Journal of the Academy of Marketing Science

, Volume 44, Issue 1, pp 88–107 | Cite as

Understanding loyalty program effectiveness: managing target and bystander effects

  • Lena SteinhoffEmail author
  • Robert W. Palmatier
Original Empirical Research


Loyalty programs are a ubiquitous marketing tactic, yet many of them perform poorly and the reasons for loyalty program failure remain unclear to both marketing managers and researchers. This article presents three studies—two experiments and one survey—in support of the notion that a greater understanding of loyalty program performance demands an expanded theoretical framework. Specifically, researchers and managers must account for loyalty programs’ effects on both target and bystander customers in the firm’s portfolio, the simultaneous effects of three performance-relevant mediating mechanisms (gratitude, status, unfairness), and the contingent effects of program delivery (rule clarity, reward exclusivity, reward visibility) on specific mediating linkages. The results provide insights into why and when loyalty programs fail and into the complex trade-offs managers face. Loyalty programs have opposing effects on target and bystander customers’ loyalty and sales. While rule clarity suppresses both negative bystander as well as positive target effects, reward visibility enhances both types of effects. Exclusive rewards offer a means to alleviate negative bystander effects without affecting targets. The article both conceptually and empirically establishes a comprehensive analysis framework that can help marketing managers and researchers evaluate and improve loyalty program effectiveness.


Loyalty program Bystander effect Reward programs Reward elements Relationship marketing 



The authors thank the Marketing Science Institute (MSI) for their support of this research.


