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Journal of Management Research
Vol. 21, No. 1, January - June 2021, pp. 35-48

The Impact of Customer Loyalty Programs on Customer

Retention in the Retail Industry
Duleepa Lakshman and Fazila Faiz

Abstract

As the importance of the concept of customer loyalty increases, organizations are investing more towards
loyalty programs for retaining their existing customers as well as attracting new customers. This study analyzes
the literature to synthesize some debatable areas such as types of customer loyalty programs and their impact
on customer retention. This research is carried out as a systematic review, evaluating ten recently published
research articles due to their high relevancy. Our analysis identifies four major categories of customer loyalty
programs in the retail industry namely, point system, rewarding system, loyalty card system and gift card
system. Further, it is found that a rewarding system is the most effective type of loyalty program in the retail
industry where retailers can provide additional rewards based on the customers’ loyalty levels. Through this
study, it is found that all four types of customer loyalty programs are positively correlated with customer
retention while the rewarding system has the highest co-relation with customer retention.

Keywords: Customer Loyalty Programs, Customer Retention, Switching Barriers, Loyalty Cards

INTRODUCTION Palmatier, 2011; Uncles, Dowling & Hammond,

2003). The positive relationship between customer
As we are experiencing a globalized economy, loyalty programs and the number of sales of
organizations are more focused on managing the organization has a direct relationship on the
an optimistic relationship with their prevailing profitability levels of the firm in the long run
customers which is fundamental to customer loyalty (Hofman-Kohlmeyer, 2016). According to Ko, Yu
(Kwiatek and Thanasi-Boçe, 2019). It is evident that and Han (2020) customers seek to gain exclusive
the custom of loyalty programs has been in play benefits of loyalty programs by improving their level
since 1980s as introduced by the airline sector (Ieva of experience. It is reported that the organizations
& Ziliani, 2017). The usage of loyalty programs in European region annually spend more than $1
benefits both the customer and the organization Billion on loyalty programs (Ferguson & Hlavinka,
as a whole. The purpose of this study is to analyze 2007). Most companies use various loyalty programs
the implications on customer retention with regard with the aim of building trustworthy customers and
to customer loyalty programs in the retail industry. it is found that 57% of the airline industry and 41%
The study examines the core relationship between of the hotel sector reward their clients in order to
the key types of loyalty programs and customer keep them associated with their business (Magatef
retention. Customer loyalty programs act as a and Tomalieh, 2015). It is fundamentally right for
powerful tool in building relationships between any given organization to critically identify the
business and customers who are already passionate important factors needed to be taken into account
about the business and the products. The usage that will make the loyalty program successful
of loyalty programs by organizations is in practice (Hofman-Kohlmeyer, 2016). On the grounds of the
as a common phenomenon (Henderson, Beck & information provided, it is quite visible that customer

