  stakeholder in the brand. The reward design is multidimensional and targets both behavioral and attitudinal loyalty. The quarterly  mail-out  with reward  points  is used as an opportunity to communicate with customers  and to create a positive event with impact. Rewards, available through Tesco Freetime, include experiences delivered by a range of other  organizations/brands. Tesco has invested considerable effort in developing data-mining algorithms that allow them to mine the data in order to improve both the offer to the customer  and to inform strategic  decisions  associated  with entry  into  online retailing and financial services.

Some have suggested that the term loyalty scheme is a misnomer,  since such schemes do not generate loyalty, but  rather  simply offer low-level discounts. Some  organizations  have  withdrawn  schemes,  but other  schemes  have been  long established,  lending credence  to the belief that as with many other business strategies,  success lies in implementation that aligns with business objectives and context.


  1. Suraksha Gupta,  Susan Grant,  and  C. Melewar,  “The  Expanding  Role of  Intangible  Assets  of the Brand,” Management  Decision (v.46/5–6, 2008);
  2. Shep Hyken, The Cult of the Customer: Create an Amazing Customer Experience That Turns Satisfied Customers into Customer Evangelists (Wiley, 2009);
  3. Anand Kumar Jaiswal, Examining the Nonlinear Effects in  Satisfaction-Loyalty Behavioral Intentions Model (Indian Institute  of Management,  2007);
  4. David Kean and Chris Cowpe, How to Win Friends and Influence Profits: The Art of Winning More Business from Your Clients (Marshall Cavendish, 2008);
  5. Timothy L. Keiningham, Lerzan Aksoy, Bruce Cooil, and Tor Wallin Andreassen, “Linking Customer  Loyalty to Growth,” MIT Sloan Management  Review (v.49/4, 2008);
  6. Rowley, “The Four C’s of Customer  Loyalty,” Marketing Intelligence and Planning (v.23/46, 2005);
  7. Doyle Yoon, Sejung Marina, and Dongyoung Sohn, “Building Customer Relationships in an Electronic  Age: The Role of Interactivity  of E-commerce Web Sites,” Psychology & Marketing (v.25/7, 2008).

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