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Searching for Rewards

SSRN Electronic Journal
2024
  • 0
    Citations
  • 500
    Usage
  • 0
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Usage
    500
    • Abstract Views
      376
    • Downloads
      124
  • Ratings
    • Download Rank
      469,808

Article Description

Loyalty programs are pervasive across numerous markets, offering members rewards based on their past purchases for future benefits. This study explores the dynamics of loyalty programs within a repeated ordered search framework, where consumers sequentially search for the optimal product across multiple firms over two periods. Our findings reveal that firms strategically use price discounts and rewards to influence consumer behaviors. Price discounts discourage further search in the current shopping period, while rewards encourage consumer loyalty by inducing prominence in subsequent visits. As search costs increase, firms tend to offer lower price discounts but higher rewards. This strategy increases industry profit but reduces consumer surplus. Compared with its absence, loyalty programs decrease both industry profit and consumer welfare, leading to a lose-lose outcome. Moreover, we demonstrate that when the market is heterogeneous, high-type firms, with larger networks, offer lower rewards but achieve higher second-period prices and greater consumer loyalty, contrasting with low-type firms that compensate with higher rewards for their smaller networks. This study offers new insights into the strategic use of loyalty programs and their impact on market competition.

Bibliographic Details

T. Tony Ke; Jiwoong Shin; Xu Zhu

Elsevier BV

Loyalty Program; Consumer Search; Repeated Purchase; Customer Relationship Management; Competitive Strategy

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