  1. Adams, J. S. (1963). Toward an understanding of inequity. Journal of Abnormal and Social Psychology, 67(5), 422–436.CrossRefGoogle Scholar
  2. Adams, J. S. (1965). Inequity in social exchange. In L. Berkowitz (Ed.), Advances in experimental social psychology (Vol. 2, pp. 267–299). New York: Academic.Google Scholar
  3. Allison, M. (2010). Starbucks discontinues duetto visa card, another blow for some loyalists. The Seattle Times, (February 11). Retrieved January 21, 2013 from
  4. Anderson, C., John, O., Keltner, D., & Kring, A. (2001). Who attains social status? Effects of personality and physical attractiveness in social groups. Journal of Personality and Social Psychology, 81(1), 116–132.CrossRefGoogle Scholar
  5. Barone, M. J., & Roy, T. (2010). Does exclusivity always pay off? Exclusive price promotions and consumer response. Journal of Marketing, 74(2), 121–132.CrossRefGoogle Scholar
  6. Berinsky, A. J., Huber, G. A., & Lenz, G. S. (2012). Evaluating online labor markets for experimental research:’s Mechanical Turk. Political Analysis, 20(3), 351–368.CrossRefGoogle Scholar
  7. Berry, J. (2013). Bulking up: The 2013 COLLOQUY loyalty census – Growth and trends in U.S. loyalty program activity. COLLOQUYtalk (Vol. June, pp. 1–13). Cincinnati: LoyaltyOne/COLLOQUY.Google Scholar
  8. Bolton, R. N., Kannan, R. K., & Bramlett, M. D. (2000). Implications of loyalty program membership and service experiences for customer retention and value. Journal of the Academy of Marketing Science, 28(1), 95–108.CrossRefGoogle Scholar
  9. Brierley, H. (2012). Why loyalty programs alienate great customers. Harvard Business Review, (July-August). Retrieved January 21, 2013 from
  10. Butori, R., & De Bruyn, A. (2013). So you want to delight your customers: The perils of ignoring heterogeneity in customer evaluations of discretionary preferential treatments. International Journal of Research in Marketing, 30(4), 358–367.CrossRefGoogle Scholar
  11. Carrell, M. R., & Dittrich, J. E. (1978). Equity theory: The recent literature, methodological considerations, and new directions. The Academy of Management Review, 3(2), 202–210.Google Scholar
  12. Cialdini, R. B. (2009). Influence: Science and practice (5th ed.). Boston: Pearson.Google Scholar
  13. Collins, R. L. (1996). For better or worse: The impact of upward social comparison on self-evaluations. Psychological Bulletin, 119(1), 51–69.CrossRefGoogle Scholar
  14. Dahl, D. W., Honea, H., & Manchanda, R. V. (2005). Three Rs of interpersonal consumer guilt: Relationship, reciprocity, reparation. Journal of Consumer Psychology, 15(4), 307–315.CrossRefGoogle Scholar
  15. Darke, P. R., & Dahl, D. W. (2003). Fairness and discounts: The subjective value of a bargain. Journal of Consumer Psychology, 13(3), 328–338.CrossRefGoogle Scholar
  16. Daryanto, A., de Ruyter, K., Wetzels, M., & Patterson, P. G. (2010). Service firms and customer loyalty programs: a regulatory fit perspective of reward preferences in a health club setting. Journal of the Academy of Marketing Science, 38(5), 604–616.CrossRefGoogle Scholar
  17. Dawson, S. (1988). Four motivations for charitable giving: Implications for marketing strategy to attract monetary donations for medical research. Journal of Health Care Marketing, 8(June), 31–37.Google Scholar
  18. Diamantopoulos, A., & Winklhofer, H. M. (2001). Index construction with formative indicators: An alternative to scale development. Journal of Marketing Research, 38(May), 269–277.CrossRefGoogle Scholar
  19. Diener, E. (1984). Subjective well-being. Psychological Bulletin, 95(3), 542–575.CrossRefGoogle Scholar
  20. Drèze, X., & Nunes, J. C. (2009). Feeling superior: The impact of loyalty program structure on consumers’ perceptions of status. Journal of Consumer Research, 35(6), 890–905.CrossRefGoogle Scholar
  21. Drèze, X., & Nunes, J. C. (2011). Recurring goals and learning: The impact of successful reward attainment on purchase behavior. Journal of Marketing Research, 48(2), 268–281.CrossRefGoogle Scholar
  22. Dwyer, F. R., Schurr, P. H., & Oh, S. (1987). Developing buyer-seller relationships. Journal of Marketing, 51(2), 11–27.CrossRefGoogle Scholar
