When Loyalty Goes Mobile: Effects of Mobile Loyalty Apps on Purchase, Redemption, and Competition

Abstract

Avenues for the delivery of loyalty programs have rapidly shifted from plastic card schemes to mobile app-based initiatives, yet our understanding of the economic value presented by the latter (i.e., loyalty apps) has not kept pace with this development. We examine the effects of loyalty app adoption on customers' offline purchase patterns, reward redemption, and deal-prone behaviors as well as store-level competition in a multivendor loyalty program (MVLP) context, where multiple offline brands collaborate in the operation of point-sharing initiatives. Mobile-driven loyalty apps substantially lower consumer search costs, thereby enhancing on-demand information accessibility and facilitating the monitoring of reward points. Based on a unique data set that comprises information on customers' loyalty app adoption status, loyalty point redemption patterns, and purchase behaviors in MVLP environments, we investigate how the transition from plastic-based programs to loyalty apps influences the out-of-pocket spending and point redemption patterns of consumers. Our findings reveal that the adoption of loyalty apps is associated with an increase in purchases and the predilection for point redemption. Despite these positive outcomes, however, potential adverse consequences may arise in the form of deal-susceptible behaviors and reduced store-specific loyalty. Loyalty app adopters tend to be more vulnerable to deals, with these customers selectively buying highly discounted products of low margin. Additionally, loyalty app consumers visit more stores but spend less in a focal store, thereby diminishing loyalty to this specific store. These results have managerial implications on optimal mobile-based loyalty program designs and implementation, reward-driven platform strategies, and risk management initiatives in an MVLP setting.