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

Amirhossein Bazargan, Salma Karray () and Saeed Zolfaghari
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Amirhossein Bazargan: Fairleigh Dickinson University
Salma Karray: University of Ontario Institute of Technology
Saeed Zolfaghari: Ryerson University

Computational Management Science, 2021, vol. 18, issue 1, No 5, 99-124

Abstract: 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.

Keywords: Buying behavior; Loyalty programs; Redemption policy; Game theory; Multinomial logit model (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10287-020-00383-4

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