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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Houston university's MBA program claims coveted top spot of annual ranking

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Rice University's Jones Graduate School of Business has raked in yet another top spot on an annual list of top MBA programs.

A new ranking from Poets & Quants, which covers news about business schools, puts Rice at No. 3 among the world's best MBA programs for entrepreneurship. That's up from No. 15 on last year's list.

The Olin School of Business at Washington University in St. Louis grabbed the top spot in this year's ranking. Elsewhere in Texas, the University of Texas at Austin's McCombs School of Business lands at No. 14, the Neeley School of Business at Texas Christian University in Fort Worth at No. 35, and the Cox School of Business at Southern Methodist University in University Park at No. 36.

Poets & Quants judged the schools on 16 metrics related to their entrepreneurship initiatives.

Poets & Quants says Rice's Jones Graduate School of Business "itself is less than three decades old. But entrepreneurship was baked into its DNA from the get-go. The late Ed Williams and current professor Al Napier are credited with starting the entrepreneurial focus. But it wasn't until 2013 when Jones plucked Yael Hochberg from Northwestern's Kellogg School of Management that the program really started to surge."

Rice's entrepreneurship offering combines academic courses and associated programs led by the Liu Idea Lab for Innovation and Entrepreneurship (Lilie) with programs offered by the Rice Alliance for Technology and Entrepreneurship.

"The ability to be a student while working on your startup in class, under the expert guidance of our world-class faculty, gives our Rice entrepreneurs a competitive advantage over any others out there," Hochberg, head of the Rice Entrepreneurship Initiative and academic director of the Rice Alliance, says in a news release.

The Rice Alliance's OwlSpark Accelerator supplements the MBA program. The accelerator serves as a capstone program and launchpad for students seeking to start their own businesses. Meanwhile, the Rice Business Plan Competition, the largest intercollegiate student startup competition in the world, lets students pitch their startups in front of more than 300 judges. And the Rice Alliance Technology Venture Forums allows students to showcase their startups to investors and corporations.

"The ability for students to launch their nascent startups, obtain mentoring from members of the Houston entrepreneurial ecosystem, and then pitch to hundreds of angel investors, venture capitalists, and corporations provides a unique opportunity that cannot be found on many campuses or in many regions," says Brad Burke, managing director of the Rice Alliance.

Houston entrepreneur amps up support for diverse businesses with new NAACP partnership

HOUSTON INNOVATORS PODCAST EPISODE 107

Carolyn Rodz didn't feel the need to rush into Hello Alice's series B raise. The company, which was co-founded by Rodz and Elizabeth Gore in 2017, closed its series B at $21 million this summer, but Rodz says they did so with a specific goal.

Rodz, who joined the Houston Innovators Podcast this week, says she didn't want to get on the cycle that is round after round of venture capital. Instead, she's prioritizing profitability. And to have that, Hello Alice — platform for small business owners to find capital, networks and business services — needed to be able to reach more small business owners.

"When we made the decision to raise, it was really about making sure that we had good, strong core fundamentals and that we felt like we were putting good money to work where we can scale the business," Rodz says on the show. "It's our belief that the more smalls business owners we can support, it gives us a more unified and stronger voice to go implement systemic change."

The round was led by Virginia-based QED Investors with participation from new investors including Backstage Capital, Green Book Ventures, Harbert Growth Partners, and How Women Invest. It followed what was not only a rollercoaster of a year for the small businesses Hello Alice exists to serve, but also the company itself.

"It changed us permanently as a company," Rodz says of the pandemic.

On the show, Rodz characterizes the time for Hello Alice, which included slimming down the company's overhead, while simultaneously offering thought leadership, support, and resources for companies. Within a few days of the shutdown, Hello Alice was helping to deploy grants to entrepreneurs affected by COVID-19.

As challenging as the pandemic was for Hello Alice, it was validating too. Rodz says the company had a 700 percent increase in revenue and an 1,100 percent acquisition growth.

"We'd never operated in a downcycle, but what we learned through that process was that we're a really valuable resource for business owners when times are great, but we're also a really valuable resource for them when times are tough," she explains.

This validation set the scene for the series B, but following that raise, and, due in part to the doors opened by new investor networks, a new partnership with the NAACP Empowerment Program. Rodz says that the NAACP was given a lot of resources to put to work to build racial equity through economic empowerment. The relationship began with an introduction from Hello Alice investor, Green Book.

"They are real co-builders of this platform with us, so we're making sure we're actually putting money back into those communities," Rodz says of the partnerships Hello Alice has had with the NAACP and other equitable organizations. "NAACP was a huge milestone for us, something we're really proud of as a business. And I think it's a partnership that will continue to grow and make sure that we're aligned with how we're working on how we can build better together.

Rodz shares more on Hello Alice's growth as well as her observations on how Houston has evolved as an innovation ecosystem. Listen to the full interview below — or wherever you stream your podcasts — and subscribe for weekly episodes.


Greentown Labs hires former Houston sustainability exec

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The country's largest climatetech startup incubator has made a strategic new hire.

Lara Cottingham is the new chief of staff for Greentown Labs, a Boston-area company that opened in Houston earlier this year. Cottingham previously served as the city of Houston's chief sustainability officer and the chief of staff for the city's Administration and Regulatory Affairs Department for the past seven years. In her new role, Cottingham will oversee the day-to-day operations and communications for Greentown's CEO Emily Reichert, along with key stakeholder engagements and strategic initiatives for the incubator.

"Lara brings a tremendous wealth of knowledge and experience to our team from her dynamic leadership role at the City of Houston," says Reichert in a news release. "Her breadth of knowledge in sustainability, climate, and the energy transition, and her expertise in regulatory and stakeholder aspects of the energy industry, will be incredibly valuable to our team and community."

Under her leadership at the city of Houston, Cottingham was the chief author of Houston's Climate Action Plan, an initiative aimed at reducing greenhouse gas emissions in Houston, and getting the city to a point where it meets the Paris Agreement goal of carbon neutrality by 2050. Cottingham helped the city move to 100 percent renewable electricity, according to the release, and helped turn a 240-acre landfill into the nation's largest urban solar farm.

"In leading the Climate Action Plan, Lara helped spark Houston's leadership in what has become a global energy transition and was a passionate advocate for climate action in Houston," says Houston Mayor Sylvester Turner in the release. "While she will be missed, this new role will only strengthen our partnership with Greentown. I look forward to working with Emily, Lara, and the Greentown team to meet our climate goals and make Houston the energy capital of the future."

Before her work at the city, Cottingham worked at Hill+Knowlton Strategies' Houston office range of clients across the energy sector. Earlier in her career, she served as communications director for two congressmen in the U.S. House of Representatives. She began her work with the city in 2014.

"In working with Mayor Turner and Climate Mayors across the U.S., I saw how important partnerships are to helping cities decarbonize," says Cottingham in the release. "There is no better partner or place for climate action at work than Greentown Labs. Greentown is 100 percent committed to attracting and nurturing the energy companies of the future and making Houston the energy transition capital of the world. I'm excited to join the team and see how climatetech can help cities reach their climate goals."

Greentown Labs first announced its entrance into the Houston market last summer. The new 40,000-square-foot facility in Midtown across the street from The Ion opened its prototyping and wet lab space, offices, and community gathering areas for about 50 startup companies opened in April. Greentown was founded in 2011 in Somerville, Massachusetts, and has supported more than 400 startups, which have raised more than $1.5 billion in funding.