International Journal of Economic Practices and Theories, Vol. 2, No.

3, 2012 (July), e-ISSN 2247 7225

www.ijept.org

The Loyalty Card: Issues in Evaluating Loyalty Program Effectiveness

by
Carmen Acatrinei, Teodora Viviana Puiu
Bucharest University of Economic Studies
acatrinei.carmen@gmail.com, puiu.teodora@gmail.com
Abstract. The present paper addresses the issue of correctly evaluating the impact of a loyalty program in retail stores when it
is difficult to establish causality relations in what concerns joining a particular program. Since there are numerous costs
related to technology, human resources and promotion associated with the choice of introducing a loyalty card, retail
managers are faced with the very difficult and essential task to estimate the future benefits. The research conducted as a
support for this article is aimed at demonstrating that there are no direct connections between some common methods of
evaluating a customer's worth and their belonging to a loyalty program. A questionnaire has been applied to 132 respondents
from Bucharest, half of them being part of a loyalty program at their favorite store and half at a store different to that which
they are loyal to. The starting point of the research stems from prior controversy related to the actual reasons for joining such
a program which can be found in scientific literature. Although the sample is a convenience one, the results indicate that
loyalty may not be derived from the program itself and that it may be a prerequisite for joining it, as well as pointing out the
fact that a longitudinal evaluation of customers is more appropriate for determining the impact of such a program. The
findings can be used as a starting point for a more extensive store based experiment in which a customer's value before and
after joining the program can be compared and used to evaluate the efficiency of that program. The usefulness of considering
the causality relations proposed by this paper lies in the need of a retail store manager to correctly evaluate a time and money
consuming CRM program.
Key words: causality, customer behaviour, CRM, loyalty, RFM
JEL classification: M31

perceived as a method of self reward. This

paper addressed the main aspects of loyalty
cards, evaluation methods and tries to clear up
some aspects regarding the uncertainty of
causalities.

1 Introduction
The current economic crisis is the newest reason
for companies to struggle to maintain their
customers and earn as much profit as they can.
Trends such as shortening of product life cycles,
increased specialization in some service areas
and the need to currently focus on customer
preference are the reasons for which customer
relationship management (CRM) methods are
implemented in the most bold or creative ways
up to date (Lee et al, 2010). One of the CRM
tool employed in Romania is the loyalty card
and companies link it to their enterprise
resource management (ERM) and CRM
databases. The loyalty card phenomenon has
taken its toll on the Romanian market as well as
it had on the international market one decade
ago. Many people have at least one:
hypermarket, store or co-branded card. But the
question at hand is whether a membership to
such a program, as a loyalty enhancing method,
is not actually derived from pre-existing loyalty.
In this case, the loyalty program can be

2 Literature review
Lars Meyer-Waarden (2007, p.226) believes
that customers are less inclined to visit
competitors because the loyalty cards should
provide a higher level of usefulness (i.e., due to
financial advantages, added convenience, and
identification). But it may be possible that it is
difficult to reach that level of usefulness if the
customer's share-of-wallet (SOW)1 is not
devoted almost entirely to a certain retail shop.
On the other hand, Nathalie T.M. Demoulin and
Pietro Zidda think that loyalty cards are
effective only when customers value the
rewards associated with them and they become
less price sensitive (Demoulin and Zidda,
2008, p.386).

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As a CRM tool, loyalty cards are different from

other sales promotions due to their defensive
character and long term orientation (Sharp and
Sharp, 1997).
The most frequent types of loyalty programs are
the credit and charge reward and the frequent
flyer ones (buseco.monash.edu.au, 2012). The
first type represents the most common one used
in Romanian retail. The second one rewards
those customers who use the highest number of
services (i.e. flying with a specific airline) by
offering them various advantages.
Loyalty card programs may also lead to a better
perception towards the issuer in comparison to
that related to other competitors, as members
perceive they are getting a more qualitative
service than non-members (Bolton et al, 2000).
Loyalty programs are also a very efficient
method of gathering information about the
customers. With regards to the type of card a
member holds (and its features of informational
storage), a retailer may receive insights
concerning: purchases, types of products, basket
sizes, amounts spent, redemptions and customer
preferences towards certain types of rewards as
well as demographic, psychographic and
behavioural aspects which can be provided by
the customer himself upon issuance of the card
or during surveys (buseco.monash.edu.au,
2012). Information can later be used for the
evaluation of the CRM program, marketing
insights or sending promotional materials (via
email, mail, mobile phone etc.). In addition, the
data can also be transferred to third parties or
affiliates, legally or not.

