CONSUMER ATTITUDE TOWARDS LOYALTY PROGRAMS AND SHORT TERM PRICE PROMOTIONS

The last millennium has witnessed innovations at every stage of the supply chain, giving rise to new models. The consumer interface, i.e. the retailing factor has undergone a sea of change, partly due to changing consumer needs and partly due to the emergence of new technologies. While some of the changes have been evolutionary in nature, some others have been category killers…leading to radical change in both consumer perceptions and formats. The ever-increasing focus on the customer will encourage all retailers to investigate the best way to foster and retain customer loyalty. With the conventional wisdom in retailing questioned and factors like location and prices not deemed as differentiating enough the retailers look into more innovative methods to attract customers. The trend in marketing toward building relationships with customers continues to grow, and marketers have become increasingly interested in retaining customers over the long run. It is with this platform that all retailers are vying for a share in the pie with new promotional offers every day. A question of continuing interest to marketing researchers and practitioners is how marketing mix variables affect consumers purchase decisions and thus the sales. With increasing competition, increased customer preferences and better communications, promotional effects seem predominant in determining the success of a brand.

Are monetary savings the only explanation for consumer response to a sales promotion? If not, how do the different consumer benefits of a sales promotion influence its effectiveness? The loyalty programs work as dynamic incentive schemes by providing benefits based on cumulative purchase over time. Loyalty programs that seek to bond customers to a company or its products and services by offering an additional incentive pose an interesting dilemma. Although these schemes often attract widespread customer interest, they are difficult to support, using our current knowledge of competition and buyer behavior. While reward programs and loyalty cards often provide an array of benefits, their visibility when compared to price promotions is more subtle.

The relative impact of myopic or single period decision making(short-term price promotions) to dynamic or multiple period decision making  (loyalty based promotions) depends on the perceived value of the promotion in the minds of the consumer.