Can Non-tiered Customer Loyalty Programs Be Profitable?

We study the impact of launching a non-tiered customer loyalty program on consumers’ spending per visit, frequency of visits and attrition rates, and overall customer value. We demonstrate these results both through descriptive difference-in-difference regressions and a duration-dependent hidden Markov model we develop. We find that the program increases customer value by almost 30% over a five-year horizon, which is considerably larger than has been previously found for non-tiered loyalty programs. Most of the impact of the loyalty program comes through attrition: we show that the program’s reduction in attrition accounts for more than 80% of the program’s total lift, whereas increased frequency accounts for less than 20% of the program’s lift. The program’s lift is highest for least and most frequent automatic members, who experience reductions in attrition rates after joining the program. The impact of the loyalty program on spending per visit is negligible.