New Insights From Emerging Types of Retail Loyalty Programs

In a standard loyalty program, a single retailer offers rewards to customers who stockpile points up to a certain amount. While research on these archetypal loyalty programs is vast, there is an increasing trend for companies to adopt reward programs that do not explicitly incentivize customers to return in order to “cash-in” rewards. Two examples are linear and coalition reward programs. In a linear program, points can be redeemed at anytime for any amount. In a coalition program, points can be earned and redeemed across several partner retail stores. A chapter titled “Stockpiling Points in Linear Loyalty Programs”, uses transaction data from a linear loyalty program in Latin America to examine why customers tend to stockpile points for long periods of time, despite economic incentives against doing so (i.e., time value of money). A mathematical model of redemption choice posits three explanations for why customers seem to be motivated to stockpile on their own, even though the retailer does not reward them for doing so: economic (value of forgone points), cognitive (nonmonetary transaction costs), and psychological. The psychological motivation is captured by allowing customers to book cash and point transactions in separate mental accounts. The results indicate substantial heterogeneity in how customers are motivated to redeem and suggest that behavior in the data is driven mostly by cognitive and psychological incentives. A chapter titled “Market positioning in a coalition loyalty program: the value of a shared reward currency” uses a model of multi-store purchase incidence to infer the market positioning among popular partners of a coalition loyalty program. The model shows how the value of a rewards currency that is shared among partner stores can explain patterns in customer-level purchases across the stores, and how these reward spillovers are driven by (1) differences in reward redemption policies among the partners, (2) product category overlap between stores and (3) geographic distance between them. By leveraging a devaluation of the program\u27s points that occurred in our observation period, we demonstrate how the value of coalition points influences the positioning of partner stores within the network

Refocusing Loyalty Programs in the Era of Big Data: A Societal Lens Paradigm

Big data and technological change have enabled loyalty programs to become more prevalent and complex. How these developments influence society has been overlooked, both in academic research and in practice. We argue why this issue is important and propose a framework to refocus loyalty programs in the era of big data through a societal lens. We focus on three aspects of the societal lens-inequality, privacy, and sustainability. We discuss how loyalty programs in the big data era impact each of these societal factors, and then illustrate how, by adopting this societal lens paradigm, researchers and practitioners can generate insights and ideas that address the challenges and opportunities that arise from the interaction between loyalty programs and society. Our goal is to broaden the perspectives of researchers and managers so they can enhance loyalty programs to address evolving societal needs

Market Positioning Using Cross-Reward Effects in a Coalition Loyalty Program

While single-brand reward programs encourage customers to remain loyal to that one brand, coalition programs encourage customers to be “promiscuous” by offering points redeemable across partner stores. Despite the benefits of this “open relationship” with customers, store managers face uncertainty as to how rewards offered by partners influence transactions at their own stores. We use a model of multi-store purchase incidence to show how the value of points shared among partner stores can explain patterns in customer-level purchases across them. The model is used to empirically test hypotheses on how reward spillovers among partners are driven by: (1) differences in policies on reward redemption, (2) the overlap in product categories between stores, and (3) geographic distance between stores within a city. In addition, we leverage variation generated by a natural experiment, i.e., a devaluation of the program's points, to demonstrate how the value of points influences the positioning of partner stores within the coalition and the purchasing patterns across them. We conclude by delineating some managerial implications for the design of a coalition's reward policies, including a simulation showing that customer-centric targeted rewards can be an effective strategy to compensate for the devaluation

Refocusing loyalty programs in the era of big data: a societal lens paradigm

status: publishe