It also increases with perceived promotion frequency. Retailers seem unsure however, about whether these programs are leading to higher loyalty, or in any case, to higher profits. We propose an explanation of why increased store loyalty may be bad for profitability in the short to medium term. We first show that two competing every day low price stores are less profitable than two competing Hi-Lo stores. We then argue that introducing loyalty programs into both Hi-Lo stores effectively converts them to EDLP, thus lowering profitability.
Loyalty programs can be profitability enhancing if they are used as an intermediate stopping point.
If the data on loyal customers is used to differntiate the stores, the relaxation of direct competition can allow both stores to enjoy higher margins. Yet, little research has explored empirically the validity of this proposition, particularly as it relates to advertising. The present research examines this issue. Our findings suggest that stylistic properties of ad pictures can communicate concepts that ad recipients may perceive, attribute to the advertised products, and use when forming their product judgments. Such outcomes were observed, however, only when ad recipients devoted ample resources to processing the ad and the particular concept that was implied by the stylistic property of the ad picture was relatively accessible to respondents.