257 / 2024-04-23 21:17:36

Selling on Loyalty-Program-Based Platforms: E-Tailer’s Pricing Decision and Platform’s Incentive Policy in Point Redemption

customer loyalty program,platform economy,points-plus-cash redemption,e-tailer pricing strategy,platform incentive policy,consumer behavior

Points-based customer loyalty programs are widely used in various industries, rewarding customers with loyalty points and allowing them to redeem points for products and other benefits. To enhance the redemption rate and brand engagement, many service-oriented companies have established loyalty-program-based platforms that allow customers to redeem loyalty points they have earned from the company to make purchases from e-tailers on the platform. The business intentions and models of these platforms differ from regular platforms, such as Tmall, so the sales strategies routinely adopted by e-tailers on regular platforms may be inappropriate for these platforms. To explore the ecosystem of the loyalty-program-based platforms, we study optimal pricing strategies for e-tailers on such platforms, and analyze how these platforms can regulate e-tailers' pricing decisions by implementing effective incentive policies, with the dual objectives of enhancing profitability and maximizing points redemption. Furthermore, we examine the implications of adopting more flexible redemption strategies for all stakeholders involved, that is, consumers, the e-tailer, and the platform. The results show that allowing cash-only payments can lead to a “win–win–win” outcome for all stakeholders. However, further adding an unfixed combination ratio of points and cash can only achieve such a “win–win–win” outcome under certain conditions. The research findings uncover the collaborative mechanisms between e-tailers and loyalty platforms, delving into consumer behaviors within this framework. It offers valuable decision-making insights for retailers' pricing decisions and platforms' incentive decisions for points-plus-cash redemption strategies, as well as guidance for platforms in selecting effective redemption strategies.