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

The approach to loyalty programs has rapidly shifted from plastic card schemes to mobile application-based initiatives, yet our understanding of the economic value presented by the latter has not kept pace with this development. We examine the effects of loyalty app adoption on customers’ offline purchase patterns, reward redemption behaviors, and brand- and store-level competition in a multi-vendor loyalty program context, where multiple offline brands collaborate in point-sharing initiatives. On the basis of a unique dataset that comprises information on the loyalty app adoption status, loyalty point redemption patterns, purchase behaviors of customers 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 accelerates a favorable cycle wherein consumers reinforce their purchase and point redemption behaviors through a positive feedback loop. However, a number of potential negative consequences related to sales concentration, “deal-susceptible” behaviors, and store-level competition may also accompany mobile-based loyalty programs. For example, the economic gains (i.e., out-of-pocket spending and point redemption amount) derived from loyalty app-driven programs are dominant in loyalty schemes among popular brands, whereas only point redemption increases are prevalent in less popular brands. Additionally, loyalty apps encourage users to engage in deal-susceptible behaviors selectively purchasing highly discounted products of low margin. Finally, after the adoption of loyalty apps, consumers visit more stores but spend less in a focal store within the loyalty program regardless of the brand. With reference to these results, we draw managerial implications related to optimal mobile-based loyalty program designs and implementations, reward-driven platform strategies, and risk management initiatives in an MVLP setting.