Stockpiling Points in Linear Loyalty Programs

Stourm, Valeria, Eric T. Bradlow, and Peter S. Fader (2015), “Stockpiling Points in Linear Loyalty Programs," Journal of Marketing Research, 52 (2), 253-267.

Posted: 7 Sep 2012 Last revised: 22 Nov 2017

See all articles by Valeria Stourm

Valeria Stourm

HEC Paris

Eric Bradlow

University of Pennsylvania - Marketing Department

Peter Fader

University of Pennsylvania - Marketing Department

Date Written: August 26, 2014

Abstract

Customers often stockpile reward points in linear loyalty programs (i.e., programs that do not reward stockpiling) despite several economic incentives against it (e.g., the time value of money). We develop a mathematical model of redemption choice that unites three explanations for why customers seem to be motivated to stockpile on their own, even though the retailer does not reward them whatsoever for doing so. These motivations are economic (the value of foregone points), cognitive (non-monetary transaction costs), and psychological (customers value points differently than cash). The psychological motivation is captured by allowing customers to book cash and point transactions in separate mental accounts.

The model is estimated on data from an international retailer using Markov Chain Monte Carlo methods and is shown to accurately forecast redemptions during an 11-month out-of-sample period. The results indicate substantial heterogeneity in how customers are motivated to redeem, and suggest that the behavior in our data is driven mostly by cognitive and psychological incentives.

Keywords: loyalty programs, mental accounting

Suggested Citation

Stourm, Valeria and Bradlow, Eric and Fader, Peter, Stockpiling Points in Linear Loyalty Programs (August 26, 2014). Stourm, Valeria, Eric T. Bradlow, and Peter S. Fader (2015), “Stockpiling Points in Linear Loyalty Programs," Journal of Marketing Research, 52 (2), 253-267., Available at SSRN: https://ssrn.com/abstract=2142482 or http://dx.doi.org/10.2139/ssrn.2142482

Valeria Stourm (Contact Author)

HEC Paris ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Eric Bradlow

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States
215-898-8255 (Phone)

Peter Fader

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States

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