To make this type of card even more attracting

to the consumer, it can offer benefits outside the
issuing network. A good example is the Fill &
Go carded used by Rompetrol. But it can also
be used at partner shops such as auto parts
suppliers or insurance companies.
A loyalty card is a CRM tool used mostly in the
retail systems in Romania and throughout the
globe. It is used to identify a potential buyer on
the long run. The first supermarket network to
use loyalty card is Gmarket (in 2001). Loyalty
cards resemble credit cards in what concerns
shape, size and aspect. In order to be scanned
they contain either a bar code or a magstripe2.
They enable the holder to accumulate points,
benefit from discounts, part take in raffles,
competitions or receive information. The idea of
a loyalty card implies customer privacy and
consumers are reassured that the information
given to create the card is confidential and will
be used only by the company, or if the holder
agrees, third parties.
In Romania various retail stores have employed
the benefits of loyalty cards: Angst (food),
Cora, GMarket (hyper-markets), Sensiblu,
HelpNet (drugstores), Altex, Electrolux,
Kenvelo,
Hollywood
Multiplex,
MOL.
Moreover, the traditional users of airline loyalty
programs are also valid in Romania: MilesAnd-More (Lufthansa, Austrians, Swiss Air),
Flying Blue (KLM, Air France) etc.
(moneyexpress.ro, 2012)
They are seen as marketing tools, spies,
methods of gaining benefit and the opinions are
regarding their use are divided. Romanian
companies invest large amounts of money
annually in order to increase customer loyalty.
The investment leads to a monthly increase of
20-30 thousands of new cards. Approximately,
at this moment there are around 5 million active
loyalty cards on the Romanian market
(moneyexpress.ro, 2012).

2.1 Types of cards

Next, there will be presented the types of
loyalty cards used on the Romanian market.
Co-branded cards are credit cards that offer the
possibility to buy on credit products of a certain
retailer. They are issued by Visa, MasterCard or
American Express. This card is a CRM tool that
has gained ground over the last year. Amongst
the 16 credit cards issued by MasterCard last
year, many were co-branded. Familiar examples
are: Flamingo - Cetelem, Carrefour - BRD,
Ultra PRO-BCR, Staer - BRD, and Raiffeisen Vodafone.

2.2 Advantages of using loyalty cards

Loyalty cards bring advantages both to the
consumer and to the company that offers them.
These cards are very popular on the Romanian
retail market and they bring several advantages
both to the issuer and the consumer.

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the retailers products. Afterwards these points

can be transformed either in gifts or in
discounts. It is interesting to mention a research
has shown that after redemption consumers feel
a sense of guilt for depleting their accrued
points, especially if the reward is not the one
they intended to receive in the first place
(Smith, Sparks, 2009).
But the possibility that a person can actually
receive a significant gift is slim because the
amount of points needed for it is too high,
points are often accumulated only for buying
certain products and the person must spend a
considerable amount to reach the minimum
redemption threshold to exchange points for
gifts or purchase vouchers (Meyer-Waarden,
2007, p. 227).
From the financial point of view we also should
think about the discounts that some cards imply.
Moreover, co-branded loyalty cards lead to
simplicity of payment. A person can benefit
from discounts and rewards and pay using the
same instrument.
The third element that should be taken into
account is the sense of belonging to something
that the customer experiences and the social
advantages that a card may possess. They feel
rewarded for their loyalty and consistency
towards the shop itself or the brand.
Ideally, a loyalty program should offer hard
(products, redemption, vouchers) and soft
rewards (sense of belonging, recognition or
trust) at the same time in order to be fully
effective as most consumers are influenced by
both (Bridson et al, 2008).

