The influence of marketing instruments and rewarding on cardholders' behavior in coalition loyalty programs

PhD ceremony: Ms. M. Dorotic, 13.15 uur, Academiegebouw, Broerstraat 5, Groningen

Thesis: The influence of marketing instruments and rewarding on cardholders' behavior in coalition loyalty programs

Promotor(s): prof. P.C. Verhoef, prof. T.M.A. Bijmolt

Faculty: Economics and Business

This thesis studies customer behavior in coalition loyalty programs with multiple vendors, such as Airmiles, Nectar and Free Bees. In coalition programs cardholders can collect (and redeem) a reward faster than in other types of loyalty programs. To encourage the purchase and collection of loyalty program points, managers often use marketing instruments (most notably promotional mailings to cardholders).

This thesis finds that the majority of loyalty program cardholders do not significantly change their behavior in response to such promotional mailings. Yet, the use of multiple communication channels (i.e., mail and e-mail) enhances the effectiveness of mailings. Another important insight of this thesis is how cardholders respond to rewarding in a loyalty program and whether rewarding affects their behavior before and after the reward redemption. In five weeks before the redemption cardholders are more likely to purchase from a loyalty program vendor, and when they purchase they spend more than usually. Subsequently, increased purchase behavior carries over to five weeks after the reward has been redeemed.

These positive effects of rewarding occur regardless of the cardholders’ previous purchase levels, levels of satisfaction or the type of reward. They are triggered by the reward redemption momentum itself. Reward redemption act makes the program more salient to cardholders and motivates cardholders to purchase more even if they have sufficient points to redeem the reward. This thesis provides empirical evidence that it is beneficial for firms to stimulate collection and redemption of loyalty program rewards, as this at least temporarily increases cardholder’s loyalty to retailers participating in the coalition program.