Duleepa Lakshman is Lecturer in Department of International Business, Faculty of Management & Finance, University of Colombo,
Sri Lanka – 0070, Fazila Faiz is student in Business School, University of Bedfordshire, United Kingdom - MK41 9EA
loyalty programs play a significant role in retaining purchases made by the customers (Gómez, Arranz
customers of the organization with the help of & Cillán, 2006). As per Reichheld and Teal (2001),
different marketing strategies. Therefore, the ultimate company performance is measured by the key
purpose is to understand the importance of loyalty indicator of customer loyalty while generating value
programs, the different types and benefits of loyalty for clients by integrating several dimensions of
programs, customer perception towards loyalty the organization. Further, they state that the best
programs and finally, the impact of customer loyalty indicator for the growth of the company is the
programs on customer retention. willingness and the enthusiasm of the customers to
provide a recommendation of the organization to a
LITERATURE REVIEW friend or a colleague rather than retaining only the
existing customers. In accordance to Ruiz, Zarco &
The Importance of customer loyalty has become Yusta (2010), many retailers design a commercial
a rapidly growing area and businesses in many approach in order to differentiate themselves from
industries are now focusing on customer loyalty the competitors with the aim of catering to the
programs as an effective tool of customer retention. customer requirements.
Therefore, it is vital to understand the importance
and growing literature on customer loyalty programs
for researchers and business organizations. Benefits of Loyalty Programs
Loyalty programs can provide various benefits to
Importance of loyalty Programs and the organization. These types of benefits are vital
Customer Retention for the success and the effectiveness of loyalty
According to the American Marketing Association programs. Apart from the financial benefits, it is
(2020) loyalty programs can be defined as a fundamental to understand that loyalty programs
continuous incentive package offered by a retailer provide customers a sense of pride and intelligence
with the aim of encouraging and rewarding when they purchase a product for a better price.
the customers to ensure they maintain a long- Bruneau, Swaen and Zidda (2018) argued that
lasting bond with them. Loyalty programs are loyalty programs offer three types of benefits
well designed marketing strategies that reward namely, monetary, social and interactive benefits.
and thus, encourage more buying behavior of the
According to Magatef and Tomalieh (2015), there
customers (Peiguss, 2012). Loyalty programs can
are several benefits identified with the use of
be categorized on different forms as marketing
customer loyalty programs namely,
tools as reward cards, tier service levels, gifts, or
others. Customer loyalty programs are mainly • Less cost incurred in serving genuine
designed to involve customers in a longer-term customers.
relationship with the company (Henderson, Beck,
• Loyal customers are willing to pay more as they
& Palmatier, 2011). According to Singh and Imran
(2012), both the customers and the organization are less sensitive of prices.
benefit from the utilization of customer loyalty • Loyal customers invest more time with the
program as it plays a vital role in the success of organization
the retail industry. Thus, it is considered to be • Loyal customers provide optimistic
more expensive to attract a new customer than to recommendations for products to their friends
retain an existing customer (Kim, Vogt & Knutson,
and colleagues
2013; Singh & Imran, 2012).In the aim of retaining
customers, loyalty programs are mainly used as a • Loyalty programs provide information of the
marketing strategy whilst, such programs are named consumers to the firm.
further as reward programs or frequent purchase • Managing customer experience is a cost-
programs depending on the frequency of the effective way of satisfying customers, retaining

36 Journal of Management Research

 customers and thereby achieving customer may perceive more value in non-monetary
loyalty. benefits compared to price related benefits.
• Devoted customers are likely to acquire more • All- inclusive offer- Networking with partners
products with high-margin complementary who offer complimentary products and
products and services. services as a value-added service.
• Trustworthy customers tend to lessen the cost • Loyalty card program- Under loyalty cards,
related to marketing activities as they already companies can gather consumer related details
possess high product knowledge. such as purchasing patterns, customer taste,
In accordance with research done by Meyer- and others. Companies can offer discounts
Waarden (2008), loyalty programs can reduce the reward points as loyalty card offers.
price sensitivity and buyers are willing to pay more • Frequent buyer program- This program offers
than usual. Further, loyalty programs can always free services to customers provided their
increase the number of purchases. Based on the transactions reached a precise limit. Eventually
research done by Tahal (2014) on customer loyalty over a period of time sales will also increase.
programs on e-commerce shops by gathering the • Gift card – This is introduced depending on
opinions of e-consumers following results were a validity program with a specific amount
obtained. Customer loyalty programs can increase mentioned on the card. The customer has the
company reputation by 73%, brand awareness ability to make purchases beyond the amount
by 95%, profits by 77%, turnover by 100% and mentioned on the card possibly increasing the
repurchases by 95%. sale of goods.
• Return policy – loyal customers are offered an
Types of Loyalty Programs extended return plan.
Many researchers have identified the different types • Payback money – loyal customers are given the
of customer loyalty programs and their level of opportunity for compensation.
impact. According to the research done by Singh • Discounts – customers are provided with
and Imran (2012) on an approach to increase discounts overtime.
customer retention and loyalty in B2C world, • Bundle goods – organization retails numerous
figured out 12 categories of loyalty programs goods and services while incurring zero cost to
namely, the main product.
• Points system – This is the most practicing According to Enzmann & Schneider (2005) the
loyalty program where frequent shoppers can two types of programs are the rewarding system
earn points based on their level of transactions. and virtual communities. The rewarding system is
• Tier system – This system encourages repeat based on financial benefits. Virtual communities
customers by increasing the level of rewards mainly focusing on the social aspect like a panel
offered, thus creating the ability to move discussion on an issue relating to a product via
online. Miranda et al. (2005) highlight the key
upwards in the loyalty ladder. This is more
elements influencing the satisfaction levels of
applicable for high commitment and high
the customers based on pricing structure, store
price-oriented businesses such as hospitality,
location, incentives, offers, sales personnel, loyalty
insurance and airline companies.
cards and the company reputation.
• Charge an upfront fee for VIP benefits- An
upfront fee will be charged to the customers
with the aim of offering VIP benefits carrying Impact of Loyalty Programs on Customer
long-term benefits. Retention
• Non-monetary programs- providing benefits Loyalty programs can certainly assist the
other than discounts. Sometimes customers organization in promoting a closer bond while