  23. Emmons, R. A. (2004). The psychology of gratitude: An introduction. In R. A. Emmons & M. E. McCullough (Eds.), The psychology of gratitude (pp. 3–16). Oxford: Oxford University Press.CrossRefGoogle Scholar
  24. Emmons, R. A., & McCullough, M. E. (2004). The psychology of gratitude. Oxford: Oxford University Press.CrossRefGoogle Scholar
  25. Feinberg, F. M., Krishna, A., & Zhang, Z. J. (2002). Do we care what others get? A behaviorist approach to targeted promotions. Journal of Marketing Research, 39(3), 277–291.CrossRefGoogle Scholar
  26. Festinger, L. (1954). A theory of social comparison processes. Human Relations, 7(2), 117–140.CrossRefGoogle Scholar
  27. Finkel, N. J. (2000). But it’s not fair! Commonsense notions of unfairness. Psychology, Public Policy, and Law, 6(4), 898–952.CrossRefGoogle Scholar
  28. Fitzsimons, G. J. (2008). Death to dichotomizing. Journal of Consumer Research, 35(1), 5–8.CrossRefGoogle Scholar
  29. Foster, G. M. (1972). The anatomy of envy: A study in symbolic behavior. Current Anthropology, 13, 165–202.CrossRefGoogle Scholar
  30. Frank, R. H. (1999). Luxury fever: Why money fails to satisfy in an era of excess. New York: Free Press.Google Scholar
  31. Garnefeld, I., Eggert, A., Helm, S. V., & Tax, S. S. (2013). Growing existing customers’ revenue streams through customer referral programs. Journal of Marketing, 77(4), 17–32.CrossRefGoogle Scholar
  32. Gilbert, D. T., Giesler, R. B., & Morris, K. A. (1995). When comparisons arise. Journal of Personality and Social Psychology, 69(2), 227–236.CrossRefGoogle Scholar
  33. Heffetz, O., & Frank, R. H. (2011). Preferences for status: Evidence and economic implications. In J. Benhabib, A. Bisin, & M. O. Jackson (Eds.), Handbook of social economics (Vol. 1A, pp. 69–91). San Diego: Elsevier.Google Scholar
  34. Henderson, C. M., Beck, J. T., & Palmatier, R. W. (2011). Review of the theoretical underpinnings of loyalty programs. Journal of Consumer Psychology, 21(3), 256–276.CrossRefGoogle Scholar
  35. Henseler, J., & Fassott, G. (2010). Testing moderating effects in PLS path models: An illustration of available procedures. In V. Esposito Vinzi, W. W. Chin, J. Henseler, & H. Wang (Eds.), Handbook of partial least squares – Concepts, methods and applications (pp. 713–735). Berlin: Springer.CrossRefGoogle Scholar
  36. Homburg, C., Droll, M., & Totzek, D. (2008). Customer prioritization: Does it pay off, and how should it be implemented? Journal of Marketing, 72(5), 110–130.CrossRefGoogle Scholar
  37. Jiang, L., Hoegg, J., & Dahl, D. W. (2013). Consumer reaction to unearned preferential treatment. Journal of Consumer Research, 40(3), 412–427.CrossRefGoogle Scholar
  38. Kivetz, R., & Simonson, I. (2003). The idiosyncratic fit heuristic: Effort advantage as a determinant of consumer response to loyalty programs. Journal of Marketing Research, 40(4), 454–467.CrossRefGoogle Scholar
  39. Koch, R. (2005). The breakthrough principle of 16x: Real simple innovation for 16 times better results. Dallas: Pritchett, LP.Google Scholar
  40. Kumar, V., & Reinartz, W. J. (2006). Customer relationship management: A databased approach. Hoboken: Wiley.Google Scholar
  41. Lacey, R., Suh, J., & Morgan, R. M. (2007). Differential effects of preferential treatment levels on relational outcomes. Journal of Service Research, 9(3), 241–256.CrossRefGoogle Scholar
  42. Leenheer, J., van Heerde, H. J., Bijmolt, T. H. A., & Smidts, A. (2007). Do loyalty programs really enhance behavioral loyalty? An empirical analysis accounting for self-selecting members. International Journal of Research in Marketing, 24(1), 31–47.CrossRefGoogle Scholar
  43. Liang, H., Saraf, N., Hu, Q., & Xue, Y. (2007). Assimilation of enterprise systems: The effect of institutional pressures and the mediating role of top management. MIS Quarterly, 31(1), 58–87.Google Scholar
  44. Mayser, S., & von Wangenheim, F. (2013). Perceived fairness of differential customer treatment: Consumers’ understanding of distributive justice really matters. Journal of Service Research, 16(1), 99–113.CrossRefGoogle Scholar
  45. Meyer, W.-U., Reisenzein, R., & Schützwohl, A. (1997). Toward a process analysis of emotions: The case of surprise. Motivation and Emotion, 21(3), 251–274.CrossRefGoogle Scholar
