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Maximilian Kraemer Assignment on Loyalty Role: Consumer
388349 IB 01A
Loyalty programs - source of customer dependency?
Nowadays many companies conduct loyalty programs because it is cheaper to retain customers instead of attracting new ones. By giving customers discounts and benefits companies try to give them an incentive for repurchase. This sounds indeed appealing for customers. The question, however, arises if this works only in one direction or in two directions - do loyalty programs only exist to make consumers dependent on certain suppliers or does the customer take advantage of those loyalty programs only to get the cheapest price? Seeing customers wallets filled with bonus cards implies that customers utilize companies to get the best possible offers. But is that truly the case?
The first approach on this topic is the theoretical approach, namely the rational choice theory. This theory assumes that the consumer is fully rational and his choice depends on his budget constraint as well as on his distinctive utility function.
The budget constraint enables the consumer to afford certain bundles in the choice set, from which he will choose a unique set fitting his preferences optimally. The goal of the consumer is to maximize his utility, and he will always choose the better bundle if he is given the choice. (Gintis, 2005 ). This implies that the consumer will always choose the best offer from any company. In this case it means that the consumer will choose the best loyalty program that maximizes his utility given his constraints. This model does not include the loyalty to a certain company, which is evidence for customers taking advantage of loyalty programs to maximize their own "happiness" rather than making them dependent on a certain company.
On the other hand there is empirical...