Advertisement

Marketing Letters

, Volume 30, Issue 1, pp 107–118 | Cite as

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

  • Ricardo MontoyaEmail author
  • Constanza Flores
Article
  • 104 Downloads

Abstract

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.

Keywords

Loyalty programs Rewards Goals Combined currency Points-plus-cash 

Notes

Funding information

R. Montoya gratefully acknowledges partial funding by Fondecyt [Project 1151395] and by Complex Engineering Systems Institute, ISCI [CONICYT–PIA–FB0816].

References

  1. Arnold, M. J., & Reynolds, K. E. (2003). Hedonic shopping motivations. Journal of Retailing, 79(2), 77–95.CrossRefGoogle Scholar
  2. Bijmolt, T. H. A., Dorotic, M., & Verhoef, P. C. (2011). Loyalty programs: generalizations on their adoption, effectiveness and design. Foundations and Trends in Marketing, 5(4), 197–258.CrossRefGoogle Scholar
  3. Blattberg, R. C., Briesch, R., & Fox, E. J. (1995). How promotions work. Marketing Science, 14(3_supplement), G122–G132.CrossRefGoogle Scholar
  4. Breugelmans, E., & Liu-Thompkins, Y. (2017). The effect of loyalty program expiration policy on consumer behavior. Marketing Letters, 28(4), 537–550.CrossRefGoogle Scholar
  5. Breugelmans, E., Bijmolt, T. H., Zhang, J., Basso, L. J., Dorotic, M., Kopalle, P., et al. (2015). Advancing research on loyalty programs: a future research agenda. Marketing Letters, 26(2), 127–139.CrossRefGoogle Scholar
  6. Danaher, P. J., Sajtos, L., & Danaher, T. S. (2016). Does the reward match the effort for loyalty program members? Journal of Retailing and Consumer Services, 32, 23–31.CrossRefGoogle Scholar
  7. Delta Airlines (2016). Delta Airlines 10K form for 2016. http://www.annualreports.com/Company/delta-air-lines-inc. Accessed 20 Feb 2019.
  8. Dhar, R., & Wertenbroch, K. (2000). Consumer choice between hedonic and utilitarian goods. Journal of Marketing Research, 37(February), 60–71.CrossRefGoogle Scholar
  9. Dorotic, M., Verhoef, P. C., Fok, D., & Bijmolt, T. H. (2014). Reward redemption effects in a loyalty program when customers choose how much and when to redeem. International Journal of Research in Marketing, 31(4), 339–355.CrossRefGoogle Scholar
  10. Drèze, X., & Nunes, J. C. (2004). Using combined currency prices to lower consumers’ perceived cost. Journal of Marketing Research, 41(1), 59–72.CrossRefGoogle Scholar
  11. Drèze, X., & Nunes, J. C. (2011). Recurring goals and learning: the impact of successful reward attainment on purchase behavior. Journal of Marketing Research, 48(2), 268–281.CrossRefGoogle Scholar
  12. Economist, T. (2005). Frequent-flyer miles: funny money. http://www.economist.com/node/5323615. Accessed 20 Feb 2019.
  13. Grover, R., & Srinivasan, V. (1992). Evaluating the multiple effects of retail promotions on brand loyal and brand switching segments. Journal of Marketing Research, 29, 76–89.CrossRefGoogle Scholar
  14. Gupta, S. (1988). Impact of sales promotions on when, what, and how much to buy. Journal of Marketing Research, 25, 342–355.CrossRefGoogle Scholar
  15. Hendel, I., & Nevo, A. (2003). The post-promotion dip puzzle: what do the data have to say? Quantitative Marketing and Economics, 1(4), 409–424.CrossRefGoogle Scholar
  16. Hirschman, E., & Holbrook, M. B. (1982). Hedonic consumption: emerging concepts, methods and propositions. Journal of Marketing, 46(3), 92–101.CrossRefGoogle Scholar
