Reward Redemption Effects in a Loyalty Program When Customers Choose How Much and When to Redeem

Forthcoming, International Journal of Research in Marketing (IJRM)

58 Pages Posted: 13 Jun 2014

See all articles by Matilda Dorotic

Matilda Dorotic

BI Norwegian Business School, Department of Marketing

Peter C. Verhoef

University of Groningen - Department of Marketing & Marketing Research

D. Fok

Econometric Institute - Erasmus University Rotterdam; Erasmus Research Institute of Management (ERIM); Tinbergen Institute Rotterdam

Tammo H.A. Bijmolt

University of Groningen - Department of Marketing & Marketing Research

Date Written: June 12, 2014

Abstract

The redemption of loyalty program (LP) rewards has an important impact on LP members’ behavior, particularly on purchase behavior before and after redeeming a reward. However, little is known about the interplay between members’ purchase and redemption behavior when members are not pressured with points expiration and they choose for themselves when and how much to redeem. In this context, the effects of redemption are not straightforward, as little additional effort is required from an LP member to obtain the reward. Analyzing the behavior of 3,094 members in such an LP, we find that the mere decision to redeem a reward significantly enhances purchase behavior before and after the redemption event, even when members redeem just a fraction of their accumulated points. Conceptually, we refer to this enhancement as the redemption momentum, which is an alternative and novel explanation of the existence of pre-reward effects that does not depend on points-pressure. In addition to the overall impact of redemption on purchases, prior purchase behavior also enhances redemption decisions. Finally, we find a number of moderating effects on purchase and redemption behavior that derive from the length of LP membership, age, income and direct mailings. Our study’s most important managerial implication is that firms should avoid imposing binding thresholds and/or points expiry to enhance members’ purchase behavior.

Keywords: Customer Relationship Management, Loyalty program, Customer loyalty, Reward redemption, Purchases, Points pressure, Rewarded behavior, Direct mailings

JEL Classification: M00

Suggested Citation

Dorotic, Matilda and Verhoef, Peter C. and Fok, Dennis and Bijmolt, Tammo H.A., Reward Redemption Effects in a Loyalty Program When Customers Choose How Much and When to Redeem (June 12, 2014). Forthcoming, International Journal of Research in Marketing (IJRM). Available at SSRN: https://ssrn.com/abstract=2449194

Matilda Dorotic (Contact Author)

BI Norwegian Business School, Department of Marketing ( email )

Nydalsveien 37
Oslo, 0442
Norway

Peter C. Verhoef

University of Groningen - Department of Marketing & Marketing Research ( email )

Netherlands

Dennis Fok

Econometric Institute - Erasmus University Rotterdam ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1333 (Phone)
+31 10 408 9162 (Fax)

Tinbergen Institute Rotterdam ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tammo H.A. Bijmolt

University of Groningen - Department of Marketing & Marketing Research ( email )

Nettelbosje 2
Groningen, 9747 AE
Netherlands

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