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

42 Pages Posted: 27 Nov 2017 Last revised: 1 Dec 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: November 20, 2017

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.

Keywords: loyalty programs, rewards, retailing, Bayesian estimation

JEL Classification: M31, C11

Suggested Citation

Stourm, Valeria and Bradlow, Eric and Fader, Peter, Market Positioning Using Cross-Reward Effects in a Coalition Loyalty Program (November 20, 2017). HEC Paris Research Paper No. MKG-2017-1242, Available at SSRN: https://ssrn.com/abstract=3075129 or http://dx.doi.org/10.2139/ssrn.3075129

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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