When a big retailer hurts more from a currency devaluation in a coalition loyalty program. An interview with Valeria Stourm on her recent IJRM paper.
A coalition loyalty program is a rewards program in which a customer can earn and use points across partner retailers. As customers, we are happy being “promiscuous,” having more opportunities to earn as we shop more broadly, without having to concentrate purchases at any single partner. However, what makes this “open relationship” of loyalty programs favourable for partner stores, in particular when points are devalued? In the forthcoming IJRM “Cross-reward effects in a coalition loyalty program: The impact of a point currency devaluation,” Valeria Stourm, co-authored with her dissertation co-advisor Eric Bradlow of The Wharton School, empirically addresses and investigates this question.
“We had the original idea early on after early conversations with consultants working with coalition loyalty programs...” Valeria Stourm
One's loyalty rewards affect its partners
“We had the original idea early on after early conversations with consultants working with coalition loyalty programs, but it took a while to find the proper data, develop the right model and to estimate it efficiently.” Valeria recalls her long-time experience of working on this article. The idea was to find out how the rewards of one store affect sales at another partner in a coalition loyalty program, and to study how these cross-reward effects vary across stores that differ (1) in their popularity, (2) the categories of their product offerings, and (3) their geographic locations. These fundamental factors come first into managers' minds when they consider participating in coalition loyalty programs.
For Some, It's Costly to be in an Open Relationship
Using a network affinity model (under a Hierarchical Bayesian framework) that links the managerially relevant factors together on a 6-year sample of 15 partner stores undergoing a program-wide devaluation of earned points from the coalition loyalty program, Valeria found that the popular partners got larger reduction in sales by the devaluation of points. in other words, the popularity proximity mattered the most. “The model comprehensively captures the network effects across partners in the coalition program studied. However, the importance of each factor may vary if the model is applied to another coalition with a different composition of partner stores.” Valeria emphasizes the implication of the results.
“The model comprehensively captures the network effects across partners in the coalition program studied.” Valeria Stourm
To Be or Not To Be, What Will Matter In The Future?
The use of the network affinity model and the investigation of cross-reward effects in a coalition loyalty program has opened several potential research questions. For example, how should a coalition structure its portfolio of partner stores? How would online partnerships affect spillovers in coalition programs? Or, more broadly, what are key determinants of coalition program success?
Interested to read more? you can find the open access article here.
Meet Valeria Stourm
Assistant Professor at HEC Paris
What drives you to do the research / work you do?
A passion for being creative and searching for the truth via scientific process and intellectual conversation.
Fun-fact about the author: If you were not an academic, what would you be?
In academia, I value the processes of knowledge creation and transmission. I think that working as an artist or a writer would be fun, since these vocations also entail creation and transmission.
This article was written by
T. (Ned) Choungprayoon
Ph.D. Candidate at the Stockholm School of Economics (Sweden)