Abstract:
Loyalty programmes (LPs) have become increasingly popular in the past two decades, as a way to retain customers and to obtain a higher share of their revenue than competing companies. While academic literature has primarily emphasised the advantages and effectiveness of LPs from the company’s perspective, the customer’s viewpoint has received very little attention. This study argues that the effectiveness of LPs from the customer’s perspective can be assessed by comparing the monetary value of loyalty points required to obtain a reward with the lowest price for the same reward (product or service) when purchased from a retailer independent of the LP. When the market price of a reward is higher than its equivalent monetary value through point redemption, the LP is advantageous to customers. That is, customers gain tangible economic benefits for being committed to a company’s LP. Generally, customers are well informed about the number of loyalty points they earn when purchasing a product or service, as well as the number of points required to obtain a reward. However, when the reward is not cash but rather a product or service, the monetary value of points redeemed on the good is unknown, and hence it is questionable as to whether a LP is financially worthwhile for a customer to join. Accordingly, it is even more difficult to make an educated guess – beyond the individual preference and taste of the customer – about the rewards that are the most economically beneficial for them to redeem their points on. By examining the economic benefits of both retail and flight rewards simultaneously, this study assesses the effectiveness of the Qantas’ Frequent Flyer Programme (QFFP) from the customers’ perspective. The results of this study suggest that the QFFP is not financially rewarding for customers to join as the programme only provides economic benefits for brand congruent luxury rewards, such as long haul international business fares. In the main, retail goods are more expensive to buy from the QFFP catalogue than they are from a mainstream retailer.