Volume 21, Number 1 • January - June 2021 37

enhancing the company performance. However, it for customer retention and value showed that
is important to understand that loyalty programs loyalty programs could negatively affect on long
sometimes may have a negative impact whereas, term relationship between the customer and the
the company profitability may decrease if some organization through high expectation over the
customers request for extra privileges or additional product or service offering. In this research, they
benefits leading towards additional service cost focused on credit card customers from three
(Wetzel, Hammerschmidt & Zablah, 2014). European countries. According to the research
According to Omar (2013) all service attributes done by Stauss, Schmidt and Schoeler (2005) on
accompanied by the loyalty programs such as customer frustration in loyalty programs, it is
reward, policy, tangibility, quality along with the found that there are seven types of frustration
level of personalization have a significant impact events that were generated by loyalty programs that
on the perceived value. Nevertheless, the positive directed towards frustration feeling and behavior.
relationship between the program loyalty and the Along with the four categories of events of
satisfaction levels thus creates an overall significant inaccessibility, qualification barrier, worthlessness
impact. Moreover, as per research conducted by and redemption cost, the customer’s feeling
Meyer-Waarden (2008), it is revealed that loyalty of frustration and behavior are focused by the
program members exhibit a positive relationship program itself (event-related frustration events).
in their purchasing behavior in comparison to The rest of the three factors of discrimination,
the non-members during a period of three years. defocusing and economization are directed towards
Studies done by Shugan (2005) and Wetzel, frustration based on the level of perception of the
Hammerschmidt & Zablah (2014) showed that customers in terms of the bond they possess with
customer loyalty programs could affect customers’ the organization (relationship-related events).
purchase intention in a negative way too. They
argued that when customers are engaged in loyalty On the grounds of the above literature, it is
programs, they become overly demanding over evident that the findings of these researchers are
company offerings. Further, they argued that contradictory and there is clear importance of
customers feel that they are entitled to request for analyzing them in order to test tenacity of the
extra benefits. By supporting these findings of the contradictory findings. Henceforth, the following
research done by Ma, Li and Zhang (2017) on the section will be focused on synthesizing the
effects of loyalty programs in services shows that evidence with the aim of reaching towards strong
loyalty programs can affect customer’s intention in conclusions on the particular area.
a positive or negative way. In this research, they
have defined loyalty programs as double-edged RESEARCH METHODOLOGY
sword. According to the research done by Kim This research utilizes the PRISMA method under the
(2018) on critical role of a hotel loyalty program standard methodology of conducting a systematic
by adopting the four-stage model of loyalty found review due to time effectiveness and cost benefits
that hotel loyalty programs have a positive influence associated with the systematic review method. In
on customer’s loyalty. Under this study, it utilized this systematic review, widespread series of journal
Oliver’s four stage loyalty model by using a multi- articles have been selected and analyzed to ensure
dimensional approach. However, this research adherence as well as appropriateness. Peer-reviewed
stresses that customer loyalty programs provide journal articles from credible sources have been
an opportunity to build long-term relationships utilized to check the preliminary relevance for the
with customers but it is not the sole factor in a present study. This analysis analyses ten quality
customer’s loyalty development. Disconfirming to journal articles published during the period 2010
the all above findings a research done by Wendlandt to 2020. However, due to high relevancy, two articles
& Schrader (2007) on implications of loyalty published in 2007 & 2005 have also been included.
program membership and service experiences In order to analyze the selected journal articles,

