Dynamics of price premiums in loyalty programs

Abstract

If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -A loyalty program might influence buyer behavior in several ways. Prior research offers evidence that buyers might increase the frequency of purchases and volume per occasion in a loyalty program; however, the effect on buyers' price tolerance has not been studied before. The aim of this paper is to examine buyers' willingness to pay a price premium for a firm offering a loyalty program reward. Design/methodology/approach -An analytical model of dynamic consumer choice is developed, where one of the two selling firms offers a reward for a certain number of purchases. The maximum price premium that a normatively rational buyer should be willing to pay at each level of accumulated purchases is obtained. A price tolerance in controlled settings is obtained and these are compared with normative solutions. Findings -Analytically, it is shown that the maximum price premium increases as purchases are accumulated; and the exact solutions can be found, given the price distributions and program design parameters. In the empirical studies it is found that individuals' maximum premiums are less than the normative levels. On the other hand, as buyers accumulate purchases from the reward offering firm, and get closer to the reward, maximum premiums paid increase -particularly when the reward is immediate. Originality/value -This paper contributes to the loyalty programs literature by examining the price premium, or switching barrier, aspect of buyer response. Furthermore, the paper not only models and solves the normative strategy, but also obtains actual price tolerance in laboratory settings.

Determinants and outcomes of price premium and loyalty: A food case study

“…Another relationship could be proposed after the literature review for further study including new factors: (a) Satisfaction could be added between quality and loyalty, price premium and loyalty, or loyalty and WOM; (b) brand attitude could be added in the relationship between quality and loyalty; (c) trust as a factor located between CSR and loyalty and between price and loyalty (Mutonyi et al, ); (d) the influence of satisfaction on loyalty through brand attitude; or (e) ethnocentrism as a factor that intermediate between awareness and loyalty. Other new relationships among the concepts analyzed in this study: (a) the influence of CSR on perceived quality as a mediator towards loyalty; (b) the effects of origin on perceived quality; or (c) the influence of loyalty on price premium (Sayman & Hoch, ).…”

“…The firm's price policy determines the customer's loyalty, although it differs across product categories, as it was tested in some retail stores by González‐Benito and Martos‐Partal (). Sayman and Hoch () analyze the link between price premium in loyalty program rewards, such as promotions that offer some benefits to customers based on their purchase evolution. These authors highlight the difficulty of measuring the connection between current prices and future reward.…”

“…Thus, ensuring whether the elements that influence consumers to pay more for a food product influence in the same way that those that impact on consumers' loyalty is such a great challenge (Anselmsson, Bondesson, & Johansson, ). Understanding the determinants and outcomes of price premium and loyalty has been considered an important phenomenon at the management level in food marketing (Cronin, Brady, & Hult, ; Kim, Holland, & Han, ; Wang, ) because of their interrelation (Sayman & Hoch, ) but their different nature. However, despite the importance of price premium and loyalty in governing the purchase decision and further recommendations of food products among consumers—there exists a lack of research that focus on further explicating the interplay between these aspects in the food context (Ferreira & Coelho, ; Loose, Peschel, & Grebitus, ; Rondán et al, ).…”

“…On the one hand, price competition has increased as a result of the development of store brands striving against manufacturer brands (CalvoPorral & Levy-Mangin, 2016;Diallo, Coutelle-Brillet, Rivière, & Zielke, 2015;Rondán, García, & Phau, 2006;Verhoef, Nijssen, & Sloot, 2002). On the other hand, retail managers devote attention on loyalty programs as a tool for the increase in sales (Sayman & Hoch, 2014). Thus, ensuring whether the elements that influence consumers to pay more for a food product influence in the same way that those that impact on consumers' loyalty is such a great challenge (Anselmsson, Bondesson, & Johansson, 2014).…”

“…Thus, ensuring whether the elements that influence consumers to pay more for a food product influence in the same way that those that impact on consumers' loyalty is such a great challenge (Anselmsson, Bondesson, & Johansson, 2014). Understanding the determinants and outcomes of price premium and loyalty has been considered an important phenomenon at the management level in food marketing (Cronin, Brady, & Hult, 2000;Kim, Holland, & Han, 2013;Wang, 2010) because of their interrelation (Sayman & Hoch, 2014) but their different nature.…”