  17. Kivetz, R., & Simonson, I. (2002). Earning the right to indulge: effort as a determinant of customer preferences toward frequency program rewards. Journal of Marketing Research, 39(2), 155–170.CrossRefGoogle Scholar
  18. Kivetz, R., Urminsky, O., & Zheng, Y. (2006). The goal-gradient hypothesis resurrected: purchase acceleration, illusionary goal progress, and customer retention. Journal of Marketing Research, 43(1), 39–58.CrossRefGoogle Scholar
  19. Lal, R., & Bell, D. E. (2003). The impact of frequent shopper programs in grocery retailing. Quantitative Marketing and Economics, 1(2), 179–202.CrossRefGoogle Scholar
  20. Lea, S. E., & Webley, P. (2006). Money as tool, money as drug: the biological psychology of a strong incentive. Behavioral and Brain Sciences, 29(2), 161–209.Google Scholar
  21. Liu, Y. (2007). The long-term impact of loyalty programs on consumer purchase behavior and loyalty. Journal of Marketing, 71(4), 19–35.CrossRefGoogle Scholar
  22. Marriott (2016). Marriott International 10K form for 2016. http://www.annualreports.com/Company/marriott-international-inc. Accessed 20 Feb 2019.
  23. Maynard, M., & Dash, E. (2005). Fliers find that mileage points only go so far. The New York Times.Google Scholar
  24. Minnema, A., Bijmolt, T. H., & Non, M. C. (2017). The impact of instant reward programs and bonus premiums on consumer purchase behavior. International Journal of Research in Marketing, 34(1), 194–211.CrossRefGoogle Scholar
  25. Neslin, S. A., & Shoemaker, R. W. (1989). An alternative explanation for lower repeat rates after promotion purchases. Journal of Marketing Research, 26(2), 205–213.CrossRefGoogle Scholar
  26. Neslin, S. A., & Stone, L. G. S. (1996). Consumer inventory sensitivity and the post promotion dip. Marketing Letters, 7(1), 77–94.CrossRefGoogle Scholar
  27. Okada, E. M. (2005). Justification effects on consumer choice of hedonic and utilitarian goods. Journal of Marketing Research, 42(1), 43–53.CrossRefGoogle Scholar
  28. Stourm, V., Bradlow, E. T., & Fader, P. S. (2015). Stockpiling points in linear loyalty programs. Journal of Marketing Research, 52(2), 253–267.CrossRefGoogle Scholar
  29. Sun, B. (2005). Promotion effect on endogenous consumption. Marketing Science, 24(3), 430–443.CrossRefGoogle Scholar
  30. Taylor, G. A., & Neslin, S. A. (2005). The current and future sales impact of a retail frequency reward program. Journal of Retailing, 81(4), 293–305.CrossRefGoogle Scholar
  31. Vilcassim, N. J., & Chintagunta, P. K. (1995). Investigating retailer product category pricing from household scanner panel data. Journal of Retailing, 71(2), 103–128.CrossRefGoogle Scholar
  32. Voss, K. E., Spangenberg, E. R., & Grohmann, B. (2003). Measuring the hedonic and utilitarian dimensions of consumer attitude. Journal of Marketing Research, 40(August), 310–320.CrossRefGoogle Scholar
  33. Wang, Y., Lewis, M., Cryder, C., & Sprigg, J. (2016). Enduring effects of goal achievement and failure within customer loyalty programs: a large-scale field experiment. Marketing Science, 35(4), 565–575.CrossRefGoogle Scholar
  34. Wei, L., & Xiao, J. (2015). Are points like money? An empirical investigation of reward promotion effectiveness for multicategory retailers. Marketing Letters, 26(1), 99–114.CrossRefGoogle Scholar
  35. Zhang, J., & Breugelmans, E. (2012). The impact of an item-based loyalty program. Journal of Marketing Research, 49(1), 50–65.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Department of Industrial EngineeringUniversity of ChileSantiagoChile

Personalised recommendations