Digitalization of Loyalty: Impacts of Mobile Technology on Reward Redemption and Engagement Level

ABSTRACT

Although digitalization is a prevalent strategy in reward programs, a minimal amount is known regarding the relationship between reward app usage and reward redemption behaviors. The enhanced availability and accessibility of information via mobile app can alter customers’ reward-redemption patterns and engagement level, highlighting the need for firms to adjust their reward-based service strategies. Using unique datasets that reflect individual consumers’ transactional and reward redemption behaviors, we conducted a series of analyses to capture the dynamics in the latent engagement state transitions of customers according to the type of reward program used. Results show that although reward app usage, on average, induces a more active engagement state, it polarizes the volatility of engagement state transitions. Furthermore, we find that greater volatility of engagement state transitions is significantly associated with a higher likelihood of churn. Finally, a follow-up survey and panel vector autoregression analyses are conducted to uncover the mechanisms that underlie the relationship. The results provide insights into how retailers can strategically design their reward programs in the emerging mobile-based omnichannel environment.

KEYWORDS:

• Mobile apps
• customer loyalty
• reward redemption
• customer engagement
• reward programs
• customer churn
• online rewards

Supplementary Information

Supplemental data for this article can be accessed online at https://doi.org/10.1080/07421222.2023.2267313

Disclosure Statement

No potential conflict of interest was reported by the authors.

Notes

^1. Volatile engagement level refers to a more transient state transition from one state at time t to another at time t+1. Hence, this would be reflected by the greater changes in the diagonals in the transition probability matrix (Table 6).

2 Although the sample size is small compared to the entire member base that are enrolled to the RP, we verified that our sample does not statistically differ from the population in regard to the variables listed in Table 1.

3 The result of the first-stage logistic model estimation is provided in the Online Supplemental Appendix 2.

4 Details of the procedures and implementations can be found in Bartolucci et al. [4, 5].

5 Although customers can still purchase products but do not show the card/app at the point-of-sale, we believe that this would not be likely as no cost is incurred in maintaining the membership, or showing the card/app.

Additional information

Notes on contributors

Yoonseock Son

Yoonseock Son is an assistant professor in the IT, Analytics, and Operations Department at the Mendoza College of Business, University of Notre Dame. He holds a PhD in Information Systems at Korea Advanced Institute of Science and Technology (KAIST). His research interests include economics of information systems, digital analytics, digital platforms, IT and sustainability, and Diversity, Equity, and Inclusion. Dr. Son’s research has been published in Journal of Management Information Systems, Information Systems Research, MIS Quarterly, and Journal of Operations Management.

Wonseok Oh

Wonseok Oh is the KAIST K.C.B. Chair Professor of Information Systems in the College of Business at Korea Advanced Institute of Science and Technology (KAIST). He received his PhD in Information Systems from the Stern School of Business at New York University. Dr. Oh’s research interests include economics of information systems, omni-channels, mobile app consumption, and voice commerce. His research has been published in elite journals, including Information Systems Research, Journal of Management Information Systems, MIS Quarterly, Management Science, Journal of Operations Management, and Production and Operations Management. He has served as an associate editor for Information Systems Research and MIS Quarterly. He is a senior editor of Information Systems Research.