2.2.1 Advantages for the issuer

A loyalty card holds more advantages for the
company issuing it than for the consumer
receiving it. It is easier to identify the key
customers and to create a deeper relationship
with them. It is also a method of tracking their
shopping behaviour: what they buy, when they
buy it, what they buy instead of their favourite
product if it is missing from the shelves and the
amounts that they buy. Loyalty cards that
provide value to their holders also affect store
preference. Another easily spotted advantage is
an increase in sales - an increase in the profit of
that shop as a result of the bond developed with
the customer. The points are eventually
redeemable and the consumer anticipates future
rewards, making him more likely to remain in a
relationship with the retailer (Liu, 2007).
Loyalty cards are an excellent scheme to
overrun the competitors since the consumers
become advocates or believers and plead in
favour of the store to others. The main point is
to stimulate self identification with the company
or the brand (Wel et al, 2011). This strategy is
also one of differentiation between the stores.
For example, one might choose to go to Cora
instead of going to Carrefour, for the simple
reason that the former has a method of
rewarding him and the latter does not. The
method can enable a shop to attract more
customers and their SOW.
Another advantage that implementing loyalty
programs have are that a store can disguise or
attenuate an increase in price by stressing the
fact that it can bring more points to the
customer. In terms of advantages, we should
also remind the possibility to sell the databases
derived from tracking consumer behaviour
through loyalty cards. This, of course, can be
done only under certain legal circumstances.

2.3 Disadvantages loyalty cards bring

Loyalty cards bring also some disadvantages for
both the consumer and the company that offers
them. Because drawbacks are inevitable, it is
highly important to determine the success rate
of the program and compare it to the resources
which can be lost if the program does not
provide enough benefits.

2.2.2 Advantages for the holder

The advantages perceived by the customers are
first of all the financial ones: accumulating
points and using them later. This practically
gives the person a sense of getting something
free. All usual loyalty cards are issued on the
idea that one accumulates points when buying

2.3.1 Disadvantages for the issuer

Although employing loyalty cards may have
looked as one of the best strategies a company

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can turn to, there are some aspects that should

not be overlooked. The cost of implementing
this strategy and maintaining it attractive is high
and at times can be greater than the gain itself
(Liu, 2007, p.20).
Another main disadvantage is that once
implementing this method, a company has to
make even more efforts to get out of it from
the logistics to informing each customer that the
scheme is over. As well, sometimes there may
be a need to educate the customer to use the
loyalty card by making them aware that some
forms of promotional incentives are tied to
specific behaviours (Mauri, 2003, p.14).
Yet the main downside of using loyalty cards,
whichever form they hold, is that the real
loyalty may be hidden. The simultaneous
possession of competitive loyalty cards of
geographically close retailers decreases lifetime
duration and makes customers more vulnerable
(Meyer-Waarden, 2007, p.231). And one can
also switch easily to a competitor after using the
accumulated points.
Although data mining is an advantage for these
companies, at times the information can be
misleading. A consumer may act in a certain
way when they know they have to accrue
points, or buy for other persons rather than for
personal use. Last but not least, some retailers
disclose and sell information gathered to other
companies and can be prosecuted under the
grounds of Law 677/2001 - published in the
Official Monitor No.790 of 12 December 2001
(politiaromana.ro, 2012).
Another disadvantage of implementing loyalty
cards is that a company may reward a person for
doing what he would have done even if he had
not had a card. If the method does not have an
analysis and traditional research behind it to see
whether the behaviour is indeed influenced by
the program then it is useless. The enterprise
resource management (ERP) and the CRM
databases should be strongly linked.
Last but not least, if the rewards are not
attractive enough, the efforts done to implement
the program are not rewarded. A practical
example would be that of Intel. Several years
ago, the company offered points for purchases
and gave as rewards only Intel items. This made

the programs
dramatically.

success

trend

go

down

2.3.2 Disadvantages for consumers

More and more consumers believe that loyalty
cards are nothing but deceiving methods to
convince them to buy more products and that
the incentive may not be worth the effort (Steyn
et al, 2010, p.356). Because of the advantages
the scheme ought to bring, the customers
become less price sensitive and small price
increases can be done without them sensing it.
By them not sensing it we mean that although a
small amount can be added to one single item, a
full shopping cart can make you feel the
difference.
Secondly, loyalty cards can be more spies and
less a benefit. If the law is violated, or the
agreement signed when requesting a card
suggests subtly that the information provided
can be traded. Or, a company can merely focus
on those customers with the most value and
instead of spending extra money on
commercials, they target only this segment.
Third of all, the reward is not equal with the
effort, such that a shopping cart filled with
regular non targeted items can bring you
around 60-80 points. Although it may seem the
customer is getting something without paying
for it, there are simpler ways to save more
money (Fisk P, 2006, p. 323). The necessary
quantity of points needed for a more consistent
gift is exaggeratedly high.
2.4 Evaluation of loyalty card programs
Sharp And Sharp (1997, p. 473) postulate that,
in essence, there are two potential effects of
such marketing schemes: a normal market share
gain or an abnormal gain in excess repeatpurchase loyalty, which may or may not be
accompanied by a market share gain. As such,
the authors claim that the aim of CRM
programs such as loyalty ones is to increase
repeat-purchase behaviour than actually gaining
market share. Thus, loyalty programs are
mainly directed towards existing customers who
should, in theory, display the following:
decreased switching to non-program retailers,

