Topic: Profitability of Frequency Reward Programs

Speaker: V.Brian Viard, Cheung Kong Graduate School of Business

Time: April 24, 2025, 10:00

Venue: EMS 440

Abstract:

We study the profitability of frequency reward programs under very general conditions. We begin by comparing the profitability of a monopolist offering a buy-X-get-one-free program to that of spot prices. The reward program can never outperform spot prices, even though they converge in the limit as X = +∞. This result is robust to a buy-X-get-Y-free program, flexible cost structures, credit-specific pricing, and most importantly, fully-flexible specifications of customer heterogeneity. We then consider a duopoly in which both firms choose simultaneously between offering a reward program and spot prices. The only Nash equilibrium is for both firms to offer spot prices. Finally, we show that a reward program can outperform spot prices if credits have finite expiration. We provide intuition and managerial implications of these results and reconcile previous findings of profit-enhancing reward programs.

Guest Bio:

V. Brian Viard is a Tenured Associate Professor of Strategic Management and Economics at Cheung Kong Graduate School of Business (CKGSB). He holds a Ph.D. from the University of Chicago Booth School of Business, with research expertise in industrial organization, environmental economics, applied microeconomics, and corporate competitive strategy. Before joining CKGSB in 2007, he taught at the Stanford Graduate School of Business. His research has been published in leading international journals, including the RAND Journal of Economics (2 papers), Economic Journal, Journal of Public Economics, Journal of Development Economics, American Economic Journal: Microeconomics, Management Science, and Quantitative Marketing and Economics.