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

Abstract

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.