Frequency Reward Programs
Frequency reward programs are customer development programs based on the theme, “Buy XXX, get a reward.” “XXX” is usually a required purchase volume, and the reward can be free product, a cash rebate, or even “points” for another company's reward program.We discuss two ways that reward programs increase sales — points pressure and rewarded behavior — and the empirical evidence for each. We then review the rich economics literature that has endeavored to answer the question, “In a competitive environment, do reward programs increase firm profits?” We review several issues in designing reward programs, including the reward structure, and conclude with a review of reward programs offered by firms including Harrah's Entertainment and Hilton Hotels.
KeywordsCredit Card Point Pressure Customer Behavior Personalized Marketing Light User
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