Buying free rewards: the impact of a points-plus-cash promotion on purchase and reward redemption

While many studies have investigated consumer purchase behavior in reward programs, a better understanding of customer redemption behavior is lacking, particularly when promotions affect a core aspect of reward programs—free rewards. In this paper, we examine the impact of a promotion on purchase and reward redemption in a reward program in which consumers can partially cover the cost of a free reward with their money. The literature on reward programs suggests a positive reinforcement caused by reward redemption, whereas the literature on promotion provides different views regarding the existence of a postpromotion dip. Using data from a major retailer’s reward program, we verify that such a promotion attracted customers with less transaction activity and shorter tenure. Interestingly, consumers using the promotion increased their preference for hedonic rewards compared to their previously observed behavior. This change in preference persisted after the promotion ended. Overall, the promotion significantly increased the number of redemptions but generated a negative impact on subsequent consumer behavior by decreasing purchase incidence and quantity. Our findings point to a need to understand the trade-off between spending money on buying an otherwise free reward and future regular purchases.

     

Designing successful temporary loyalty programs: An exploratory study on retailer and country differences

Retailers increasingly adopt temporary loyalty programs (TLPs), in which consumers have limited time, often less than half a year, to save stamps and redeem highly discounted rewards. These programs often run alongside the retailers’ permanent loyalty programs in an attempt to increase customer engagement. Despite the growing popularity of TLPs, the literature on the topic remains limited. We address this gap by looking at the redemption rate, the industry’s primary success indicator, of almost 900 TLPs across a broad set of grocery retailers in 45 countries. We study the effects of four key design characteristics (the duration of the program, the discount offered, the spending requirement before an award can be redeemed, and the reward depth) on the redemption rate, and explore how these effects vary across a broad range of retailer and country characteristics. In doing so, we control for both a retailer’s potential self-selection into running a TLP and the potential endogeneity of the subsequent design choices. We derive a set of actionable results on how to design successful TLPs and show that high redemption rates are not only beneficial for the program operator and reward manufacturer, but also translate into higher sales and profit for the retailer.     

Accumulation versus instant loyalty programs: The influence of controlling policies on customers' commitments

Loyalty reward programs play an important strategic role attracting and retaining customers. Surprisingly, reward redemptions receive minimal research attention. Despite widespread reward program offerings, evidence suggests customers increasingly abandon them due to controlling (restrictive) redemption policies, such as blackout dates. The present study considers controlling redemption policies' effect on consumer commitment levels for accumulation-based and instant loyalty programs across social and economic award types. A 2 (low/high controlling) × 2 (accumulation/instant program) × (social/economic rewards) design tests hypotheses informed by cognitive evaluation and rational choice theories. Results show firms employing accumulation programs with highly controlling policies should highlight their social rewards (e.g., a hotel with blackout dates on redeeming rewards would want to highlight their special lounges or dining areas); whereas, low controlling policies work best when offering financial rewards (e.g., free upgrades or percentages off). In instant programs, the type of reward generally does not influence consumers' commitment levels.     

Reward redemption effects in a loyalty program when customers choose how much and when to redeem

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 point 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 3094 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 do 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 point expiry and/or binding thresholds in order to enhance members' purchase behavior.     

The current and future sales impact of a retail frequency reward program

This research presents an empirical study of the impact of a retail frequency reward program on store sales. We examine both the “points pressure,” or short-term impact, and the “rewarded behavior,” or long-term impact. The points-pressure impact is due to forward-looking customers increasing their purchase levels in order to earn the reward. The rewarded-behavior impact is evidenced as purchases above baseline levels after an individual has received a reward and could result from either behavioral learning reinforcement or positive affect resulting from the reward. We investigate a turkey reward program that awarded free turkeys to shoppers who accumulated the required sales levels during an 8-week period. We find both a points-pressure and rewarded-behavior impact. These effects are statistically significant and managerially relevant in that the program is apparently profitable. The points-pressure impact is especially strong among customers who do not place value on frequent shopper programs that in general deliver immediate price discounts. The key implications are that frequency reward programs of the form, “buy x, then receive xx” can be profitable, are segmentation strategies, and can complement a store's overall frequent shopper program.     

