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

摘要

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.