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Houston research: Customer loyalty programs are effective — but not in the way you might think

Even a simple loyalty program can woo customers into visiting more or prevent them from straying. Photo via Getty Images

Almost everyone who has shopped at a supermarket or hopped on a plane has been invited to join a customer loyalty club. But even the businesses that offer these programs are sometimes unsure of who uses and benefits from them most.

Rice Business Professor Arun Gopalakrishnan joined Zhenling Jiang from the University of Pennsylvania and Yulia Nevskaya and Raphael Thomadsen from Washington University in St. Louis to study non-tiered loyalty programs (these differ from tiered loyalty programs, which offer more benefits and exclusivity to customers who spend more).

These simpler programs, the researchers found, can have a striking value: the program they studied increased customer value by almost 30 percent during a five-year time frame, they found. That's considerably higher than previously found in this type of loyalty program. Almost as surprisingly, the program's effect on moderately loyal customers – seemingly among the likely beneficiaries – was minimal. Instead, it had the most dramatic impact on customers who had previously showed either great engagement with the firm or almost no engagement at all.

"The main upside of the program was that it got people to stick around with the firm, preventing defection," Gopalakrishnan said on the podcast INFORMS. At the company he studied, more than 80 percent of the total lift came simply from keeping customers in the fold.

Typically, he added, loyalty programs are assumed to be most worthwhile to frequent or high-spending customers. But the researchers found that very low-frequency customers who joined the program were also more likely to stick around, even though it didn't make much economic difference for them. "There may be some psychological benefit, just from being part of the program, that helps keeps these less frequent customers from walking away," Gopalakrishnan suggested.

Researchers have found it fairly easy to study tiered loyalty programs. But the exact value of the simpler, non-tiered programs is more obscure. That's because the previous studies typically included customers who had self-selected by joining a loyalty program.

Gopalakrishnan's research took a different approach. To address the imprecisions of past research, he and his team built a data collection model that let them examine consumer behavior both before and after customers joined a loyalty program. Importantly, the model also distinguished between program members (some of whom had been automatically signed up for the program) and nonmembers.

Using this more detailed model, the research team studied the behavior of more than 5,500 men's hair salon clients over 30 months. The research was possible because the team had already been following these clients to track how much money they spent during each visit, their frequency of visits, the types of services and products they used and if they used any type of discounts.

Then, ten months into the study, the hair salon chain created a non-tiered loyalty program. Customers who joined received a coupon via email for $5 off for every $100 they spent. Other customers chose not to join. That allowed researchers to compare the behavior in the two groups, with non-members as the control group.

The loyalty program had no impact on the amount of money clients spent during each visit, researchers found. Gopalakrishnan's team speculated that this might be because industries like hair salons have only a limited ability to increase sales of goods and services. Hair, after all, only grows so fast. On the other hand, the loyalty program did appear to influence how often customers visited.

Rather than increasing the frequency of visits for moderate clients, however, non-tiered loyalty programs changed the behavior of customers who were at the two poles of engagement: those who rarely showed up and those who visited so often they were practically on a first-name basis with their stylist.

At a time when consumers are overwhelmed with marketing ploys to lure their time and dollars, a thoughtful loyalty program can indeed be a good business investment, Gopalakrishnan's team concluded. However, managers should bear in mind that the benefit may not be exactly what they expect. Instead of giving a gentle nudge to turn steady customers into bigger spenders, good loyalty programs seem best at corralling outliers into the herd.

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This article originally ran on Rice Business Wisdom and is based on research from Arun Gopalakrishnan, assistant professor of marketing at Rice Business; Zhenling Jiang, assistant professor of marketing at the Wharton School of the University of Pennsylvania; and Raphael Thomadsen and Yulia Nevskaya, professor of marketing and an assistant professor of marketing, respectively, at the Olin Business School of Washington University in St. Louis.

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Building Houston

 
 

Check out these conferences, pitch competitions, networking, and more in the month of June. Photo via Getty Images

It's time to look at what's on the agenda for June for Houston innovators — from pitch competitions to networking events.

Here's a roundup of events not to miss this month. Mark your calendars and register accordingly.

Note: This post might be updated to add more events.


June 2 — Boost Your Brand's Online Visibility with a Book

Discover the untapped potential of self-publishing a book to establish your expertise, increase your visibility, and build your network. If you have ever considered publishing a book someday, this event is for you.

The event is Friday, June 2, from 8:30 to 10:30 am, at Impact HUB (Amegy Building - 1801 Main St 10th floor.) Click here to register.

June 2 — Best AI Tools for Business Innovation and Growth

This informative workshop is aimed at introducing participants to the latest AI tools available for businesses to innovate and grow. The interactive sessions will provide practical insights and expert advice from speakers who are experts in the field of AI. Participants will learn about the various AI tools that can be used for businesses, including machine learning, natural language processing, computer vision, and more.

The event is Friday, June 2, from 10 to 11 am, online. Click here to register.

June 7-9 — The Future of Global Energy Conference

To highlight Houston's role in the global energy transition, the Greater Houston Partnership, Houston Energy Transition Initiative, and Center for Houston's Future will host a dynamic three-day conference focusing on the role community engagement, innovation and technology, workforce, and funding play in implementing Houston's energy transition strategy.

The event is Wednesday, June 7, to Friday, June 9. The event is hybrid at various locations in Houston. Click here to register.

