Point Redemption in Loyalty Programs: The Role of Customer Relationship Characteristics and Their Implications for Service Providers

Abstract

Customer–firm relationship affects firm performance, and loyalty programs are a popular tool to enhance this relationship in service industries. An essential measure of a loyalty program’s effectiveness is its members’ point redemption behavior. Customers engage more with the firm when they periodically redeem points. However, current studies find that customers tend to stockpile rather than redeem points. In this research, the authors investigate the relationships between customer relationship characteristics in loyalty programs (i.e., purchase depth, purchase breadth, purchase recency, redemption depth, redemption breadth, and redemption recency) and customers’ point redemption behavior. The empirical analyses show that customers with higher purchase depth and redemption recency are more likely to redeem points. However, customers with higher purchase breadth, purchase recency, redemption depth, and redemption breadth are less likely to redeem points. In addition, once deciding to redeem, customers with higher purchase breadth and purchase recency will redeem more points. The results imply that managers should motivate point redemptions among customers who purchase a lot from the firm but are concentrated on their purchases and redemptions. The findings also indicate that point redemption is a valuable tool to regain customers who are drifting away from the firm.