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increased share-of-wallet allocation, increased

repeat-purchase rate, increased usage frequency
and greater propensities to be exclusively loyal
(Sharp and Sharp, 1997, p.474). It may be
possible that the result incurred due to a loyalty
program is a large increase in repeat purchase
behaviour, cumulated with a small (or even
inexistent) increase in market share.
The causality relations derived from the notions
presented above can be summarized in figure 1
below:
Loyalty
program

Increased
loyalty

It is difficult to assess loyalty in relation to the

card and there are numerous models used to try
to evaluate card-holders loyalty, such as the
Dirichlet model (Sharp and Sharp, 1997, p. 473)
or the Tobit-II model (Leenheer et al, 2003, p.
36). Pauler and Dick (2006, p. 1262) proposed
that RFM (recency - frequency - monetary
method) could be a useful method to target
loyal customers when using average spending
values instead of one-time-purchase values as
the monetary indicator. Yet, RFM does not
include household expenditures or purchases
made at competitor stores. RFM is a criticized
model due to the fact that it is rather a snapshot
and does not include the potential of a new
loyalty program member. It is highly likely that
there is no relationship between being a member
in a loyalty card program and the value of a
customer using RFM. In addition, proximity
may also influence RFM, in a higher manner
than the membership to a retailers loyalty
program. For instance, Yoo and Chang (2005, p.
28) proposed that convenience of location is one
of the factors that affect store loyalty and image,
along with other independent variables, having
a t-value of 2.085 (with p<0.05). This means
that this variable is indeed an explanatory one.

Increased
customer
value

Figure 1. Initial causality relations

In order to assess a CRM programs

effectiveness, comparisons between behaviour
patterns of members and non-members are an
appropriate method. Yet, there are some who
believe that this type of analysis may be
deceiving in the sense that becoming a member
of a loyalty program may not be the reason
behind increased loyalty or repeat purchase
behaviour. The shopper may have decided to
become part of the program due to the fact that
he was loyal in the first place and wanted to be
rewarded (Leenheer et al, 2003, p. 38).
In essence, there are more factors which
influence loyalty towards a certain retailer
(Verbeek, 2000, p.121). Examples of
explanatory variables are price or proximity
and, more important, those that directly
influence the purchase decision. In this case, it
may be possible that drivers of increased repeat
purchase behaviour or SOW are also the reasons
for joining a membership program (Leenheer et
al, 2003, p. 38). Thus, problems in evaluating
loyalty programs stem from the difficulty in
establishing accurate causality relations. On the
other hand, in a crowded urban environment,
proximity may not be an important issue due to
other factors such as values spent in a
purchasing session or frequency. For instance, a
person can make fewer visits in a more distant
store, but acquire substantially more than a less
loyal individual who lives closer.

3 Research methodology
The main controversy related to loyalty card
programs is related to the evaluation of the
effects. The causality problem makes evaluation
even more so difficult. If one were to follow the
purchasing behaviour of a newly joined
customer and describe him as being a loyal one
due to the program itself, without knowing his
past behaviour, it would give a false impression
of success. Also, there are many other aspects
that influence loyalty measures and some
classical explanatory aspects may be considered
in an erroneous manner.
3.1 Hypotheses
The present paper starts off with different
assumptions and aims to support them with the
help of a research. The assumptions are the
following: A1: proximity does not affect loyalty
towards a retail store; A2: loyalty is not related