June 8 — Out in Tech Houston | Monthly Mixer

Out in Tech provides an inclusive networking space for LGBTQ+ people and allies working in tech. Join this relaxed, social-mixer event, hosted on the second Thursday of every month.

The event is Thursday, June 8, at 6:30 to 8:30 pm at Avant Garden. Click here to register.

June 9 — The Future of Global Energy Conference: Luncheon

The Future of Global Energy conference concludes with a gathering of experts and thought leaders, exploring the roadmap for Houston to lead the transition to an energy-abundant, low-carbon future. Panelists include:

  • Jim Gable, President, Chevron Technology Ventures
  • John Hall, President & CEO, Houston Advanced Research Center (HARC)
  • Dr. Ramanan Krishnamoorti, Chief Energy Officer, University of Houston
  • MODERATOR: Jane Stricker, Senior Vice President, Energy Transition & Executive Director, Houston Energy Transition Initiative, Greater Houston Partnership

The event is Friday, June 9, from 10 am to 3 pm, at Hilton Americas. Click here to register.

June 9-10 — Mission Innovate - Reimagining Space Technology to Solve Today’s Challenges

This summer, innovators from around the greater Houston area will convene for a two-day event to innovate, disrupt, and help design innovative solutions that can address gaps in numerous key areas. Entrepreneurs will work with licensable intellectual property from NASA’s IP portfolio to solve some of the largest problems facing the industry. Experienced and first-time founders will form teams, ideate, and pitch their ideas to renown technology entrepreneurs, including members of the innovation teams at NASA. As part of the event, teams will be taught critical startup methodologies, advised by experienced business leaders, and network with an entire community that dreams of shaping key areas in emerging technology.

The event is Thursday, June 9, to Friday, June 10, at the Cannon West Houston. Click here to register.

June 12-14 — Energy Drone & Robotics Summit

The most influential gathering of over 1,500 industrial, energy, and engineering leaders from around the globe where the key challenges and solutions are addressed for operating robotics, drones, satellites, and remote systems successfully and managing AI/data, from the stars to the sea floor.

The event is Monday, June 12, to Wednesday, June 14, at Woodlands Waterway Marriott & Convention Center. Click here to register.

June 13 — Investor Studio Series: VC Due Diligence Best Practices

During this event, Golden Section, a venture capital fund and founders studio obsessed with B2B SaaS product development, will discuss how VCs approach investing and conduct due diligence, and why this matters for founders. The presentation will cover:

  • Market changes that effect how VCs approach investing
  • What founders need to prepare for this new environment
  • How Golden Section approaches due diligence

The event is Tuesday, June 13, from 4 to 6 pm, at the Ion. Click here to register.

June 13 — Using ChatGPT to Grow Your Business

Learn how to harness the power of artificial intelligence and use ChatGPT to not only stay ahead of the game but to redefine it. Whether it's handling queries, managing customer relationships, or generating leads, AI can automate and enhance many aspects of your work. This session will guide attendees through the fascinating world of AI and show them how to leverage it for maximum results.

The event is Tuesday, June 13, from 11 am to 1 pm, at Amcap Mortgage. Click here to register.

June 15 — Female Founders and Funders Meetup

Monthly, every third Thursday, Softeq Venture Studio and Sesh Coworking invite all rockstar female founders and funders in the Houston area to network and empower each other.

The event is Thursday, June 15, from 9 to 10 am, at Sesh Coworking. Click here to register.

June 20 — Co-Creating the Future: An African Startup Symposium on Collaboration

This physical symposium explores opportunities for cross-border entrepreneurial collaboration between the US/Houston and Africa. From Idea to Impact, delving into the African startup ecosystem, highlighting growth and potential for cross-border collaboration, key sectors driving innovation and growth, and legal, regulatory, and cultural considerations and challenges for cross-border collaborations. Startups and investment opportunities will be showcased.

The Agenda:

6:00 pm - 6:10 pm - Introduction to the event and The Beta Collective
6:15 pm - 6:20 pm - Sponsors Highlight
6:20 pm - 6:35 pm - Startup showcase
6:35 pm - 6:40 pm - Panel Introduction
6:40 pm- 7:30 pm - Panel
7:30 - 7:50 pm - Q&A
7:50 - 8:00 pm- Closing and Thanks
8:00 - 8:30 pm - Strategic Networking

The event is Tuesday, June 20, from 6 to 8:30 pm, at The Ion. Click to register.

June 22 — Ultrasound. Integrated. Everywhere.

Pump & Pipes is hosting an event focused on thin-film ultrasound technologies from energy applications into aerospace, health, and medtech sectors.

In collaboration with NASA Tech Talks, and the Mingle Monday Health & MedTech series at The Ion, join Pumps & Pipes as they venture into a discussion on the use of ultrasound technologies from both terrestrial and space medicine perspectives.

The event is Thursday, June 22, from 6 to 9 pm, at the Ion. Click here to register.

June 28 — June Transition On Tap

Transition On Tap is Greentown Labs' monthly networking event devoted to fostering conversations and connections among the climate and energy transition ecosystem in Houston and beyond. Entrepreneurs, investors, students, and friends of climatetech are invited to attend, meet colleagues, discuss solutions, and engage with our growing community. If you’re looking for a job in climatetech or energy, trying to expand your network, or perhaps thinking about starting your own energy-related company, this is the event for you.

The event is Wednesday, June 28, from 5:30 to 7:30 pm, at the Ion. Click here to register.

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