38 Journal of Management Research

thematic synthesis method has been utilized. As loyalty programs, and similar types have been
per Saunders, Lewis & Thornhill (2012) thematic used to search the most related articles. Selected
synthesize method is one of the best methods for articles are written in the English language as
analyzing selected journal articles under a systematic it is universally accepted and all the selected
review. Hypothetico-deductive approach has been articles are peer-reviewed and published in 2005,
utilized to synthesize the available arguments. 2007, 2014, 2015, 2016, 2016, 2017, 2018, 2019
and 2020. The selection of these articles has no
Selection of Studies specific geographical restriction as customer loyalty
programs are globally known as marketing strategy.
For this study, authors have selected only quality
Hence this systematic review will be focusing on
and reliable articles from Elsevier and Emerald
global market. After reviewing the selected articles
Insight databases. Selected articles were published
carefully, the duplications were eliminated for
with relevance to customer loyalty programs and
further analysis. After screening the title, abstract
their impact on customer retention.
and conclusion, irrelevant articles were removed.
Sample selection of the present study has been
Inclusion and Exclusion Process carried out using the PRISMA method as shown
As per table 1, keywords such as customer loyalty in the below figure. According to Saunders,
programs, and customer retention, types of Lewis and Thornhill (2012), PRISMA method
customer loyalty programs, benefits of customer is the best method of selecting sample items for

Table 1: Search Criteria

Search Criterion Value(s)

Research Database • Emerald Insight
• Elsevier
Database search services used • Emerald insight Research Database
• Elsevier Research Database
Source Type • Academic Journals
Search Terms (keywords) • Customer Loyalty Programs
• Loyalty Programs and Customer Retention
• Types of Loyalty Programs
• Importance of Loyalty Programs
• Impact of Loyalty Programs on Sales Performance
• Impact of Loyalty Programs on Ppurchase Intention
Search Expanders • Sorted by Most Recent
• Content-type Articles
Search Limiters • Peer-reviewed Articles Only
Timeframe • Published in 2020 – 1 Article
• Published in 2019 – 1 Article
• Published in 2018 – 1 Article
• Published in 2017 – 1 Article
• Published in 2016 – 2 Articles
• Published in 2015 – 1 Article
• Published in 2014 – 1 Article
• Published in 2007 – 1 Article
• Published in 2005 – 1 Article

Volume 21, Number 1 • January - June 2021 39

systematic review and meta-analysis. As per the quality journal articles are utilized for the process
below PRISMA diagram shown in figure 1, 34 of thematic synthesizing (figure 1).
articles have been selected for the initial screening
process from Emerald, Elsevier, Research Gate Evidence
and few other research databases. In the initial After selecting the articles based on the PRISMA
screening, four duplication articles were removed. method, articles were carefully analyzed based on
Thirty articles were presented to screen the topic, the title, author, year, method, sample size, industry
abstract and table of content. Twenty five articles and major findings in order to synthesize the
are selected for the full evaluation. Out of that, ten findings (table 2).

