Comparing Loyalty Program Tiering Strategies: An investigation from the gaming industry

IntroductionLas Vegas is an internationally renowned city for gambling, fine dining, entertainment, and shopping. After enduring a deep drain during the economic recession, the local gaming industry managed to recover in 2010, with increases in both visitor volume and gaming revenue. As of 2015, the city recorded 42.3 million visitors, more than 3 million of the city's 2007 peak; with a room inventory of approximately 150,000, it experienced higher occupancy rates than any other tourist destination in North America. Competition in the Las Vegas gaming industry has been intense due to explosive growth amid economic challenges. At present, Las Vegas is well positioned for continued growth, generating new opportunities and challenges for business management (Las Vegas Convention and Visitors Authority (LVCVA), 2016). Business operators have been relentlessly seeking more sophisticated ways to increase visitor volume and gaming revenue to remain profitable. It has been recognized that the value of loyal customers is especially significant in the gaming industry; consequently, casino marketers have been increasingly dependent on loyalty programs to maintain market share and increase customer loyalty (Barsky, 2010; Benston, 2011; Crofts, 2011; Hendler & Latour, 2008; Lucas et al., 2005; Min et al., 2015; Tanford & Baloglu, 2012). Increased competition has driven businesses to develop marketing strategies to attract and retain valuable customers (McCall & Voorhees, 2010). Loyalty programs are one such popular marketing strategy developed to encourage repeat business and ultimately increase customer loyalty (Dowling & Uncles, 1997). Service providers believe customer loyalty to be not only a powerful impact on performance and profitability, but also a source of competitive advantage (Kandampully, 1998; Petrick, 2004; Reichheld & Sasser, 1990; Shoemaker & Lewis, 1999). Almost every type of business offers some type of loyalty program, and companies from various industries are challenged with an abundance of this practice (McCall & Voorhees, 2010). The implementation of loyalty programs within the gaming industry in Las Vegas was comparatively slow compared to other service industries, as marketing was not a necessary tool until the so-called mega resort era started in the 1990s (Baynes, 2011). Due to explosive growth and market maturity, casino marketers today realize the importance of customer retention and rely highly on their loyalty programs to bond customers to the brand or generate an additional trip by rewarding their most valuable customers (Barsky, 2010; Lucas et al., 2005; Min et al., 2015). However, inconsistent findings across various studies compel one to ask whether loyalty programs were employed as part of a marketing strategy or simply provoked by competition (e.g., Meyer-Waarden, 2008; Uncles, Dowling & Hammond, 2003) and the question of whether these programs are really effective remains open (Barsky, 2010; Danaher, Conroy, & McColl-Kennedy, 2008; Leenheer, 2002; Lewis, 2004; Reinartz & Kumar, 2002; Whyte, 2004). Basically, loyalty programs are designed to encourage further transactions by offering different sets of incentives to customers at different tier levels based on their purchasing behavior. Ultimately, the tiering strategy plays an important role in a loyalty program's success (Berman, 2006; Liu, 2007; McCall & Voorhees, 2010). Previous studies on casino loyalty programs discovered that management lacked an understanding of how to make better use of the program (Hendler & Latour, 2008), and realized that program members are not necessarily classified by their actual value or performance (Yoo & Seo, 2012). Nevertheless, marketers have devised creative ways to boost the effectiveness of loyalty programs (Hendler & Latour, 2008). The purpose of this study is to segment loyalty program members and investigate the effectiveness of a casino loyalty program's tiering strategy on their purchase behavior. …