Customer behavior across competitive loyalty programs

Customers can belong to multiple competing loyalty programs each with multiple reward levels. We extend loyalty program theories by proposing five mechanisms that capture the competitive effects in multi-firm, multi-level loyalty programs. We empirically test our hypotheses using data from a loyalty program management app where customers manage points independently across competing firms. We utilize goal shielding theory to show how a customer’s purchase at the focal firm is affected by the customer’s purchases and redemptions across competing firms. Specifically, we find that a customer’s purchase probability at the focal firm decreases after they qualify for a reward independent of redemption at a competing firm (competitive mere reward qualification) and after they redeem a reward at a competing firm (competitive rewarded behavior). Further, we find that the customer’s purchase probability at the focal firm increases if the customer is far from both the qualified and higher-level rewards at the competing firm (competitive stuck-in-the-middle), and if the customer accelerated their purchase frequency to qualify for or redeem a reward at the competing firm (competitive effort balancing post qualification and redemption). Four lab experiments supplement our empirical findings with causal evidence. Our research shows that customer progress toward a goal in a loyalty program is influenced by competing loyalty programs.