Records identified through

Articles selected from other
Identification

databases
sources
Emerald/Elsevier
(n=4)
(n= 30)

Records after duplications were removed (n=30)

Screening

Records screened by topic, Records excluded

abstract and table of content
(n= 30) (n= 5)
Eligibility

Full text articles evaluated for

relevance Full text articles excluded

(n= 25) (n­ 15)

Single case studies without in­

depth focus – 2
Articles selected for qualitative
synthesizing Just theoretical analysis­ 2
(n= 8) Only focus on a single country­
Included

Mixed with other disciplines­3

Records screened by topic,
abstract and table of content Manuscripts only­ 1
(n= 2)

Figure 1: Flow diagram of research selection as per PRISMA model

40 Journal of Management Research

Methodology and Data Analysis Method interpretation, despite the fact that some
quantitative nature has been applied to observe the
This particular analysis is conducted based on
correlation of coefficient. Consequently, combined
thematic synthesizing with the help of qualitative

Table 2: Evidence

•
•
•
•
Magatef and A1 The Impact of • Survey • There is a significant impact of customer loyalty
To m a l i e h Customer Loyalty • 350 sample programs building and maintaining customer
(2015) Programs on • Jordanian retention and creating a significant impact on
Customer Retention customers brand loyalty.
• Not restricted to • Tier system reward has the influence on
any industry customers followed by charge Up-front fee for
VIP benefits, and then point system and Non-
monetary programs.
• Rewards programs are one of the major types
of customer loyalty programs
Kohlmeyer A2 Customer loyalty • S y s t e m a t i c • Loyalty programs provide valuable information
(2016) program as a tool of review to build future marketing strategies.
customer retention: • 14 journal • Loyalty programs help to maintain long term
literature review articles relationship with customers
• With reference to E-commerce there are two
varieties of loyalty programs as rewarding
systems and virtual communities.
• There are two major types of customer loyalty
programs namely rewarding systems and
equity-based loyalty programs and rewarding
system is most popular type of customer loyalty
program which has the highest influence on
customer retention.
Koo, Yu and A3 The role of loyalty • online survey • Perceived value of loyalty program is essential
Han (2020) programs in • 500 sample in customer loyalty building.
boosting hotel guest • Structural • Affective commitment and switching barriers
loyalty: Impact of equation model mediated the relationship between the
switching barriers • South Korean perceived value of a loyalty program and
hotel industry customer brand loyalty.
• Loyalty programs are crucial factor in
determining customer demand.

Ma, Li and A4 The effects of • Survey • Customer loyalty programs can affect
Zhang loyalty programs in • 152 sample customers in both positive and negative ways.
(2017) services – • partial least
a double-edged squares-
sword? structural
equation
modeling
• flyer program
members in
• China

Volume 21, Number 1 • January - June 2021 41

 •
•
•
•
Zakaria et A5 The Relationship • Case study • There is a positive relationship between
al., (2014) between Loyalty • c o r r e l a t i o n a l customer loyalty programs and the level of
Program, Customer study customer satisfaction and customer loyalty in
Satisfaction and • JCARD the retail sector.
Customer Loyalty members • Insurance coverage, special prices and gift
in Retail Industry: A redemptions influence customer satisfaction
Case significantly and does not influence customer
Study loyalty.
• Customer loyalty is influenced significantly by
rebate gift voucher, shopping partners program,
members’ day and by special prices but does
not influence customer satisfaction.
B r u n e a u , A6 Are loyalty • semi-structured • More attention should be paid to the
Swaen and programs members interview engagement of customers in loyalty programs.
Zidda (2018) really engaged? • 22 sample
Measuring customer • Qualitative study
engagement with • Different
loyalty programs industries

Kwiatek and A7 Loyalty program • Survey • The rate of rewards awarded by loyalty
Thanasi- activity: make • 818 sample programs has a great impact on the level of
Boçe B2B customers buy • logistic sales of the company in comparison to the
(2019) more regression points redeemed by the customers.
models • The anticipated sales of the company are
• Not restricted to greatly influenced by the depth of the loyalty
any industry program activity.

