Cross-Reward Effects in a Coalition Loyalty Program: The Impact of a Point Currency Devaluation

Forthcoming at International Journal of Research in Marketing

HEC Paris Research Paper No. MKG-2017-1242

46 Pages Posted: 27 Nov 2017 Last revised: 7 Jul 2022

See all articles by Valeria Stourm

Valeria Stourm

HEC Paris

Eric Bradlow

University of Pennsylvania - Marketing Department

Date Written: July 7, 2022

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 and spend to show how the value of points shared among partner stores can explain patterns in customer-level purchases across them. We also allow reward spillovers to be moderated by three measures of store affinity that characterize a coalition's portfolio: the relative popularity, geographic distance, and overlap in product categories between each pair of stores.

For the coalition studied, popularity affinity was the main determinant of the valence of cross-reward effects, both before and after the devaluation. In contrast, category and geographic affinity had a smaller and more heterogenous impact. Through the use of an event where the loyalty program uniformly devalued the entire coalition's value of reward points, we show that cross-reward effects changed (lessened), leading to larger financial losses for the most popular stores. While we do not observe changes to the composition of the coalition's portfolio, our results also suggest that the value of a shared reward currency may be driven by the inclusion of smaller partners.

Keywords: loyalty programs, rewards, retailing, Bayesian estimation

JEL Classification: M31, C11

Suggested Citation

Stourm, Valeria and Bradlow, Eric, Cross-Reward Effects in a Coalition Loyalty Program: The Impact of a Point Currency Devaluation (July 7, 2022). Forthcoming at International Journal of Research in Marketing, 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)

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