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.     

Is the Daily Deal Social Shopping?: An Empirical Analysis of Customer Panel Data

Shortly after Groupon started its business in 2008, selling one deal a day with substantial price discounts, daily-deal sites became new online shopping places for many people. Starting with Groupon, most daily-deal sites required that voucher sales be higher than a predetermined number before deals become active. This feature, known as the “tipping point,” was a unique characteristic of the daily-deal business and is identified as one of the most prominent features of social shopping. Most daily-deal sites also required that a redemption period start after a deal was over and be fixed, usually 90 days, presumably to maximize the promotional effect of deals by encouraging rapid voucher redemption. The question remains, however, whether such features actually contributed to the success of the daily-deal industry. Using individual-level panel data from a major daily-deal site in Korea, we analyze whether consumers' purchase and redemption behaviors were affected by these features and how consumers changed their behaviors as they continued to purchase and redeem vouchers over time. We find that the presence of the tipping point did not boost voucher sales and likely deterred new customers from buying deals right away. We also find that new customers tended to redeem their vouchers quickly, and this likely caused the small businesses that offered deals to become overwhelmed. It is not surprising, given our findings, that both Groupon and the Korean daily deal site abandoned the use of the tipping point and modified redemption rules.     

Redemption time for coupons with limited duration: role of regulatory focus and product type

Firms spend a lot on coupon promotions and are concerned with their profitability. The characteristics of coupons are associated with success of coupon promotions. This research explores how consumer’s regulatory focus (promotion vs. prevention) and product type (material vs. experience) affect when consumers prefer to redeem coupons (coupon redemption time). Results from two studies show that people’s prevention goal strength is negatively related to redemption time consumers prefer. Besides, a fit between people’s regulatory focus and product type leads to earlier redemption than unfit condition. Specifically, experiential purchases are compatible with promotion-focused consumers and material purchases are compatible with prevention-focused consumers. We discuss the findings in the contexts of coupon research and theory on regulatory focus, and further posit managerial implications for the design of coupon promotions or other marketing activities with limited duration.     

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.

     

The Effects of Impression Management on Coupon Redemption across Cultures

This research examines the effects of impression management on consumers’ coupon redemption and suggests different underlying mechanisms with respect to cultural self‐construal. Four studies show that, when primed with impression management, individualistic (vs. collectivistic) consumers are more likely to redeem coupons, because individualists believe that coupon redemption creates the impression of being smart. On the other hand, collectivistic consumers are less likely to redeem coupons when coupon usage is visible to others, because they believe that coupon redemption gives the impression of being cheap. These findings are explained within the context of cultural self‐construal and regulatory focus theory.     

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.     

Category-specific coupon proneness: The impact of individual characteristics and category-specific variables

In seeking to enhance the effectiveness of coupon promotions, researchers have long sought to identify “coupon prone” consumers. Previous measures of coupon proneness have not examined differences in coupon usage across product categories and have ignored the confounding effect of coupon attractiveness. An Item Response Theory (IRT)-based framework overcomes these limitations and yields category-specific estimates of propensity to redeem coupons that are independent of coupon attractiveness. The authors utilize an IRT-based model to estimate consumers’ category-specific propensities to redeem coupons for two product and two service categories, and investigate how coupon proneness varies across consumers and across categories as a function of individual characteristics and category-specific variables.The authors find that category-specific measures of propensity to redeem coupons achieve an average accuracy of 89 percent in predicting redemption intentions. Propensity to redeem coupons is also found to be related to category-specific brand loyalty and perceived coupon availability, as well as to individual characteristics such as general coupon proneness, value consciousness and price consciousness. These findings highlight the importance of studying coupon proneness at the category level and suggest that the IRT-based approach has considerable promise as a methodology for studying coupon usage. Using the approach proposed in this study, marketers can forecast the impact coupons are likely to have in their particular category, rather than relying on general coupon proneness measures to predict coupon redemption rates at the category level. The study's findings can also be used to identify categories and consumer segments where coupon promotions are likely to have a larger impact, and have important implications for managers planning joint couponing strategies.     

