Analyses of loyalty programs typically show collection spikes around redemptions. A spike might be caused by increased collector spending to facilitate a redemption (points pressure). The redemption might also encourage increased spending following it (rewarded behavior). These are the program’s incentive effects. Alternatively, the spike might be unrelated to the incentives, merely revealing pre-existing customer heterogeneity, e.g., in effortless collection, in bonus points collection, and reward timing selection. Understanding the cause of collection spikes is necessary to effectively assess and design programs. Our indirect inference approach isolates the incentive effects in a coalition program that has recurring modest value cash-type rewards. Most of the collection spike is not caused by incentives, yet 1.74% of sales are incentive driven. In contrast to prior findings, the incentive effects are driven by rewarded behavior, not points pressure. We attribute this to the program’s modest cash-type rewards that are unlikely to induce conscious pursuit.
We note here the distinction between extrinsically motivated switches and variety seeking switches (Van Trijp et al. 1996). Variety seeking switches are intrinsically motivated and a function of an individual difference (need for variety) and product category. To illustrate, when a consumer switches to a new coffee brand to try the taste, it is a variety seeking switch. Buying the new brand for 5-x bonus miles is an extrinsically motivated derived switch.
A two-week period also seemed appropriate based on industry reports. The 2018 offline Canadian grocery shopping frequency was once every 5.42 days (Dalhousie University and University of Guelph 2019) while online frequency was once every 21.2 days (Post 2020). Specifically, based on the Dalhousie/Guelph report, 96.2% of people shop at least twice a month (~ once every two weeks). Further, two weeks does a good job of not giving too many missing observations—we have only 12% of periods (108,618) in which redeemers do not collect miles.