Stathopoulou A8 The effects of• Survey • There are important consequences faced by
a n d loyalty programs • 984 sample managers in effectively designing rewards
Balabanis on customer • Multiple pertaining loyalty program in the high and low
(2016) satisfaction, trust, regressions fashion retailing industry in order to make best
and loyalty toward and analysis of use of customer loyalty.
high- and low-end covariance .
fashion retailers • Fashion retailers
S t a u s s , A9 Customer frustration • Qualitative • It is identified that there are 7 types of
Schmidt and in study, general frustration events that are generated by
Schoeler loyalty programs model of loyalty programs leading towards frustration
(2005) frustration, consciousness and behavior.
a multi-level • The four types of events as worthlessness,
iterative content qualification barrier, redemption cost and
analysis inaccessibility are directed towards the feeling
• Frequent and behavior of customer frustration as
travellers directed by the program itself.
• The three events of discrimination, defocusing
and economization are events that trigger the
feeling and behavior of frustration as directed
by relationships.

42 Journal of Management Research

 •
•
•
•
Wendlandt A10 Consumer • face-to-face • It is identified that contractual bonds
and reactance against interviews trigger effects of reactance whereas social
Schrader loyalty programs • 388 sample psychological bonds neither trigger reactance
(2007) • structural nor the perceived utilization of the program.
equation • Perceived utility is raised to a certain extent
modeling by economic bonds from which the effect of
• Bookstore reactance is conquered thereafter.
customers.

methods are exploited as a methodological choice it positively accelerates the attachment customers
in this review. The effort of this analysis based possess over the brand as a whole. Similarly, as per
on the philosophical view is to explore the causal the findings of Magatef and Tomalieh (2015) it is
relationship between customer loyalty programs evident that customer loyalty programs possess a
and customer retention in the retail industry. significant impact on the heights of the brand the
The deductive approach has been carried out to company is maintaining to retain its customers.
choose the appropriate strategy for the research The findings support that the perceived value
and to build the hypothesis. In order to study the accompanied by the loyalty program can be of
hypothetical relationships, data from 10 articles functional value, external value and psychological
are gathered and assessed to study the hypothetical value as it plays a key role in increasing the level
relationships. of customer satisfaction. According to Hofman-
Kohlmeyer (2016) loyalty programs provide
Thematic Synthesizing valuable information regarding customers which
are relatively useful to construct marketing
Thematic synthesizing is considered to be the initial strategies in the future while maintaining a long-
technique for qualitative analysis involving coding lasting bond with the customers. Based on
of data and creating analytical themes (Braun & these findings, retailers can use customer loyalty
Clarke, 2006). Table 3 highlights the thematic programs as a source of information to track
synthesizing and codification of the journal articles purchasing patterns of the customers and their
as selected before. behaviors. Further, the findings of this study
support that loyalty programs influence both
financial and psychological factors to sustain
DISCUSSION
long-term loyalty. According to these findings,
Customer loyalty programs are an extremely retailers can utilize customer loyalty programs as
treasured asset in an organization and act as a tool for making emotional bonds between the
a powerful instrument in creating the bond customer and the retailers. According to Bruneau,
between both the customer and the business. Swaen and Zidda (2018) managers should pay
Many strategies have been used by companies more attention to customer loyalty programs to
to retain and attract customers who are very increase the customers’ level of engagement.
loyal to the company. According to the above According to these findings, organizations
thematic analysis, it is evident that all articles have have to make significant efforts to increase
highlighted the importance of customer loyalty customers’ engagements. Moreover, retailers need
programs. Koo, Yu and Han (2020) highlight the to understand the customers’ behavior, thinking
core importance of customer loyalty programs as patterns and use appropriate content related loyalty

Volume 21, Number 1 • January - June 2021 43

 Table 3: Thematic Synthesizing

Importance of customer     
loyalty programs Significance CLP- IM
Different types of customer Points system DT- PS    
loyalty programs Tier system DT- TS  
Rewarding system DT - RS    
Loyalty card program DT- LCP   
Gift card DT- GC    
Customer perception More loyal to the brand CPLP- BL    
towards loyalty programs Expect more discounts CPLP- MD    
Impact of customer loyalty Positive CLCR - P    
programs on customer Negative CLCR - N
retention
positive and negative CLCR - PN 

