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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Mark Cuban calls AI ‘the greater democratizer’ for young entrepreneurs

eyes on AI

Texas billionaire Mark Cuban—whose investment portfolio includes Houston-based Holliball, a startup that makes and sells large inflatable holiday ornaments—believes AI is leveling the playing field for budding low-income entrepreneurs.

At the recent Clover x Shark Tank Summit in Las Vegas, the Shark Tank alum called AI “the greater democratizer.”

Cuban told Axios that free and low-cost AI tools enable disadvantaged teenagers to compete with seasoned professionals.

“Right now, if you’re a 14- to 18-year-old and you’re in not-so-good circumstances, you have access to the best professors and the best consultants,” Cuban said. “It allows people who otherwise would not have access to any resources to have access to the best resources in real time. You can compete with anybody.”

While Cuban believes AI is “the great democratizer” for low-income young people, low-income workers still face hurdles in navigating the AI landscape, according to Public Works Partners, an urban planning and consulting firm. The firm says access to AI among low-income workers may be limited due to cost, insufficient digital literacy and infrastructure gaps.

“Without adequate resources and training, these workers may struggle to adapt to AI-driven workplaces or access the educational opportunities necessary to acquire new skills,” Public Works Partners said.

Texas 2036, a public policy organization focused on the state’s future, reported in January AI jobs in Texas are projected to grow 27 percent over the next decade. The number 2036 refers to the year when Texas will celebrate its bicentennial.

As for the current state of AI, Cuban said he doesn’t think the economy is witnessing an AI bubble comparable to the dot-com bubble, which lasted from 1998 to 2000.

“The difference is, the improvement in technology basically slowed to a trickle,” Cuban said of the dot-com era. “We’re nowhere near the improvement in technology slowing to a trickle in AI.”

CPRIT hires MD Anderson official as chief cancer prevention officer

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The Austin-based Cancer Prevention and Research Institute of Texas, which provides funding for cancer research across the state, has hired Ruth Rechis as its chief prevention officer. She comes to CPRIT from Houston’s University of Texas MD Anderson Cancer Center, where she led the Cancer Prevention and Control Platform.

Before joining MD Anderson, Rechis was a member of the executive leadership team at the Livestrong Foundation, an Austin-based nonprofit that supports people affected by cancer.

“Ruth has widespread connections throughout the cancer prevention community, both in Texas and across the nation,” CPRIT CEO Kristen Doyle said in a news release. “She is a long-term passionate supporter of CPRIT, and she is very familiar with our process, programs, and commitment to transparency. Ruth is a terrific addition to the team here at CPRIT.”

Rechis said that by collaborating with researchers, policymakers, public health leaders and community partners, CPRIT “can continue to drive forward proven prevention strategies that improve health outcomes, lower long-term costs, and create healthier futures for all.”

At MD Anderson, Rechis and her team worked with more than 100 organizations in Texas to bolster cancer prevention initiatives at clinics and community-based organizations.

Rechis is a longtime survivor of Hodgkin lymphoma, a type of cancer that affects the lymph nodes, which are part of a person’s immune system.