  46. Meyer-Waarden, L. (2007). The effects of loyalty programs on customer lifetime duration and share of wallet. Journal of Retailing, 83(2), 223–236.CrossRefGoogle Scholar
  47. Meyer-Waarden, L., & Benavent, C. (2009). Grocery retail loyalty program effects: self-selection or purchase behavior change? Journal of the Academy of Marketing Science, 37(3), 345–358.Google Scholar
  48. Morales, A. C. (2005). Giving firms an “E” for effort: Consumer responses to high-effort firms. Journal of Consumer Research, 31(4), 806–812.CrossRefGoogle Scholar
  49. Niepel, M., Rudolph, U., Schützwohl, A., & Meyer, W.-U. (1994). Temporal characteristics of the surprise reaction induced by schema-discrepant visual and auditory events. Cognition and Emotion, 8(5), 433–52.CrossRefGoogle Scholar
  50. Nunes, J. C., & Drèze, X. (2006). Your loyalty program is betraying you. Harvard Business Review, 84(4), 124–131.Google Scholar
  51. Oliver, R. L. (1997). Satisfaction: A behavioral perspective on the consumer. New York: McGraw-Hill.Google Scholar
  52. Palmatier, R. W., Jarvis, C. B., Bechkoff, J. R., & Kardes, F. R. (2009). The role of customer gratitude in relationship marketing. Journal of Marketing, 73(5), 1–18.CrossRefGoogle Scholar
  53. Podsakoff, P. M., MacKenzie, S. B., Lee, J.-Y., & Podsakoff, N. P. (2003). Common method biases in behavioral research: A critical review of the literature and recommended remedies. Journal of Applied Psychology, 88(5), 879–903.CrossRefGoogle Scholar
  54. Preacher, K. J., & Hayes, A. F. (2008). Asymptotic and resampling strategies for assessing and comparing indirect effects in multiple mediator models. Behavior Research Methods, 40(3), 879–891.CrossRefGoogle Scholar
  55. Rust, R. T., & Oliver, R. L. (2000). Should we delight the customer? Journal of the Academy of Marketing Science, 28(1), 86–94.CrossRefGoogle Scholar
  56. Samaha, S. A., Palmatier, R. W., & Dant, R. P. (2011). Poisoning relationships: Perceived unfairness in channels of distribution. Journal of Marketing, 75(3), 99–117.CrossRefGoogle Scholar
  57. Shugan, S. M. (2005). Brand loyalty programs: Are they shams? Marketing Science, 24(2), 185–193.CrossRefGoogle Scholar
  58. Sirdeshmukh, D., Singh, J., & Sabol, B. (2002). Consumer trust, value, and loyalty in relational exchanges. Journal of Marketing, 66(1), 15–37.CrossRefGoogle Scholar
  59. Steenkamp, J.-B. E. M., & Baumgartner, H. (1998). Assessing measurement invariance in cross–national consumer research. Journal of Consumer Research, 25(1), 78–107.CrossRefGoogle Scholar
  60. Tajfel, H., & Turner, J. C. (1986). The social identity theory of intergroup behavior. In S. Worchel & W. G. Austin (Eds.), Psychology of intergroup relations (pp. 7–24). Chicago: Nelson-Hall.Google Scholar
  61. Utne, M. K., & Kidd, R. F. (1980). Equity and attribution. In G. Mikula (Ed.), Justice and social interaction (pp. 63–93). New York: Springer.Google Scholar
  62. Van de Ven, N., Zeelenberg, M., & Pieters, R. (2009). Leveling up and down: The experiences of benign and malicious envy. Emotion, 9(3), 419–429.CrossRefGoogle Scholar
  63. Van Prooijen, J., Van den Bos, K., & Wilke, H. (2002). Procedural justice and status: Status salience as antecedent of procedural fairness effects. Journal of Personality and Social Psychology, 83(6), 1353–1361.CrossRefGoogle Scholar
  64. Wagner, T., Hennig-Thurau, T., & Rudolph, T. (2009). Does customer demotion jeopardize loyalty? Journal of Marketing, 73(3), 69–85.CrossRefGoogle Scholar
  65. Walster, E., Walster, G. W., & Berscheid, E. (1978). Equity: Theory and research. Boston: Allyn & Bacon, Inc.Google Scholar
  66. Weiner, B. (1985). An attributional theory of achievement motivation and emotion. Psychological Review, 92(4), 548–573.CrossRefGoogle Scholar
  67. Woodruff, R. B. (1997). Customer value: The next source for competitive advantage. Journal of the Academy of Marketing Science, 25(2), 139–153.CrossRefGoogle Scholar

Copyright information

© Academy of Marketing Science 2014

Authors and Affiliations

  1. 1.Marketing DepartmentUniversity of PaderbornPaderbornGermany
  2. 2.John C. Narver Endowed Chair in Business Administration, Michael G. Foster School of BusinessUniversity of WashingtonSeattleUSA

Personalised recommendations