Comparing the Effectiveness of Rewards and Individually Targeted Coupons in Loyalty Programs

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See all articles by Sebastian Gabel

Sebastian Gabel

Humboldt University of Berlin - School of Business and Economics

Daniel Guhl

Humboldt University of Berlin - School of Business and Economics

Date Written: August 16, 2021

Abstract

Loyalty programs (LP) and rewards are ubiquitous in retailing, designed to increase customer expenditures and retention, gather abundant customer-level data, and design individually targeted coupons. Although studies have analyzed the individual impacts of LP rewards and targeted coupons on shopping trip incidence and expenditures, they have not compared the two instruments. By investigating the LP of a leading German grocery retailer that uses both LP rewards (points to redeem for free products) and individually targeted coupons, the current study establishes a comparison of their profitability and relative contributions to increasing shopping trips and expenditures. The investigated LP also relies on in-store kiosks to interact with customers, so they can decide when to redeem LP points and request coupons. By jointly modeling the effects of LP point redemptions and coupons on shopping trip incidence and expenditures, using their decision to access the kiosk as a dependent variable and rich data that span thousands of customers over 60 weeks, this study reveals that both instruments increase shopping trip incidence, kiosk access, and expenditures. The LP point redemptions have a stronger effect on shopping trip incidence; coupons have a stronger effect on kiosk access. Although a single redemption of LP points leads to a greater increase in expenditures than a single coupon redemption (€1.46 vs. €0.48), coupons yield three times greater expenditures after controlling for usage frequency; lower discounts also contribute to coupons’ higher profitability. Therefore, LP point redemptions and individually targeted coupons are complementary tools for retailers. This empirical study provides practical insights and pertinent managerial implications regarding the management and design of modern LPs.

Keywords: loyalty programs, loyalty program rewards, targeted coupons, dummy endogenous variable

Suggested Citation

Gabel, Sebastian and Guhl, Daniel, Comparing the Effectiveness of Rewards and Individually Targeted Coupons in Loyalty Programs (August 16, 2021). Available at SSRN: https://ssrn.com/abstract=

Sebastian Gabel (Contact Author)

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

Daniel Guhl

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

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