Customer Loyalty

Define the behaviour the investment should change

An illustrative retailer reports that rewards members spend twice as much as non-members. Management proposes richer benefits. Yet frequent customers may have been more likely to join in the first place, and the additional reward could mainly subsidize purchases they already intended to make.

Arcus’s central thesis is that loyalty investment should address a diagnosed reason for customer behaviour and be judged against a credible alternative. Retention, purchase frequency, share of spending and relationship quality are different outcomes. Increasing one can be worthwhile, but it does not automatically establish additional profit.

A repeat purchase may reflect satisfaction, convenience, a contractual commitment or limited alternatives. Likewise, a departure may reflect a service failure, a changed need or a customer who is no longer economically attractive to serve under the current offer. A useful strategy distinguishes these explanations before selecting the response.

What loyalty research contributes

Leenheer and colleagues’ 2007 study of loyalty programs in Dutch grocery retailing explicitly accounts for customers selecting themselves into membership. It finds a positive effect on share of spending, but a much smaller effect than a model that ignores selection. This is observational modelling with identification assumptions in a particular market, not a universal causal effect or a prediction for another program.

Wang and colleagues’ 2016 field experiment with a hotel loyalty program examines purchasing before, during and after a goal-based promotion. The promotion had an overall positive subsequent effect, while the analysis of customers reaching or missing goals showed different patterns. Goal attainment itself was not randomly assigned, so those subgroup findings should not be treated as the same causal comparison as the randomized promotion.

Arcus’s interpretation is to examine selection, achievable conditions and post-promotion behaviour together. Neither membership growth nor a temporary purchase increase resolves the question of whether the intervention creates a stronger, more valuable relationship.

Worked example: more retention, but at what cost?

Suppose a fictional offer goes to 1,000 customers. A credible comparison estimates that 70% would remain without it and 75% remain with it, implying 50 additional retained customers. If each contributes $200 over the chosen period before intervention cost, the additional contribution is $10,000.

If the reward costs $20 for each of the 750 customers who remain, reward cost is $15,000. The immediate result is therefore negative $5,000 before administration and other effects. A five-percentage-point retention improvement is real in this scenario, but not sufficient to establish a profitable intervention.

The conclusion changes with reward eligibility, longer-term contribution and cost assumptions. Do not assume all retained customers are incremental or apply an unsupported lifetime-value multiplier. Compare a targeted response, a lower-cost benefit or a service change, and test whether the improvement persists after the incentive ends.

Make implementation and measurement credible

Budget for research, systems, communication, staff time, partner arrangements, benefit delivery and ongoing support. Review the cost of rewards under realistic participation and redemption scenarios with appropriate finance and specialist input. A low redemption rate can reflect inaccessible value rather than an effective program.

Choose an observation period suited to the buying cycle. Compare contribution, retention and customer experience rather than optimizing only enrolment or offer uptake. Seasonal changes, customer mix and product availability can affect results. An inconclusive small test should remain inconclusive rather than being described as proof of success or failure.

Establish appropriate permission, privacy and access arrangements before linking customer information. Explain conditions clearly and confirm applicable contractual, consumer and other requirements with qualified advisers. Give frontline teams the authority and information needed to deliver the promised experience.

Assign an owner for both commercial performance and service consequences. Review complaints, failed redemptions and customers who disengage as well as those who respond. Scaling a program requires operational readiness, not merely an encouraging campaign report.

Discuss the relationship you want to strengthen

Tell Arcus which customer behaviour is changing, what the current evidence shows and which decision remains unresolved. We can scope customer research, a retention review or a broader loyalty strategy. Begin with the business question rather than identifiable customer records.

Related services include market research and marketing effectiveness. View advisory experience through the central consultant directory.

Selected historical client work

These retained examples describe Arcus’s broader research, strategy and organizational work. They are not presented as evaluations of a loyalty program or evidence of a guaranteed retention effect.

Below is a sample of the range of services that Arcus has provided to clients.

• A survey of 2,350 consumers and 1,320 business leaders for feedback on sustainability trends
• Architecting a multi-year change strategy for a Fortune 500 company
• Mentoring a CEO on organizational change
• Excellence transformation of a leading B2B services company
• Creating a new sales deployment model for a healthcare company
• Developing a position evaluation and compensation model for a professional medical association   
• Improving services to customer segments by deepening their understanding of customer attitudes

Historical leadership interview

The original interview reference is retained below with its historical attribution.

Growth Strategy and Innovation: An interview with Mr. Dirk Miller, Vice President, Siemens. Mr. Miller believes investments in research and development is the most effective growth strategy for companies today.