caa a22 4500 37886355X CHVBK 20180305123352.0 cr unu---uuuuu 161128e20030807xx s 000 0 eng 10.2202/1546-5616.1002 doi (NATIONALLICENCE)gruyter-10.2202/1546-5616.1002 The Economic Viability of Frequency Reward Programs in a Strategic Competitive Environment [Elektronische Daten] [Praveen K Kopalle, Scott A Neslin] We examine the conditions that enhance the economic viability of frequency reward programs in a strategic competitive environment. We focus particularly on conditions related to consumer behavior, namely the extent to which consumers value the future benefits offered by the reward, the expandability of the category, and consumers’ preferences for competing brands. Consumers maximize utility over a long-term time horizon, taking into account the value of the reward. Two firms maximize profits over a long-term time horizon. They first decide between implementing a frequency reward program or a traditional pricing policy (a constant price), and then decide on the specific prices. We numerically solve for the sub-game perfect equilibrium for this two-stage game. We find that a brand is more likely to find reward programs to be viable strategies if consumers value future benefits, if reward programs can expand the market, and if the brand has a higher preference. The market expandability finding is particularly interesting. If the sales increases generated by reward programs represent category growth, the power of frequency reward programs makes them an effective vehicle for generating profits. However, if gains come mainly from competitors, the power of frequency reward programs precipitates a strong competitive response that erodes profits in a classic prisoner’s dilemma. We use the airline industry to explore our market expandability finding. We find evidence that the “major” airlines introduced reward programs to counter-act a stronger outside category (new entrants), and in doing so, they expanded their market. ©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston Retailing nationallicence Pricing nationallicence Frequency Reward Programs nationallicence Dynamic Decision Models nationallicence Switching Costs nationallicence Kopalle Praveen K. Tuck School of Business, Dartmouth College, kopalle@dartmouth.edu aut Neslin Scott A. Tuck School of Business, Dartmouth College, scott.neslin@dartmouth.edu aut Review of Marketing Science De Gruyter 1/1(2003-08-07) 1:1 2003 1 roms https://doi.org/10.2202/1546-5616.1002 text/html Onlinezugriff via DOI 1 research article jats NATIONALLICENCE 856 40 https://doi.org/10.2202/1546-5616.1002 text/html Onlinezugriff via DOI NATIONALLICENCE 700 1- Kopalle Praveen K. Tuck School of Business, Dartmouth College, kopalle@dartmouth.edu aut NATIONALLICENCE 700 1- Neslin Scott A. Tuck School of Business, Dartmouth College, scott.neslin@dartmouth.edu aut NATIONALLICENCE 773 0- Review of Marketing Science De Gruyter 1/1(2003-08-07) 1:1 2003 1 roms CC0 http://creativecommons.org/publicdomain/zero/1.0 nationallicence BK010053 XK010053 XK010000 NATIONALLICENCE NATIONALLICENCE NL-gruyter