肖俊极.docx
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肖俊极
Arepointslikemoney?
Anempiricalinvestigationofrewardpromotioneffectivenessformulti-categoryretailers
ABSTRACT
Point-basedfrequencyrewardprogramsarewidelyusedbyretailersasasalespromotionstrategy.Topromoteaspecificproductcategory,retailersoffermorefavorablerewardratiossothatmemberscanearnextrapoints.Thispaperexaminestheimpactofrewardratiovariationsonsalesinamulti-categorysetting,andcomparestheeffectivenessoftherewardandpricepromotionstrategies.Theauthorsestimateamarketbasketmodelusingscannerdataofmemberpurchasesfromalargeretailerinfourcategories,groupedintotwopairs.Theyfindthatincreasingtherewardratioinacategorypositivelyaffecteditschoiceprobabilityforthreeoffourcategories,butthattheelasticityissmallerthanpriceelasticity.Rewardspromotionsalsoimpactthechoiceprobabilityofnon-promotedbutcloselyrelatedcategories,andevenofcategoriesthatareonlylooselyrelated.Asformsofsalespromotion,pricediscountsandrewardpromotionscansubstituteforeachother.Theauthorsconstructandcomputetwomeasures,therateofsubstitutionandtheretailervalueofpromotionpoints,toquantifytheeffectsofsubstitution.
Keywords:
Salespromotion,frequencyrewardprograms,shoppingbehavior,elasticity,rateofsubstitution.
“Butwhatisamileworth?
Airlinessellthemtocredit-cardfirmsatanaverageofjustunder2centsamile;theirvaluewhenusedtobuyaticketortoupgradetobusinessclasscanbeanywherebetween1centandover10centspermile.”
--TheEconomist,2005a
“Yetthedollar…hasbeensupersedednotbytheeuro,norbytheyenoryuan,butbyanotherincreasinglypopularglobalcurrency:
frequent-flyermiles.”
--TheEconomist,2005b
Frequencyrewardprogramshavebecomecommonplaceamongfirmsinmanyindustries,leadingtoaproliferationofrewardpoints—themostnotoriousbeingfrequent-flyermiles.Ina2005article,theEconomistboldlyclaimedthat“thedollarhadalreadybeentoppledastheworld’sleadingcurrency”,infavoroffrequent-flyermiles.Inrecentyears,however,theretailsector(includingprominentbusinessessuchasCostcoandMacy’s)hassurpassedthetravelandhospitalitysectorsintheprevalenceoffrequencyrewardprograms.The2009U.S.LoyaltyMarketingCensus,conductedbytheresearchagencyColloquy,reportsthatasof2008theretailsectoraccountedforthelargestfractionofmembershipsat39%,with701millionindividualsparticipatinginloyaltyprograms(FergusonandHlavinka2009).
Retailerrewardshavebecomefarmoresophisticatedthanthetraditionalofferof“buyonegetonefree”.Ingeneral,therewardprogramsadoptedbyairlines,creditcardcompanies,andretailersarenowverysimilarinthatmembersreceiveandaccumulatepointsbasedontheirpurchases,andmayexchangethematanytimeforbenefitslargelyproportionaltothenumberofpointsredeemed(Berman2006).Aswithairlinemiles,retailerrewardpointscanbetreatedasanalternativecurrency—atleastwithintheretailer’slocation.Butwhatisapointworth?
Thereareseveralperspectivesonevaluatingrewardpoints.First,asillustratedbytheabovequotesfromtheEconomist,retailersusuallyimposerulesonthe“exchangerate”betweenmonetarypaymentsandrewardpointsinbothearningandredemption.Second,theconsumers’subjectiveperceptionsofrewardpointsmaynotbeconsistentwiththeiractualmonetaryvalue(DrèzeandNunes2004).Weproposeathirdapproachtounderstandingtherelationshipbetweenmonetarypricesandrewardpoints.Ratherthanfocusingontheretailerorconsumer,thisresearchstudiestheeffectivenessofrewardspointsingeneratingshort-termsales.Inotherwords,welookatrewardpromotionsasaformofsalespromotionincomparison.
Themarketersoperatingfrequencyrewardprogramshavecometorealizethattheactsofawardingandredeemingpointsalsorepresentopportunitiestoimplementnewmarketingstrategies,especiallywaystoenhancetheperceivedvalueoftheprogram.Onewidelyadoptedstrategyistoprovidemoregeneroustermsforearningpointsoveralimitedperiodoftimeand/orforalimitedcategoryofpurchases.Inthefollowingdiscussion,weusetheterm“rewardratio”torefertothenumberofrewardpointsaconsumerearnsforeveryunitofmoneyspentonparticularpurchase.
Forexample,theCanadiandrugstorechainShoppersDrugMartoffersconsumersarewardratio20timesofitsusualratioovercertainlongweekends.Suchpromotionsspeeduptheaccumulationofpointsforconsumers,providingmoresavingsonfuturepurchases.Thus,rewardpromotionsaresimilartopricereductionsinthattheystimulatesalesduringspecifiedpromotionalperiodsduetothepointspressureeffectwhere“customersincreasetheirpurchaserateinanefforttoearnareward”(TaylorandNeslin2005).Thisresearchaimstoanswerthefollowingquestion:
Asasalespromotionstrategy,howeffectivearerewardpromotionscomparedtopricediscounts?