Importance of customer loyalty     

programs Significance CLP- IM
Different types of customer Points system DT- PS     
loyalty programs Tier system DT- TS  
Rewarding system     
Loyalty card DT- LCP    
program
Gift card DT- GC  
Customer perception towards More loyal to the CPLP- BL   
loyalty programs brand
Expect more CPLP-   
discounts MD
Impact of customer loyalty Positive CLCR - P   
programs on customer Negative CLCR - N  
retention
positive and CLCR -
negative PN

programs that would motivate customers to engage are one of the major types of customer loyalty
more with customer loyalty programs. Therefore, programs. Under this research the impact of
the authors concluded the first objective of this customer loyalty programs on customer retention,
research by highlighting how customer loyalty it is identified that organizations use reward
programs are important in customer retention programs to encourage frequent purchases by
and long-term relationship building. Based on the the customers. Further, they stated that loyalty
thematic synthesizing, it is found that many authors programs motivate customers to change from
have identified various types of customer loyalty single-period decision making to multiple-period
programs and their level of impact. According to decision making. Based on these findings it is
Magatef & Tomalieh (2015) rewards programs evident that organizations can use reward programs

44 Journal of Management Research

as a form of customer loyalty program in order to engage customers in loyalty programs. Sometimes
influence their customers’ buying behavior. Further, customers may feel worthless on participating
they have identified Points system, Tier system, in a loyalty program. This basically arises when
and Charge an upfront fee for VIP benefits, Non- customers think that the benefit of customer loyalty
monetary programs, All-inclusive offer, Loyalty programs is less than the effort that they invest in
card program, Frequent buyer program, Gift card, participating in a loyalty program. Another major
Return policy, Payback money, Discounts and frustration happens when customers think that
Bundle goods. Conforming to above findings, there is discrimination associated with customer
research done by Hofman-Kohlmeyer (2016) found loyalty programs. On seeing the benefits of
that there are two major types of customer loyalty customer loyalty programs enjoyed by top tier
programs namely, rewarding systems and equity- customers, others may feel that it is a kind of
based loyalty programs. Further, the rewarding discrimination. Retailers should focus on this part
system is the most popular type of customer loyalty as well when they are designing and allocating
program having the highest influence on customer the benefits of customer loyalty programs into
retention. Moreover, they stated that the reward different tiers of customers. Redemption cost has
system is the most influential loyalty program been identified as another major frustration event
which helps to generate more sales revenue. Based of customer loyalty programs. In some customer
on the above evidence the authors concluded the loyalty programs there is some cost associated
second objective of the research of identifying when customers are redeeming the benefit. For
the types of customer loyalty programs. Based on instance, telecommunication service providers
the above analysis, five main types of customer give special packages for loyal customers as a
loyalty programs are identified and among the loyalty program. But there is a cost of activating
identified five types of loyalty programs, four types the loyalty package. These types of barriers may
are identified as commonly used effective types of tend customers to perceive loyalty programs in
customer loyalty programs namely Point system, negative ways. Based on the above findings, it
Reward system, Loyalty cards and Gift cards. can be concluded that customers may perceive
customer loyalty programs in different ways and
Based on the recent study done by Koo, Yu and it is crucial to understand how customers perceive
Han (2020) on the role of loyalty programs in customer loyalty programs in order to get the
boosting hotel guest loyalty: Impact of switching maximum outcome of the loyalty programs. By
barriers has identified that the perceived value of analyzing the previous literature, it is identified that
loyalty program is essential in customer loyalty customer loyalty programs directly affect customer
building. Customers need to perceive loyalty satisfaction and it leads to maintaining a better
programs in a positive perception in order to relationship with the customer. The rewarding
bring the desired outcome of the designed loyalty system is identified as the most influencing type of
program. Our study shows that retailers should loyalty program helping to retain and maintain a
always think from customers’ angle when designing long-term relationship between the retailer and the
an effective customer loyalty program. Further, it customer (Magatef & Tomalieh, 2015). Further, we
has been identified that the effective commitment have identified that loyalty programs play a vital
of customers is an essential determinant of role, especially in the hotel industry in customer
customer satisfaction levels. Therefore, retailers retention. Most of the hotel customers seek
need to maintain customer commitment and discounts and special packages when they look at
engagement continuously in order to get the hotel options. Therefore, the hotel industry can use
maximum outcome out of customer loyalty customer loyalty programs as a tool for effective
programs. Similarly, the findings of the research customer relationship building and retention.
done by Bruneau, Swaen and Zidda (2018) The tested conceptual framework of this study
showed that more attention should be paid to showed that customer loyalty programs are a major