Coupon face value: Its impact on coupon redemptions,brand sales,and brand profitability

Although much research has examined the impact of coupons on redemption rates, incremental sales, and market share, only a few studies have addressed the impact of coupons on brand profitability. One possible reason is lack of readily available profitability data. In the absence of such data, researchers have used managerial judgments (Neslin and Shoemaker, 1983) and experiments (Chapman, 1986) to investigate the profitability of coupons. We propose an integrative framework for evaluating the impact of coupon face value on brand profitability and implement it by using readily available scanner data. The research reveals that when a manufacturer optimizes the market-level profitability from a coupon program, profit for individual chains in the market could be suboptimal.     

Consumer responses to mobile coupons: The roles of shopping motivation and regulatory fit

Retailers increasingly use mobile coupon services to deliver promotional offers to consumers. This paper draws on the theory of regulatory focus to explain mobile coupon redemption. The paper proposes that redemption depends on the extent to which a mobile coupon requires consumers to divert from their focal shopping motivation. Regulatory fit, the perception of receiving an offer that is relevant to consumers' regulatory goals, mediates this divergence effect, but only for utilitarian shoppers. Results from two scenario experiments support the main hypothesis and show that utilitarian shoppers perceive greater regulatory fit when an offer is compatible with their focal shopping motivation. In contrast, hedonic shoppers perceive no difference in regulatory fit when an offer diverts them from their focal shopping motivation. This explains why hedonic shoppers redeem a wider variety of offers than utilitarian shoppers and why utilitarian shoppers require more personalization to generate coupon redemption.     

Antecedents of Coupon Proneness: A Key Mediator of Coupon Redemption

Coupons increase the buying power of consumers. Businesses use coupons to increase sales, new products adoption, and repeat buying. Billions of coupons are distributed annually via different methods. However, consumers redeem only a small fraction of these, thereby forgoing the potential cost savings. The authors investigated several factors that motivate coupon redemption. The data were obtained by surveying 353 U.S. consumers. Price consciousness, pride, and satisfaction in using coupons, and value consciousness were found to increase coupon use. The perception that the savings are not worth the effort decreased their use. The results suggest ways for managers to boost coupon use.     

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.     

Managing loyalty program communications in the digital era: Does culture matter?

This research addresses an important, yet under-researched, issue concerning the real-time management of loyalty programs (LPs) in the digital era: how to leverage culture-specific communications to motivate LP members to pursue and redeem program rewards. Two experimental studies in different LP contexts provide corroborating evidence that to-date (to-go) progress feedback is more effective in motivating consumers from individualist (collectivist) cultures to pursue LP rewards. Moreover, process evidence suggests that these culture-specific progress framing effects are driven by individual differences in regulatory focus and realized through perceived reward attainability. Overall, this paper contributes to the LP and goal pursuit literatures by verifying that communication framing is an effective means to strengthen reward pursuit motivation.     

Estimating the effects of higher coupon face values on the timing of redemptions,the mix of coupon redeemers,and purchase quantity

One of the key decisions a manager must make in designing a coupon promotion is to decide on the face value. In this study we examine the effects of higher face values on coupon redemption timing, category purchase timing, the mix of buyers who redeem the coupon, and purchase quantity. Data from a field experiment on coupon face values are used to test the hypotheses. A new method of measuring the effects of a coupon on category purchase timing is proposed. We find that coupons per se tend to advance category purchase timing, but higher face values do not increase the magnitude of this effect. Surprisingly, higher face values appear to increase redemption rates for both the prior nonbuyers and prior buyers of the brand in a similar way. However, higher face values have little effect on the package size purchased, the number of units purchased, or the total quantity (package size times units) purchased.     

