An Analysis of Buy X, Get One Free Reward Programs

• 成果类型: Article
• 署名作者: Liu, Yan; Sun, Yacheng; Zhang, Dan
• 署名单位: Hong Kong Polytechnic University; Tsinghua University; University of Colorado System; University of Colorado Boulder
• 刊物名称: OPERATIONS RESEARCH
• ISSN/ISSBN: 0030-364X
• DOI: 10.1287/opre.2021.2128
• 发表日期: 2021
• 页码: 1823-1841
• 关键词: purchase behavior; loyalty programs; frequency reward; CUSTOMER; IMPACT; price; COMMITMENT; demand; MODEL; zero

摘要

We study the effects of redemption hurdles on reward program members' decision making and firm profitability. We focus on the popular Buy X, Get One Free (BXGO) programs, which set a redemption threshold (X) and possibly, an expiration term for the reward. In our model, forward-looking consumers interact with a monopolistic firm and strategically make purchase and redemption decisions over an infinite time horizon. Our analysis leads to the following results. First, a consumer's purchase utility and purchase probability increase as her reward point inventory approaches the redemption threshold or expiration. These patterns are consistent with the point pressure phenomenon documented in the empirical literature. Second, a redemption threshold alone cannot improve the firm's profit, unless it is coupled with a finite expiration term or a positive transaction utility that consumers may derive from reward redemption. Third, setting the optimal redemption threshold requires the program to strike a balance between the effective price paid by consumers and their purchase probabilities. These results have rich managerial implications for effectively designing reward programs.