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

The Impact of Brand Quality on Shareholder Wealth

This study examines the impact of brand quality on three components of shareholder wealth: stock returns, systematic risk, and idiosyncratic risk. The study finds that brand quality enhances shareholder wealth insofar as unanticipated changes in brand quality are positively associated with stock returns and negatively related to changes in idiosyncratic risk. However, unanticipated changes in brand quality can also erode shareholder wealth because they have a positive association with changes in systematic risk. The study introduces a contingency theory view to the marketing-finance interface by analyzing the moderating role of two factors that are widely followed by investors. The results show an unanticipated increase (decrease) in current-period earnings enhances (depletes) the positive impact of unanticipated changes in brand quality on stock returns and mitigates (enhances) their deleterious effects on changes in systematic risk. Similarly, brand quality is more valuable for firms facing increasing competition (i.e., unanticipated decreases in industry concentration). The results are robust to endogeneity concerns and across alternative models. The authors conclude by discussing the nuanced implications of their findings for shareholder wealth, reporting brand quality to investors, and its use in employee evaluation

The Economic Viability of Frequency Reward Programs in a Strategic Competitive Environment

We examine the conditions that enhance the economic viability of frequency reward programs in a strategic competitive environment. We focus particularly on conditions related to consumer behavior, namely the extent to which consumers value the future benefits offered by the reward, the expandability of the category, and consumers’ preferences for competing brands. Consumers maximize utility over a long-term time horizon, taking into account the value of the reward. Two firms maximize profits over a long-term time horizon. They first decide between implementing a frequency reward program or a traditional pricing policy (a constant price), and then decide on the specific prices. We numerically solve for the sub-game perfect equilibrium for this two-stage game. We find that a brand is more likely to find reward programs to be viable strategies if consumers value future benefits, if reward programs can expand the market, and if the brand has a higher preference. The market expandability finding is particularly interesting. If the sales increases generated by reward programs represent category growth, the power of frequency reward programs makes them an effective vehicle for generating profits. However, if gains come mainly from competitors, the power of frequency reward programs precipitates a strong competitive response that erodes profits in a classic prisoner’s dilemma. We use the airline industry to explore our market expandability finding. We find evidence that the “major†airlines introduced reward programs to counter-act a stronger outside category (new entrants), and in doing so, they expanded their market.Pricing; Frequency Reward Programs; Dynamic Decision Models; Switching Costs

The impact of collinearity on regression analysis: the asymmetric effect of negative and positive correlations

The purpose of this paper is to ascertain how collinearity in general, and the sign of correlations in specific, affect parameter inference, variable omission bias, and their diagnostic indices in regression. It is found that collinearity can reduce parameter variance estimates and that positive and negative correlation structures have an asymmetric effect on variable omission bias. It is also shown that the effects of collinearity are moderated by the relationship between the dependent variable and the regressors, a consideration not incorporated into most commonly used collinearity diagnostics. The formulae derived enable researchers to assess the sensitivity of regression results to the underlying correlation structure in the data.

A dynamic structural model of the impact of loyalty programs on customer behavior. Management Sci. Forthcoming

Abstract We develop and estimate a dynamic structural model to determine the impact of frequency reward and customer tier components of a loyalty program on customer behavior. The contribution of this paper is: (i) we provide an integrated analysis and measurement of the impact of two critical components of a loyalty program; (ii) we develop a comprehensive model that incorporates key phenomena such as customers' purchase and cash-in decisions, rewarded behavior, state dependence, heterogeneity, and forward-looking behavior; and (iii) our substantive results enable us to answer questions such as the strength of response to frequency reward and customer tier programs, level of heterogeneity, and the corresponding policy implications. We estimate our model using data from an airline's loyalty program. Our findings are that a two-segment solution fits the data best both in estimation and validation samples, revealing a "service-oriented" segment that attaches a net negative value to the frequency reward but highly values the customer tier component, and a "deal prone" segment that values both frequency reward and customer tier programs.. We illustrate the points pressure and rewarded behavior effects and find that while both program components increase the number of paid flights, the paid no cash-in flights decrease under the frequency reward program