肖俊极.docx

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