Volume 21, Number 1 • January - June 2021 45

predictor of customer’s satisfaction and customer’s point system, rewarding system, loyalty card system
loyalty. However, out of ten articles analyzed in and gift card system. Further, it is identified that a
this study seven articles emphasized that there is a rewarding system is the most effective type of loyalty
significant positive relationship between customer program in the retail industry where retailers can
loyalty programs and customer retention; whereas provide additional rewards based on the customers’
two articles emphasized that the relationship loyalty levels. Through this study, it is found that
between customer loyalty programs and customer all four types of customer loyalty programs are
retention is negative. An author found that the positively correlated with customer retention and the
impact of customer loyalty programs on customer rewarding system has the highest co-relation with
retention can be either negative or positive. Based customer retention. Therefore, it is recommended
on these we can conclude that the impact of that retailers use rewarding systems in an effective
customer loyalty programs and customer retention manner for customer loyalty program. Evidence
on the retail industry is positive and significant. suggests that hotel and fashion retailers can gain
more sales and increase the long-term relationship
with the customers effectively by using rewarding
CONCLUSION AND
systems. Finally, the authors have investigated the
RECOMMENDATIONS overall impact of customer loyalty programs on
This study was aimed to critically analyze the customer retention in the retail industry. When
previous literature on customer loyalty programs retailers are designing customer loyalty programs,
and its impact on customer retention in order it is highly advisable to analyze the market factors
to clear some arguable areas such as types of in order to design an effective loyalty program. Our
customer loyalty programs and its impact on study contributes in providing a clear understanding
customer retention. By analyzing the selected ten of the significant role played by customer loyalty
journal articles the authors have identified that programs on customer retention. The findings of
customer loyalty programs play a significant role this research provide valuable insights to retailers
in the retail industry. All the selected articles have in forming effective customer loyalty programs.
highlighted the importance and the significant role Further, this research addresses the theoretical
played by customer loyalty programs. Further, it is gap of identifying the most effective types of
identified that customer loyalty programs act as a loyalty programs and their net impact on customer
valuable source of information to retailers. Through retention. This study has its limitations. Since we
customer loyalty programs, retailers can capture used a systematic review method to conduct this
the purchasing power patterns of the customers. research and it has a common limitation associated
Therefore, it is recommended to retailers to utilize with the systematic reviews. Therefore, future
the information gathered through loyalty programs researchers should validate the same objectives of
in developing future marketing strategies. Retailers this research using a survey method or in the form
can capture market trends, purchasing trends, of a case study. In this study, we have not focused on
changes in behavioral patterns of the customers customers’ characteristics. It is advisable to consider
through the information collected through customer how customers’ characteristics affect customer
loyalty programs. Through our study, we have figured loyalty programs and their effectiveness. The impact
that customer loyalty programs are very effective of loyalty programs can vary due to the customers’
marketing strategies in industries such as hotels lifestyle, culture and industry-based factors and
and fashion. Based on our analysis, it is identified from county to country. Hence it is recommended
that there are four major categories of customer for future studies to evaluate the same objectives in
loyalty programs in the retail industry namely, different countries.

46 Journal of Management Research

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