“It's nice to get a wee treat if you've had a bad week”: Consumer motivations in retail loyalty scheme points redemption

Research into loyalty schemes focuses primarily on business (strategy) rather than consumer perspectives. This paper investigates consumer motivations in retail loyalty scheme points redemption, through a qualitative study of participants in a major UK retail loyalty scheme. Academic research tends to neglect investigation of points redemption, despite its probable significance to consumers and certain value to businesses. The research identifies planned behavior towards redemption goals, plus interruptions by various circumstances and events. Self-gifting for reward and/or therapy purposes is common. Redemption activities have positive implications for consumer perceptions of the scheme and the retailer and appear to enhance future purchasing behavior. From these findings, this paper draws implications for theory and practice.     

How Economic Tropes Affect Attitudes Toward Social Welfare Policies

We offer a framework for understanding public responses to social programs designed to alleviate disadvantages experienced by some sectors of the U.S. population. The framework is built on 2 key tropes of generalized exchange theory: mutuality and possessive individualism. Using the Affordable Care Act (ACA) as a public sector context, we show how marketing messages can be manipulated to affect consumer likelihood to participate in and support the public policy. Consistent with cognitive attitude models, we find that beliefs regarding individual and mutual benefits are significant, positive predictors of ACA attitudes. In contrast, when messages are framed with ideological economic tropes—possessive individualism or mutuality—ACA attitudes diverge. Priming possessive individualism negatively affects program attitudes relative to a mutuality prime or a no-prime control condition. We conclude with policy advice for those tasked with effective implementation of public sector programs.     

Frequency Marketing Programs

Frequency marketing programs, a type of long-term consumer sales program, have become extremely popular in recent years. However, a certain amount of confusion surrounds exactly what constitutes a frequency marketing program and how the pro- grams differ from other forms of promotion. A promotional frame- work is presented which classifies various types of consumer sales promotion. Frequency marketing is positioned as a subset of patron- age reward programs. Further, the researchers discuss the goals and defining guidelines for establishing successful programs. Four his- torical examples are included to illustrate the use of the programs.     

Analysis of free gift card program effectiveness

Retailers use various promotions, such as gift cards, to increase profits. When retailers give gift cards “free” to consumers who spend above specified thresholds in a single purchase, some consumers may buy more goods. We develop a model to derive the optimal purchase amount thresholds and gift card values. The model is developed for consumers without and then with a spending constraint. We find that the retailer's profit margin, the degree of forward buying and stockpiling, and use of gift cards in future purchases that would have been made with cash, are the most important factors in determining the profitability of gift cards. Gift cards may be very profitable for high-margin retailers who can limit the degree of forward buying and stockpiling, particularly when consumers use gift cards to buy goods they would not have bought from the retailer without gift cards. If this is how consumers use the gift cards, then consumers spending above the cards’ value at redemption can significantly increase their profitability. Without a consumer spending constraint, it is best for the retailer to offer at most one gift card at a large purchase amount. With a consumer spending constraint, it may be profitable to give gift cards at multiple purchase amount thresholds. We also show that the commonly observed policy of giving gift cards at equally spaced purchase amounts may be profitable when forward buying and stockpiling can be controlled. Moreover, we show that gift cards become more profitable when consumers are inconsistent, that is, they overestimate their probability of redeeming the gift card at purchase time. Finally, gift cards may have only a slight profit advantage over discounts if consumers are consistent. Consumer inconsistency and spending above the cards’ value increase this advantage.     