Mostexistingresearchonrewardprogramsfocusesonbehavioralquestions,inparticularwhetherandhowtheyaffectcustomerloyaltyandretention(Liu2007;Bolton,Kannan,andBramlett2000;KehandLee2006;Kivetz,Urminsky,andZheng2006;Lewis2004).Theliteratureonmarketingandcustomerrelationshipmanagement(CRM)hasdealtexhaustivelywiththeuseofrewardprogramsinpurchasetracking(Mauri2003).Otherauthorshaveinvestigatedtheirroleinpricediscrimination(HartmannandViard2008).Butnoneofthesepapershasexplainedwhyretailerswouldofferextrarewardpointsatcertaintimes.Ifthegoalweresimplytolockinmembers,therewouldbenoneedfortemporarypromotions.Researchershavealsonoticedanintriguinglackofempiricalstudiesconcerningtheimmediateeffectofrewardpromotionsonshort-termsales(Bolton,Kannan,andBramlett2000;DrèzeandHoch1998;LalandBell2003;Lewis2004).Weemphasizethatthefocusofthisstudyisnotrewardprogramsperse,butthesalesimpactofrewardpromotions.Thoughlong-termloyaltyandtheabilitytotrackshopperinformationarecertainlydesirablebenefits,itisequallyimportantforacademicsandmarketerstounderstandandexploretheothercreativeusestowhichrewardprogramshavebeenput.Hereweconsidertheirabilitytoboostshort-termperformance.
Thisresearchstudiestheeffectivenessofrewardpromotionsinthecontextofmulti-categoryretailing.Inashoppingtripwhereconsumersarefacedwithmulti-categorypurchasedecisions,theoutcomeisusuallya“basket”ofcategoriesratherthanasinglecategory(Manchanda,Ansari,andGupta1999;Russelletal.1999;Seetharamanetal.2005).Atypicalretailercarrieshundredsofcategoriesatasinglelocation,andtheconsumerresponsetopricechangesandpromotionalactivitiesvariessignificantlyfromcategorytocategory(Narasimhan,Neslin,andSen1996).Moreover,apromotioncanaffectsalesinnonpromotedcategories.Inordertodesignoptimalpricingandpromotionstrategies,retailersmustunderstandtheseeffectsandcoordinatetheirmarketingactivitiesacrossmultipleproductcategories.Assuch,theprimarypurposeofthisstudyistoanalyzetheeffectsofpricereductionsandincreasedrewardratiosbothwithinandacrosscategories.Indeed,thispaperisthefirstempiricalstudyoftheeffectofrewardpromotionsoncross-categorypurchasebehavior.
Whiletheysharecertainsimilarities,priceandrewardpromotionsworkratherdifferently.Discountsofferedintheformofrewardpointscanberealizedonlyinfuturerepeatpurchases.Thus,rewardpointshelplockconsumersinforatleastonemorevisit,abenefitthatpricecutscannotachieve.Ifconsumersdonotredeemthepoints,whichhappensquiteoften,theoutstandingbalancewillneverbecomealiabilitytotheretailer.Ontheotherhand,rewardpointsareapseudo-currencythatcanbeconvertedintomoneytopayforlaterpurchases.Thus,itisnosurprisethatconsumerstendtoregardthemasaproxyforpricecuts.
Asalespromotioncantaketheformofeitherdirectpricecutsorhigherrewardratios.Asapointofcomparison,itisinterestingtomeasuretheeffectivenessofthesetwostrategiesatincreasingsales.Toquantifytherelationshipbetweenthestrategies,wehaveconstructedanovelmeasure:
the“rateofsubstitution”(RS)betweenpriceandrewardratiopromotions.RSisdefinedastheratiobetweenapercentagechangeinpricesandapercentagechangeinrewardratiosthatappliedtogethercausenochangeinthesalesofaparticularcategory.
Aretailer’sproductcategoriesusuallybelongtodifferentpricetiers(e.g.,facialcareproductstendtobemoreexpensivethanpersonalhygieneproducts).Retailerscanpromotespecificcategoriesbyofferingextrarewardpointsforthesameamountspent.Buthowdoesarewardpointpromotioninonecategoryimpactsalesinothercategories?
Toanswerthisquestion,weapplyaparsimoniousshoppingbasketmodeltoscannerdatafromalargeretailer.Suchmodelsallowonetoanalyzetheinterdependenceofdemandacrossitemcategoriesinthefinalbaskets.Wecanidentifynotjustthedirecteffectofarewardpromotiononsalesofthepromotedcategory,butitsexternalityoncategoriesthathavesimilarfunctionalityornearbyshelflocations.
Ourempiricalresultsshowthatrewardpointpromotionseffectivelyincreasesalesofthepromotedcategory,andalsohaveapositiveeffectonsalesinothercategories.Weconsiderfourcategoriesgroupedintotwopairs:
facialcareandpersonalhygiene.Ourresultsindicatethatcomplementarityisfoundmostlywithineachpair.Furthermore,wefindthatrewardpointpromotionscanserveas