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Can restrictions on redemption timing boost profitability of loyalty programs in competitive environments?

Author

Listed:
  • Amirhossein Bazargan

    (Fairleigh Dickinson University)

  • Salma Karray

    (University of Ontario Institute of Technology)

  • Saeed Zolfaghari

    (Ryerson University)

Abstract

This research investigates whether it is beneficial for competing firms offering loyalty programs (LPs) to restrict the reward redemption time. We develop a game-theoretic model where competing firms decide an LP’s redemption policy and pricing and identify firms’ restriction levels. The results show that, at equilibrium, firms implement a restrictive policy when customers value rewards more than time, while an unrestricted policy is implemented when customers value time. Each firm should increase prices in response to its competitor’s restrictive policy.

Suggested Citation

  • Amirhossein Bazargan & Salma Karray & Saeed Zolfaghari, 2021. "Can restrictions on redemption timing boost profitability of loyalty programs in competitive environments?," Computational Management Science, Springer, vol. 18(1), pages 99-124, January.
    • Handle: RePEc:spr:comgts:v:18:y:2021:i:1:d:10.1007_s10287-020-00383-4
    DOI: 10.1007/s10287-020-00383-4
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    References listed on IDEAS

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