Tactical use of rewards to enhance loyalty program effectiveness

A key member benefit for participating in a loyalty program (LP) is the rewards earned for points accrued. One popular reward structure is a catalog of many diverse items. The rewards among this broad selection are likely to differ in their appeal due to their intrinsic differences and customer heterogeneity. Prior research has shown that after redeeming a reward, LP members are more motivated to increase their purchase volume/frequency and share-of-wallet within the program, thereby becoming more active. In this study, we fit a hidden Markov model to a 4½ year longitudinal data set of points accrual and reward redemption activity for about 4500 members of a large coalition LP. Our analysis reveals three latent states — active, hyperactive and inactive. We then investigate the likelihood of LP members transitioning between these states across successive time periods, and examine the reward categories and marketing effort associated with these transitions. Subsequently, we use our model to optimally promote particular reward categories to encourage LP member migration to managerially desirable states or prevent them sliding into a less desirable state. Our proposed optimal reward strategy potentially increases the estimated proportion of LP members in the hyperactive latent state from 35.7% to 40.1%, with a resultant increase in sales revenue for retailers and service providers in the LP of 7.7%. We find that rewards which are more fungible have the strongest influence on increasing points accrual activity.     

Cross-reward effects in a coalition loyalty program: The impact of a point currency devaluation

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.     

The effects of mobile promotions on customer purchase dynamics

While mobile promotions have become increasingly popular in recent years, limited research has examined the effects of mobile promotions over time. This research investigates the effects of two popular types of promotional offers, price discount and non-price free sample coupons, on purchase behavior. To this end, we present a dynamic model of customer purchase behavior that incorporates time-varying effects of mobile coupons, enabling us to investigate both the short-term and longer-term effects of mobile promotions. Using transaction and mobile promotion data, we find that both price discount and free sample coupons increase customers' purchase likelihood and expenditures during the coupon redemption period. We also find that free sample coupons have an enduring effect that increases the purchase propensity beyond the promotion period, thereby contributing to incremental purchases over a longer period of time. We demonstrate how our approach can help marketers improve mobile couponing decisions by considering the dynamic effects of mobile promotions that manifest over time.     

Price discrimination through multi-level loyalty programs

Loyalty programs often feature multiple rewards with different requirements; for instance, an airline offering a free domestic ticket for 10 K miles, and an international ticket for 20 K miles. This research focuses on the role of multi-level rewards as a segmentation and price discrimination mechanism: Multi-level rewards can increase firm profits when buyers differ in purchase frequency and/or time discount factor. We propose that a program with two rewards can be designed in such a way that (i) it is more profitable than a one-reward program, and (ii) buyers self-select. Light users prefer to receive the smaller reward two times over receiving the larger reward one time, even though the smaller reward is less than half of the larger reward. We show that the smaller reward helps the firm enlarge its base in the light user segment. We also compare multi-level programs with quantity discounts.     

Do reward programs build loyalty for services?: The moderating effect of satisfaction on type and timing of rewards

While reward programs have been widely used as a means to engender customer loyalty, it is not clear if the ends are justified. Some researchers argue that we do not fully understand the mechanism underlying reward programs and how it affects consumer acceptability of such programs. In this study, we examine two variables; timing (immediate vs. delayed) and type (direct vs. indirect) of rewards in two service conditions (satisfied vs. dissatisfied). We conduct the experiment in two service settings and the results indicate that when consumers are satisfied, they prefer delayed, direct rewards (of higher values) to immediate, direct rewards. However, when consumers are dissatisfied, they prefer immediate, direct rewards to delayed, direct rewards (of higher values). Interestingly, the preference for direct over indirect rewards is apparent only if the rewards are delayed (for the satisfactory service experience) or immediate (for the dissatisfactory service experience).     

