Profitability of coalition programs: an analytical investigation
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Date
2021-04
Authors
Jiang, Siming
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Abstract
This paper investigates the external and internal conditions that sustain a favored framework of loyalty programs for customer acquisition and retention among numerous industries – coalition. After reviewing pertinent literature, a stylized economic model is generated for both stand-alone and coalition cases, with the goal of profit maximization. Each case is then solved analytically to obtain parameterized optimal solutions, subject to necessary constraints. With the help of 3-D plots and enumerations of the optimized solutions, we are able to identify the profit-maximizing conditions for each case and recognize critical thresholds for a profitable coalition. We find that a coalition would not generate a superior total profit if the optimal reward value is far less than the sum of product prices. On the contrary, when the auxiliary product’s price is distributed around its median, a coalition could be more profitable. Additionally, we discover that the optimal reward of a coalition will increase as the product prices rise. This research contributes to academia by offering a preliminary study on coalition regarding customer loyalty, paving the way for future research to advance for more sophisticated study on collaborative business partnerships. Meanwhile, this paper guides the practitioners within the coalition by identifying break-even points, facilitating the generation of operational and marketing plans, and securing the coalition's success and continuance in the long run.
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Keywords
Loyalty Program, Coalition Program