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Synergistic and cannibalization effects in a partnership loyalty program

  • Original Empirical Research
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Abstract

The implicit promise of a partnership in a loyalty program (LP) is that the partners will gain new customers and the LP will reinforce the loyalty to focal partners. Although customers may be encouraged to cross-purchase from partners (which may create positive synergies), they can also switch among partners without forfeiting rewards (which may lead to the cannibalization of sales among partners). To explore these cross-partner effects, we analyze the evolution of customer purchases in a partnership LP across 33 partners from 16 industry sectors. We find that cannibalizations arise more frequently than synergies among partners, contributing to a “rich-get-richer” effect for high-penetration partners; e.g., 10% increase in transactions at department stores reduce transactions at apparel partners (by .04% for new transactions and by 1.18% for recurring customers); but in turn, they attract positive synergies from apparel (.11% increase in transactions by new customers and .37% for recurring transactions).

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Notes

  1. “Partnership LP”, as a generic term, refers to both proprietary LPs with external partners and multivendor or coalition LPs (Breugelmans et al. 2015; Dorotic et al. 2011).

  2. We only observe transactions in the partnership LP that are linked to the partnership LP card. Customers might have used other types of payments (e.g., cash) that would not be included in this data set. However, since this is in essence a payment card because it is a credit-card-based LP, customers likely use the card regularly as a general means of payment. Moreover, if the same effect occurs repeatedly across each subsequent cohort that joins the LP, we have reason to believe that the effect is not sporadic.

  3. Semi-elasticity is preferred over standard elasticity for these variables because, for the ZIP model, it gives a simple expression that is easy to interpret. Semi-elasticity only depends on the parameters and the probability of excess zeros. (Standard) elasticity would also depend on the level of the explanatory variable. A downside of semi-elasticity is that it depends on the scale at which the x-variable is measured.

  4. These three variables will be highly correlated, but this is not a problem for the estimation because we are predominantly interested in controlling for any time trend that may be present rather than in accurately attributing the time trend to the linear, quadratic, and log parts.

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Acknowledgments

The authors would like to thank the corporate sponsor for making the data available and Wharton Customer Analytics at University of Pennsylvania for the research opportunity given to us as data awardees. Academic researchers are granted full authority to publish the results of their research. The authors also are grateful to participants of a special session on loyalty programs at EMAC 2016, Challenges of Europe 2019, and seminar participants at BI Norwegian Business School for their valuable suggestions.

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Authors and Affiliations

  1. BI Norwegian Business School, Nydalsveien 37, 0484, Oslo, Norway

    Matilda Dorotic

  2. Erasmus School of Economics, Burgemeester Oudlaan 50, 3062 PA, Rotterdam, The Netherlands

    Dennis Fok

  3. University of Groningen, Nettelbosje 2, 9747 AE, Groningen, The Netherlands

    Peter C. Verhoef & Tammo H. A. Bijmolt

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  1. Matilda Dorotic
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  2. Dennis Fok
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  3. Peter C. Verhoef
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  4. Tammo H. A. Bijmolt
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Correspondence to Matilda Dorotic.

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Dorotic, M., Fok, D., Verhoef, P.C. et al. Synergistic and cannibalization effects in a partnership loyalty program. J. of the Acad. Mark. Sci. 49, 1021–1042 (2021). https://doi.org/10.1007/s11747-020-00759-7

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