Customer loyalty programs: are they fair to consumers?

The purpose of this paper is to examine the fairness of loyalty programs to consumers regarding two emerging criticisms of loyalty programs: discriminating value proposition segmentation and potential exploitation of captured personal information.

Equity theory and exchange theory are the theoretical foundations used for evaluation of the aspects of loyalty program fairness.

First, through the application of equity theory, firms can more effectively recognize and reward more valuable customers without alienating less valuable customers. Second, through the use of exchange theory, firms can secure authorization to collect and use individual customer information from customers in exchange for enhanced value proposition offerings via loyalty programs. Loyalty programs can induce customers to give up their personal information in exchange for benefits they would not otherwise receive. Marketers use the higher level of benefits available through loyalty programs as a form of compensation to customers for sharing personal information.

Customer loyalty programs that are equitably administered and thoroughly communicated will be perceived favorably by consumers.

This paper marks the first study to examine the issue of consumer fairness as it relates to how firms use loyalty programs to collect proprietary information and differentiate value propositions among customer segments. The findings can be used by managers to strengthen the marketing position of the firm through a loyalty program without compromising on their customers' perceptions of fairness.