A Model of Customer Reward Programs with Finite Expiration Terms

• 成果类型: Article
• 署名作者: Sun, Yacheng; Zhang, Dan
• 署名单位: Tsinghua University; University of Colorado System; University of Colorado Boulder
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2018.3115
• 发表日期: 2019
• 页码: 3889-3903
• 关键词: customer reward program; expiration term; reward structure; FORWARD-LOOKING CONSUMERS; dynamic programming

摘要

A little-understood phenomenon of customer reward programs is the prevalent use of finite reward expiration terms. We develop a theoretical framework to investigate the economic rationale behind this phenomenon and the trade-off between short and long expiration terms. In our model, a monopolistic firm sets the expiration term, along with the price and reward size, and interacts with consumers over an infinite horizon. Consumers are heterogeneous in shopping probabilities and product valuations and forward-looking in making purchase decisions. We find that a customer reward program with a finite expiration term can increase firm profits when (i) the valuation difference within the consumer population is intermediate and (ii) the shopping probabilities and valuations are negatively correlated among consumers. Several model extensions confirm the robustness of these results. Finally, we conduct an empirical investigation on the reward program practice of the top 100 U.S. retailers, which provides directional support for several key theoretical predictions.