A replication study of the credit card effect on spending behavior and an extension to mobile payments

Prior research has shown that credit cards increase spending behavior as measured by the willingness to pay (WTP) or basket value. This research aims to replicate the credit card effect and to extend this effect to mobile payments. In four empirical studies, of which three online studies and one lab study (total n = 692), we manipulated payment methods (i.e., cash, credit cards, and mobile payments) and measured spending behavior (i.e., WTP and basket value). Across four studies, we did not replicate the credit card effect on either measure of spending behavior, suggesting the effect in the literature may be inflated or may have been fading away. A meta-analysis of the relevant literature revealed the expected credit card effect but also showed that the credit card effect has become weaker through the years and that this effect is contingent on the location of data collection. We also did not find evidence that the credit card effect extends to mobile payments on either measure of spending behavior in the three online studies. However, we found a significant difference between mobile payments and cash on the basket value measure (but not for the WTP measure) in the lab study. This paper also explored whether the pain of payment or payment convenience may be a mechanism underlying the relationship between payment methods and spending behavior. Although the pain of payment tended to be lower and the payment convenience tended to be higher for mobile payments, these effects did not translate into more spending behaviors.     

What factors determine e-satisfaction and consumer spending in e-commerce retailing?

Evidently, the Internet has resulted in a fundamental shift in retailing practice, creating a shift in both consumer and business behavior, which has been compared to that of the Industrial Revolution. The purpose of this paper is to analyze customer satisfaction in e-commerce market. In particular, we determine the factors that affect customer e-satisfaction and the relationship between customer satisfaction and consumer spending in e-commerce retailing. We focus on how American based e-commerce firms are impacted by these developments and how marketing practices have reflected the developing e-commerce situation. The results show that customer satisfaction does have an impact on consumer spending in American based e-commerce retailers. Further, the relationship between customer satisfaction and consumer spending is positive, where higher e-satisfaction results in more spending in e-commerce. The results also show that there is a direct relationship among e-service quality, e- satisfaction and e-loyalty in terms of online spending by consumers. However, the analysis shows that e-commerce still faces challenges compared with traditional offline retailers since customers cannot feel and try the products, and may end up choosing the products that they do not want.     

Determinants of Consumer Perceptions toward Mobile Advertising — A Comparison between Japan and Austria

Mobile marketing provides an innovative channel for transmitting advertising messages to customers via mobile devices. The growth of mobile advertising in recent years requires that researchers and practitioners understand consumer perceptions of this form of advertising. The purpose of this paper is to investigate factors influencing the perception of mobile advertising in different cultures. Based on samples from Austria and Japan, we empirically examine relevant m-advertising effects. The results suggest that infotainment and credibility are key factors predicting advertising value among Austrians and the Japanese. However, our findings show that Japanese customers are more irritated by mobile advertising than are Austrian respondents.     

The effect of weather on consumer spending

There has been a great deal of anecdotal evidence to suggest that weather affects consumer decision making. In this paper, we provide empirical evidence to explain how the weather affects consumer spending and we detail the psychological mechanism that underlies this phenomenon. Specifically, we propose that the effect of weather – and, in particular, sunlight – on consumer spending is mediated by negative affect. That is, as exposure to sunlight increases, negative affect decreases and consumer spending tends to increase. We find strong support for this prediction across a series of three mixed methods studies in both the lab and the field.     

Brand in the hand: A cross-market investigation of consumer acceptance of mobile marketing

Given the great potential of developing marketing campaigns delivered via mobile devices and the evolution of near-field communication technologies, this study examines factors influencing consumers’ acceptance of untethered, or mobile, marketing across three influential markets: the United States, China, and Europe. We examine the extent to which the usefulness of mobile information/programs and individual characteristics—namely innovativeness, personal attachment, and risk avoidance—jointly influence attitudes toward mobile marketing, and how the latter influences consumers’ mobile marketing activity across three large and influential markets. We found perceived usefulness, consumer innovativeness, and personal attachment to directly influence attitudes toward mobile marketing in all three markets. In China and Europe, risk avoidance also negatively influences attitudes toward mobile marketing. Marketers seeking to build and maintain customer relationships via mobile platforms should view these individual characteristics as levers brands can push to amplify consumers’ acceptance of mobile marketing.