The impact of the introduction and use of an informational website on offline customer buying behavior

Do customers increase or decrease their spending in response to the introduction of an informational website? To answer this question, this study considers the effects of the introduction and use of an informational website by a large national retailer on offline customer buying behavior. More specifically, we study a website's effects on the number of shopping trips and the amount spent per category per shopping trip. The model is calibrated through the estimation of a Poisson model (shopping trips) and a type-II tobit model (the amount spent per category per shopping trip), with effect parameters that vary across customers. For the focal retailer, an informational website creates more bad than good news; most website visitors engage in fewer shopping trips and spend less in all product categories. The authors also compare the characteristics of shoppers who exhibit negative website effects with those few shoppers who show positive effects and thus derive key implications for research and practice.     

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.     

The impact of mobile app adoption on physical and online channels

The authors investigate the impact of customers’ mobile app adoption on grocery shopping behaviors. Specifically, they investigate the cannibalization of existing physical and online channels by the newly adopted mobile app and evaluate changes in households’ total expenditures at the focal chain. They find that households adopting the mobile app marginally decrease their spending in physical stores, but considerably increase their expenditures and shopping trips through the mobile app. They present evidence that the mobile app plays a synergistic role for customers who never used a digital shopping channel. Lastly, the authors find a competitive encroachment effect by the mobile app. They find the impact of mobile app adoption is greater in markets where the focal chain faces more intense competition from a nearby competitor.     

The effects of constrained mobile coupons in the mobile channel

Despite the popularity of constrained mobile coupons in recent years, little research has examined their effectiveness. This paper presents a hidden Markov model (HMM) framework to examine the short-term and long-term effectiveness of minimum-threshold coupons (i.e., threshold-constrained coupons) and limited-time, low-price coupons (i.e., time-constrained coupons). We find that both of them boost consumers' purchase probability during the coupon redemption period. Furthermore, minimum-threshold coupons not only increase consumers’ purchase quantity during the redemption period, but also improve the customer-firm relationship beyond the redemption period. By contrast, limited-time, low-price coupons strengthen the customer-firm relationship only for consumers in a higher relationship state but not a lower relationship state. This study can help marketers allocate limited marketing resources effectively, strengthen and manage the relationship between consumers and firms, and increase product sales.     

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.     

Do Promotions Increase Store Expenditures? A Descriptive Study of Household Shopping Behavior

An important question for retailers is whether promotions induce households to increase their in-store expenditures or merely reallocate a predetermined shopping budget. Should expenditures be fixed, retailers might decrease their profitability when running promotions by displacing expenditures from high margin to lower margin products. Using household level store receipts and an extended AIDS model, we provide evidence that while household expenditures do increase with promotions, there is also a significant reallocation of expenditures among the different categories. This implies that retailers have to choose carefully which products are promoted, if promotions are to increase profits.     

Regret and nonredemption of daily deals: Individual differences and contextual influences

The growth of online daily deal price promotions and the resulting consumer nonredemption of daily deal coupons is worthy of understanding from a psychological lens of nonconsumption. Whereas there is an emerging literature on daily deals and established literature on barriers to redemption, there exists a gap in where this scholarship intersects. This study provides a conceptual model explaining why consumers purchase daily deal coupons and do not redeem them. We explain consumers’ reasons for buying a daily deal upfront along with their reasons for not using it from theoretical lenses of reasons theory and social motivations theory. On testing the model empirically with qualitative and deepening insight via quantitative methods, the findings reveal that reasons for purchasing daily deals are rooted in individual consumer-level factors (i.e., price-consciousness, buying impulsiveness, and susceptibility to interpersonal normative influence). Further, reasons for nonredemption are explained by contextual elements of the daily deal (i.e., offer distinctiveness, the total number of daily deals sold, restrictions on using the deal, and low discount size). Our findings suggest that post-purchase regret ultimately explains a key reason deals go unused. Marketing implications are offered in the areas of characteristics of daily deal offers.