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to a loyalty program, but rather it may be a

cause to join it; A3: variants of RFM cannot be
used to target loyalty program members, A4:
RFM is influenced by proximity.
The hypotheses proposed for testing are the
following:
H0a There is no statistically significant
correlation between attitude and proximity.
H1a There is a statistically significant
correlation between attitude and proximity.
H0b There is no statistically significant
correlation between RFM and loyalty program
membership.
H1b There is a statistically significant
correlation between RFM and loyalty program
membership.
H0c There is no statistically significant
correlation between RFMP and loyalty program
membership.
H1c There is a statistically significant
correlation between RFMP and loyalty program
membership.
H0d There is no statistically significant
correlation between RFM and proximity.
H1d There is a statistically significant
correlation between RFM and proximity.
H0e There is no statistically significant
difference between the attitude of members and
non-members of a loyalty program.
H1e There is a statistically significant
difference between the attitude of members and
non-members of a loyalty program.

spent and, finally, for further investigating the

models potential, the stores proximity
(measured in time). The evaluation method for
each variable is detailed in table 1.
Table 1. Evaluation method from RFM and Proximity
Recency

Frequency
Daily

Monetary
0-50
1
RON

Proximity
Under 5
1
minutes

Today

2-3
days
ago
A
week
ago
2-3
weeks
ago
A
month
ago or
more

2-3
4 times/wee
k

50-100
RON

5-10
minutes

Weekly

100-150
RON

10-30
minutes

2-3
2 times/mo
nth

150-200
RON

30-50
minutes

Once a
1 month or
less

Over
200
RON

Over an
hour

Next, in order to assess the overall satisfaction

related to the favourite store, the FishbeinRosenberg model was used and the attributes
taken into consideration (and rated on a 10 level
scale) were: product diversity, prices,
promotions, benefits for loyalty members,
services, employee behaviour, crowdedness,
easy access to the parking lot. Each attributes
rating was weighted with their importance,
according to (1) (pub.ro, 2012):

3.2 Survey design and calculation methods

Where:
P jk is the attitude of person k towards store j
Wik is the relative importance that person k
gives attribute i
Oij is the evaluation of attribute i of store j

In order to assess the validity of the proposed

hypotheses, a survey was carried out in
February - March 2012 in Bucharest. The tool
used was a questionnaire and the sampling
method was a random one.
The survey consisted of 20 questions with
Likert scales, rating systems, a Fishbein
Rosenberg model and open ended questions.
The first part of the survey aimed at finding out
in which store respondents make most of their
purchases, as well as determining values for the
RFM model as follows: last time they made a
purchase at their favourite store, the frequency
of shopping at that particular store, the last
amount spent, as well as the average amount

The second section of the questionnaire

addressed the loyalty program itself. Firstly, it
was established whether the respondents had a
loyalty card at the store where they make most
of their purchases. Those that did not comply
with this prerequisite skipped this section. The
respondents were asked to reveal the frequency
of using the loyalty card, if they carry it with
themselves, the redemptions they collected and

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their value in money and the reason / reasons

for entering the loyalty program. The final
section required them to give identification data.

least one loyalty card at one of the retail stores

included in the analysis.
In what concerns loyalty card related behaviour,
we have discovered the following: 41.67% do
not have a loyalty card for the store in which
they make most of their purchases and, since
members and non members are almost equally
distributed, we can test for differences between
the two types of respondents.
With regards to the redemptions derived from
being a member of a loyalty card program,
40.91% of respondents have benefitted from
discounts on their purchases, 13.46% have
received vouchers for future purchases, 18.18%
have chosen to receive products as a form of
reward and 22.73% have had other advantages.
Some respondents have received redemptions in
value of 500 RON whereas the average
redemption value revolves around 86 RON.
The respondents were asked to state the reasons
for entering a loyalty program at their most
visited store and the results are summarized in
figure 3:

4 Major findings and limitations

The sample consisted of 132 respondents from
Bucharest, with ages ranging between 21 and 61
years. The distribution between the sexes is the
following: 40.9% men and 50.1% women. The
respondents have revenues ranging from 0 to
over 2500 RON, as follows in figure 2:
60
50

No revenue

40

0-400 RON

30

401-700 RON

20

701-1500 RON

10

1501-2500 RON
>2501 RON

0
Revenue

Figure 2. Revenue distribution (percent of respondents)

