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

Author

Listed:
  • Valeria Stourm
  • Eric Bradlow
  • Peter Fader

    (University of Pennsylvania)

Abstract

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.

Suggested Citation

  • Valeria Stourm & Eric Bradlow & Peter Fader, 2017. "Market Positioning Using Cross-Reward Effects in a Coalition Loyalty Program," Working Papers hal-02068352, HAL.
  • Handle: RePEc:hal:wpaper:hal-02068352
    DOI: 10.2139/ssrn.3075129
    as

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    Citations

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    Cited by:

    1. Danaher, Peter J. & Sajtos, Laszlo & Danaher, Tracey S., 2020. "Tactical use of rewards to enhance loyalty program effectiveness," International Journal of Research in Marketing, Elsevier, vol. 37(3), pages 505-520.
    2. Valeria Stourm & Scott A. Neslin & Eric T. Bradlow & Els Breugelmans & So Yeon Chun & Pedro Gardete & P. K. Kannan & Praveen Kopalle & Young-Hoon Park & David Restrepo Amariles & Raphael Thomadsen & Y, 2020. "Refocusing loyalty programs in the era of big data: a societal lens paradigm," Marketing Letters, Springer, vol. 31(4), pages 405-418, December.
    3. Wayne Taylor & Brett Hollenbeck, 2021. "Leveraging loyalty programs using competitor based targeting," Quantitative Marketing and Economics (QME), Springer, vol. 19(3), pages 417-455, December.

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