On the Profitability of Loyalty

Ying Lei (), Ji Shen (), Ei Yang () and Xin Zhai ()
Additional contact information
Ying Lei: Business Department, New York University Shanghai, Shanghai 200122, China
Ji Shen: Guanghua School of Management, Peking University, Beijing 100871, China
Ei Yang: School of Finance, Shanghai University of Finance and Economics, Shanghai 200437, China
Xin Zhai: Guanghua School of Management, Peking University, Beijing 100871, China

Marketing Science, 2025, vol. 44, issue 2, 306-326

Abstract: This paper aims to enhance our understanding of customer loyalty and its implications on firm profits. Factors such as favorable brand attitudes and switching costs may drive customer loyalty, which is often considered a strong indicator of a firm’s profitability. However, empirical findings on the profitability of customer loyalty are inconsistent, and a comprehensive framework to analyze the connection between customer loyalty and firm profits is still lacking. This paper fills this gap by proposing an analytical framework that characterizes how repeat-purchase loyalty is generated from consumer choice in a dynamic competition environment. It also examines the impact of brand preference and switching costs on firm profits and customer loyalty. Our findings suggest that strong brand preference can either increase or decrease customer loyalty, depending on the stability of consumer preferences over time, and when it increases loyalty, such loyalty is profitable for firms. Conversely, if customer loyalty is primarily driven by habitual buyers who are simply avoiding switching costs, this type of loyalty is not profitable for firms.

Keywords: dynamic competition; pricing; brand loyalty; switching costs; brand preference (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1287/mksc.2022.0109 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:44:y:2025:i:2:p:306-326

Access Statistics for this article

More articles in Marketing Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().