Another important aspect regarding the

description of the samples is their role in the
decision making process. The majority of
respondents contribute to the process (53%),
closely behind, 43.3% are the actual decision
makers in their household and only 3% do not
make any decisions related to purchases.
The distribution of the variables included in
statistical tests was compared to the normal one
to see if there were significant differences and it
was concluded that there is no statistically
significant (all p values > 0.05) difference
between the normal distribution and that of the
variables. As such, the variables can be used in
tests with no need for normalization.
Respondents usually make most of their
purchases in hypermarkets, the most visited
ones being: Carrefour (36.4%), Mega Image
(24.2%) and Cora (18.2%). Many of the
respondents have more than one loyalty card,
3.33% have over three cards at one store, 9.09%
have three cards at a particular store and,
finally, 12.12% have two cards at a particular
store. Out of all the respondents, 116 have at

24.24
9.09
27.27
18.18
3.03
9.09
9.09
0

10

20

30

Discounts
Vouchers
Products in exchange for points
Loyalty towards the store
At someone's request
I do not know
Everyone has a loyalty card
I did not make the card
Figure 3. Reasons for entering a loyalty program(in
percent)

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Hc. Pauler and Dick (2006, p.1262) proposed

that proximity may also influence value of a
consumer. For this particular reason, proximity
was introduced in the RFM model as a fourth
element: recency - frequency - monetary proximity. But, since RFM in the first place was
not a good instrument to differentiate members
from non-members, this variant also cannot
have a statistically significant correlation.
Although correlation is inexistent, the
coefficient is slightly larger than in the previous
case (0.189).
Hd. At the first hypothesis, we demonstrated
that there is no correlation between attitude and
proximity. Yet, we need to discover if there is
correlation between the value of a customer and
the location of the store. To make it clearer, it
might be the case that a consumer has a good
attitude toward a store, but may not be valuable
or, on the other hand, a consumer may not be
completely satisfied with all attributes of a
store, but might still be an asset to it. Returning
to the hypothesis in questions, the coefficient of
correlation (-0.664) shows that there is a
medium inverse correlation between the two
variables. This means that the closer the store is
to a customer, the more value he is likely to
bring to it. If he has easiness in access and
transportation, a person may be more likely to
make more frequent visits or to carry more
goods at a time.
He. The final hypothesis is aimed at discovering
if attitude is different among member and nonmembers or, in other words, whether being a
card owner makes you perceive the retailer
differently. The Sig value (0.006) demonstrates
that there is no significant difference and that
being a member does not change perceptions
about a store. This also supports the previous
hypothesis and the causality dilemma, meaning
that becoming a member is a method of self
reward for loyalty.

4.1 Testing the hypotheses

Ha. The first hypothesis claims that there is no
statistical correlation between attitude and
proximity. Attitude has been calculated with the
simple Fishbein Rosenberg model. The results
of this model range between 0.87 and 8.15, with
a mean of 3.99, most of the evaluations
revolving around the mean.
The claim stems from the idea that, in the
current urban environment, proximity is not a
very important factor. Most persons arrive to
the store either by car or by bus and would
rather go to a bigger retailer than visit a small
shop with very little diversity. As mentioned
before, some believe that proximity may
influence loyalty or attitude towards a store, yet
the present research has demonstrated an
insignificant correlation between the two
(resulted from the coefficient of correlation of 0.02). In this situation, we are obliged to accept
the null hypothesis, meaning that respondents
do not evaluate a store based on its proximity
and that other factors are more important. More
precisely, the highest ranked factors (with
respect to their importance) were product
diversity (with a mean of 0.0845) and price
levels (mean 0.08), confirming what Verbeek
(2000, p. 121) claimed in his paper.
Hb. The second hypothesis deals with the
correlation between the RFM evaluation and the
membership to the loyalty program. The
question is in fact whether a member of a
loyalty program is valuable for this precise
reason, or for other ones which are not taken
into account. The coefficient is as well not high
enough to indicate any statistically notable
correlation (0.145). As such, we return to the
discussion of causality and the result strongly
suggest that joining the loyalty program is a
consequence of being loyal in the first place.
Membership is nothing more than an
accreditation of what was already known, but
untraceable
for
marketing
reasons.
Nevertheless, there are other reasons behind the
decision to become a card holder. The customer
realizes his value and wishes to be rewarded for
his loyalty, becomes a member and asks for
redemptions, vouchers, discounts or other
services.

