Loyalty programs are presumably initiated by marketers in an effort to achieve some sort of
financial pay-off or strengthening of their long-term competitive position. Financial returns
depend on increases in market share and repeat-purchase loyalty (which is known to increase
(decrease) as a brand’s market share increases (decreases) (Ehrenberg et al., 1990, Ehrenberg,
1988), or increases in the degree of insensitivity customers have towards competing offers
(Sharp, 1998). In this paper we concentrate on assessing the former, we do not deny that some
loyalty programs may be initiated in order to increase differentiation loyalty, raising barriers to entry for new brands and allowing firms to benefit through mechanisms such as price rises.
However, in the market that we investigate (retail fuel) marketing attention is far more
concerned with market share changes, and in this very frequent repeat-purchase market, it is
doubtful that an increase in differentiation loyalty could occur without an accompanying
increase change in repeat-purchase loyalty.
While most marketing activity for established brands is defensive, its primary purpose being to
maintain current market position and revenue flows, marketers often initiate interventions with
the objective to generate sales gains. That marketshare gains seldom occur is due to the fact that
competitors are also intervening in the market, marketers must “run hard to stand still”
{Ehrenberg, 1997 #5605}. This noted, it is no exaggeration that few would have considered the
loyalty program we evaluate here as being successful if it had not produced a sales gain. Like
most mass market loyalty programs it was a very expensive marketing intervention, involving
considerable set up and on-going running costs. A sales gain was necessary in order to recover
these costs. So the loyalty program was launched with the expectation that it would increase the
purchase loyalty of customers, as well as possibly attracting some new buyers, and overall bring
about increased sales and marketshare. We investigated the nature and degree of this
marketplace performance.