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The effect of loyalty program expiration policy on consumer behavior

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Abstract

Although loyalty programs can help divert costs to the future by using delayed rewards, unredeemed program currency can become significant liability for the firm. To alleviate this concern, many programs have introduced a point expiration date or have shortened their expiration time horizon. This issue of point expiration has received scant attention in the literature. Contrary to an intuitive negative effect one would expect from a more stringent expiration policy, our real-life data and lab experiment demonstrated that a finite expiration policy can affect purchases positively but only for consumers who have the flexibility to adapt their behavior to such a policy. We identified usage level and engagement in multi-store shopping as two sources contributing to flexibility. Overall, our findings point to a need to understand one’s customer base to design the optimal point expiration policy and program communication.

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Notes

  1. The store offered rewards at 500, 2400, 6000, and 10,000 points before the policy change. It left the 500-point threshold unchanged, but dropped the higher thresholds in favor of a lower 1500-point threshold, as the management considered it unrealistic for an average consumer to reach those higher levels under the monthly program. The reward items remained the same for the 500-point threshold, and the point value of the 1500-point reward is similar to the original reward thresholds. We realize that this simultaneous change in reward threshold confounds our analysis, and we will control for it in study 2.

  2. We did a robustness check where we relaxed the assumption of people having to make at least one purchase in the post-change period. The substantive results on this larger dataset remained identical.

  3. Our data do not record those purchases that consumers made without the loyalty card.

  4. We discussed with the store management about any internal and/or environmental changes that may have occurred. The management confirmed that the market environment in the store’s service region had remained relatively stable. Adding a time trend variable did not improve the results either and therefore was not retained.

  5. We conducted robustness checks using different operationalizations of the promotion and price variables (such as a single average price variable or variables using a weighted measure) and using different operationalizations for usage level. Our substantive results did not change.

  6. This measure focuses on the total spending in the category in a typical week (all coffee shops combined) and is not to be confused with the measure that we used in study 1 (usage level at the program offering firm).

  7. As controlling for age and gender does not change results, we do not consider these further.

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Author notes

  1. The authors have contributed equally and are listed in alphabetic order. The authors thank an anonymous convenience store for providing the data used in this research. They are also grateful to participants at the Marketing Science Conference, the EMAC Conference, and the loyalty program workshop at the 9th Triennial Choice Symposium for their valuable input.

Authors and Affiliations

  1. Faculty of Economics and Business, KU Leuven, Korte Nieuwstraat 33, 2000, Antwerp, Belgium

    Els Breugelmans

  2. Customer Analytics and Strategy Collaboratory, Department of Marketing, Strome College of Business, Old Dominion University, 2123 Constant Hall, Norfolk, VA, 23529, USA

    Yuping Liu-Thompkins

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  1. Els Breugelmans
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  2. Yuping Liu-Thompkins
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Correspondence to Els Breugelmans.

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Breugelmans, E., Liu-Thompkins, Y. The effect of loyalty program expiration policy on consumer behavior. Mark Lett 28, 537–550 (2017). https://doi.org/10.1007/s11002-017-9438-1

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