4.2 Clusters
It is clear that the membership to loyalty cannot
be determined through one explanatory variable
such as RFM or proximity. Instead, types of
customers can be differentiated through
purchasing characteristics. In order to support

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the previous belief that loyalty is not a result of

being a member of a membership program, we
shall separate the respondent into three groups,
using the K-cluster means method and establish
if the more valuable-and thus loyal-customers
are members.
Three clusters have been created, taking into
account variables such as frequency, recency,
amount spent and proximity to the store. Of
course, not all members fit the full profile, but
carry most of the traits. The validity of the
groups was checked and the differences
between the first cluster centers and the final
ones demonstrate that the groups are not
entirely stable. This means that, during the
analysis, members of a certain cluster were
moved, proving that the groups are guides and
that not all variables are strong enough to pin
some respondents to a certain group. The
significance of the groups can nevertheless be
determined through the ANOVA Sig values. All
the values were below 0.05 / 0.01 meaning that
the means of the variables used for grouping
differ between at least two of the clusters. In
other words, although the groups are not
entirely stable, the differences between them are
significant.
The three clusters have been generically
denominated: (A) the loyal and valuable
customers, (B) the occasional shoppers and (C)
the proximity shopper. Each group will be
described separately according to the variables
presented in table 2 below:

between the value of a customer and proximity,

meaning that the further away the store is, the
less inclined a potential customer is to go and
shop there. Yet, this group is characterized by
the fact that it takes its members a longer time
to get to their favourite retail store and still their
expenditure level is high. It is obvious that this
group is either composed of persons which live
further away from any large retailer or that they
are loyal to an extent to which they would travel
a longer distance and still spend a large amount
of money. Since it has been previously
mentioned, the amount of money allocated by
this group is the largest of all, considering the
frequency as well. Through this present group is
can clearly be deemed as the most loyal and
valuable, only 33.33% of its members have a
loyalty card, again suggesting that loyalty does
not come from the loyalty program. The
members of this group have visited the store the
most recent and, on a weekly basis, make two or
three trips to their favourite retailer. We come
back to the basic goal of loyalty programs as
CRM tools: to increase repeat purchase rates.
But, in this care, the sole function of the loyalty
program is to track the already existing rates.
(B) The occasional shopper
This group is formed of the least valuable
members (in terms of amounts and frequency).
As in the previous case, the members of the
group live further away from the retailer for
different reasons. Yet, unlike loyal customers,
they visit the store weekly and, moreover, might
have not made a trip to it in the recent period. In
addition, the amount spent on a weekly basis or
less is between 50-100 RON. All these pieces of
information can only mean two things: either
that the shopper comes to the retailer for certain
products which are not of current need and that
he also has other places to acquire goods from,
either that he does not actually need to visit the
retail store but merely enters every now and
then for his own pleasure. Only 18.75% of
occasional shoppers have a loyalty card at the
retail store.
(C) The proximity shopper
The proximity shopper is of medium value to
the retailer. It is similar to the previous group
when it comes to frequency and recency. He
does not visit the retailer often, nor has he done

Table 2. Final Cluster Centers

Variable
Frequency

Cluster
A
2-3
times/week

Weekly

Weekly

Recency

1 week ago

2-3 weeks
ago

2-3 weeks
ago

Amount

150-200
RON

50-100RON

100-150

Proximity

10-30
minutes

10-30
minutes

5-10 minutes

(A) The loyal and valuable customer

It has already been established in the previous
section that there is a medium inverse relation

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so recently. On the other hand, a notable

difference consists in the amount spent at one
visit. The proximity shopper spends more than
the occasional shopper and lives in the vicinity
of the store. We can deduce that he enters the
store only because it is close to him and, on
occasions will spend a moderate amount of
money. Unlike the first group, the proximity
shopper can be considered not that valuable.
Only 36.36% of these persons have a loyalty
card, with a percent slightly higher than in the
case of the most valuable customers.

members clearly suggest that loyalty precedes

joining the program. The reasons given by the
respondents for becoming a member highlight
that a loyalty program is a self-rewarding act in
its essence: the customer acknowledges that he
is loyal and wants redemptions in return. The
most common functions of the loyalty cardfrom the consumer point of view-are the
discounts, vouchers and products obtained.
From the retailers stand point, the loyalty
program can be viewed more likely as a
retention, evaluation and communication
method. The retention function is achieved
when the customer perceived he has been
rewarded for his pre-existing loyalty and, hence,
will not switch to a competitor more willing and
able to reward him. The evaluation function is
based on the means of tracking what, when and
in which amounts a person buys certain
products and offers valuable insights for further
marketing decisions. The communication
function of the loyalty card is achieved when
information is sent to the consumer based on
data given on issuance or later and, more
importantly, if the information given is
customized based on the insights gathered
through the second function.
On this account, the causality relations are
actually as presented in figure 4:

