Loyalty programs: impact of marketing channels and customer relationship characteristics

Chen Li

doi:10.17918/00000750

Organizations employ loyalty programs to entice customers to repurchase their products and services. One popular promotional tool is the award of loyalty points. For this promotion to be effective, customers need to redeem these points. Currently, researchers opine that all customers tend to stockpile their points instead of redeeming them. In this dissertation, we extend the understanding of customers' point redemption behavior from the firm side, the customer side, and the competitor side. In the chapter titled "The Role of Marketing Channels in Consumers' Promotional Point Redemption Decisions," we investigate how firms can motivate the point redemption behavior in a two-stage decision framework. In the first stage, customers decide whether to redeem points in their transactions. In the second stage, customers consider how many points to redeem after choosing to redeem points in the first stage. In the first stage, we propose that customers are more likely to redeem points from the personal computer (PC) channel compared to the mobile channel due to the lower perceived risk in the PC channel. In the second stage, customers will redeem more points from the mobile channel compared to the PC and brick-and-mortar (B&M) channels due to the higher perceived convenience of the mobile channel. In the chapter titled "The Role of Customer-Firm Relationship in Loyalty Program's Effectiveness: A Point Redemption Perspective," we examine the connection between customers' relationship characteristics (i.e., length, depth, cross-category breadth, and within-category breadth) in a coalition loyalty program and their point redemption behavior. We find that the four relationship characteristics have different influences on point redemption behavior. The impact of relationship length on the point redemption probability is positive, while the effect of relationship depth is negative. Cross-category negatively affects the point redemption probability but does not affect the conditional number of points redeemed. Within-category breadth also negatively affects the redemption probability but positively impacts the conditional number of points redeemed. In the chapter titled "Interaction of Point Redemption and Cash Sales in Coalition Loyalty Program," we discuss the impact of the competing stores' sales within a coalition loyalty program on the focal store's cash sales and point redemption. We employ a dynamic model that accounts for store heterogeneity and state dependence in sales. Our findings imply that firms should encourage customers to cross-buy in the coalition loyalty program but discourage cross-redeem and that stores belonging to the same chain brand should coordinate with each other in sales promotions. Also, firms need to reward customers for their loyalty in redeeming points at the same store to minimize sales cannibalization among the partner stores.

Loyalty programs: impact of marketing channels and customer relationship characteristics

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Loyalty programs: impact of marketing channels and customer relationship characteristics

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