Fool's Gold? Assessing the Impact of the Value of Airline Loyalty Programs on Brand Equity Perceptions and Share of Wallet

Abstract

Despite substantial investments in loyalty programs, hospitality industry managers and marketers are given little evidence regarding the loyalty programs’ overall effectiveness in driving consumer spending. This study of an airline’s loyalty program demonstrates the importance of brand power and the influence of customer characteristics on the value the loyalty program has on share of wallet. While loyalty programs in their current form do provide some brand building benefits, their effect on share of wallet is significantly stronger for price-seeking customers who are prone to brand switching. In contrast, the loyalty program has no direct effect on share of wallet for brand-loyal customers. The study also demonstrates the power of high-equity brands, which enjoy differentially higher gains from their loyalty programs than low-equity brands can experience. Thus, this airline’s loyalty program does provide some benefit, but perhaps not in the way the company wishes. The industry should consider their customers’ permanent characteristics (i.e., their level of loyalty or willingness to switch brands) and revise these programs to ensure that they continue to deliver value to a firm’s best customers rather than just attracting brand switching customers.