4.3 Limitations
The present research has a limitation consisting
in the sample size, there are 66 respondents and
it would be desirable to have a larger sample in
order to be able to make an inference results
upon the population. Another aspect concerns
the fact that all respondents are from Bucharest,
meaning that the results describe customer
behaviour in the capital of Romania. It may be
possible that in other cities, where retail stores
have more customers from rural and outskirt
areas, result may be different. Another
limitation consists in the roles in decision
making of some respondents. A small number
of respondents do not participate in decision
making and many of them are part of this
process. The claim of being part of the decision
taking is a subjective and unverifiable one. As
well, this quality may be interpreted differently
and their responses might not be that accurate.

Loyalty

Increased
customer
value

Loyalty
program

Figure 4. Proposed causality relations

5 Conclusions and further directions of

research

On this basis, the first stage of this cycle is the

most important since it may lead to better
results. Since there is no significant difference
in attitude between members and non-members,
the main goal is not to convince people to
become members of a program, but rather to
solely make them loyal through sale and
promotional techniques.
As the research has shown, proximity is
inversely related to the RFM evaluation of a
customer. A further line for investigation would
be to see exactly how traveling time influences
the consumer, which other store attributes may

There are numerous questions regarding the

actual effects of loyalty programs. While some
effects are clearly quantifiable, others are not. It
is difficult to evaluate the success of a program
given the fact that there is no information
regarding shopping behaviour prior to joining
the program. As such, the proposition made by
Leenheer et. al. (2003, p. 38) has been proved to
be a correct one. The lack of correlations
between membership and customer value,
cumulated with the fact that only a third of loyal
customers included in the research are program

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diminish location problems and how to reduce

discomfort.
This paper does not claim that membership
programs are useless from the repeat purchase
rate point of view. It s more than obvious that
the conclusions presented above apply to a
certain extent and a research conducted to see
which type of customers fit within the classical
causality relation. By establishing this, retailers
can discover the profile of the customers that
should be targeted by a loyalty program in the
first place.

Leenheer J., Bijmolt T.H.A., Heerde H.J., Smidts A.,

(2003), Do loyalty programs enhance behavioral loyalty?
A market-wide analysis accounting for endogeneity,
International Journal of Research in Marketing No.24,
Issue 1, pp.31-47, ISSN 0167-8116
Liu Y.,(2007) The long-term impact of loyalty programs
on consumer purchase behavior and loyalty, Journal of
Marketing Vol. 71, p.19-35, ISSN 1547-7185
Mauri C, (2003), Card loyalty. A new emerging issue in
grocery retailing, Journal of Retailing and Consumer
Services No. 10, pp.13-25, ISSN 0969-6989
Pauler G., Dick A., (2006), Maximizing profit of a food
retailing chain by targeting and promoting valuable
customers using loyalty card and scanner data, European
Journal of Operational Research, No.174, pp. 1260
1280, ISSN

Endnotes
1

SOW - share of wallet - term used by Lars

Meyer-Waarden, Philip Kotler, Pietro Zidda-
the amount of the customer's total spending that
a business captures in the products and services
that it offers.(investopedia.com, 2012);
2
Magstripe - magnetic stripe - line on plastic
card: a strip of magnetic medium on a plastic
card such as a credit card, encoded with
information.

Law 677 of November 2001

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Authors description
Carmen ACATRINEI is Assistant Professor at the Faculty of Business Administration, the Academy
of Economic Studies Bucharest (ASE), Romania. Her research and teaching interests lie in the areas of
customer relationship management, direct marketing, project management, negotiation techniques and
other business-related topics. Carmen holds a Ph.D. in Marketing from ASE. Her area of interest for the
doctoral research was related to the online marketing tools used for managing customer relationships.
Teodora Viviana PUIU graduated the Faculty of Business Administration and she is currently a
student at the Master Program Marketing Research, at the Faculty of Marketing from ASE. She works
as a Marketing Specialist at EcoStyle, a company that focuses on educating the general public in what
regards ecological products that can be currently found in retail stores. Since the main focus is to
promote and stimulate consumption, there is a high interest in determining various methods to stimulate
consumption and loyalty towards retailers.

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