INFORMATION SYSTEMS RESEARCH

Vol. 31, No. 3, September 2020, pp. 835–847

http://pubsonline.informs.org/journal/isre ISSN 1047-7047 (print), ISSN 1526-5536 (online)

When Loyalty Goes Mobile: Effects of Mobile Loyalty Apps on

Purchase, Redemption, and Competition
Yoonseock Son,a Wonseok Oh,b,* Sang Pil Han,c Sungho Parkd
a
Mendoza College of Business, University of Notre Dame, Indiana 46556; b College of Business, Korea Advanced Institute of Science
and Technology, Seoul 02455, South Korea; c W.P. Carey School of Business, Arizona State University, Tempe, Arizona 85281;
d
SNU Business School, Seoul National University, Seoul 08825, South Korea
*Corresponding author
Contact: yson@nd.edu, https://orcid.org/0000-0002-4758-5611 (YS); wonseok.oh@kaist.ac.kr,
https://orcid.org/0000-0002-8123-1382 (WO); shan73@asu.edu, https://orcid.org/0000-0001-5125-9846 (SPH); spark104@snu.ac.kr (SP)

Received: August 17, 2017
Revised: July 27, 2018; April 2, 2019; August 5,
2019; November 1, 2019
Accepted: November 14, 2019
Published Online in Articles in Advance:
August 26, 2020
https://doi.org/10.1287/isre.2019.0918
Copyright: © 2020 INFORMS
Abstract. Avenues for the delivery of loyalty programs have rapidly shifted from plastic
card schemes to mobile app–based initiatives, yet our understanding of the economic value
presented by the latter (i.e., loyalty apps) has not kept pace with this development. We
examine the effects of loyalty app adoption on customers’ offline purchase patterns, re-
ward redemption, and deal-prone behaviors as well as store-level competition in a
multivendor loyalty program (MVLP) context, where multiple offline brands collaborate in
the operation of point-sharing initiatives. Mobile-driven loyalty apps substantially lower
consumer search costs, thereby enhancing on-demand information accessibility and fa-
cilitating the monitoring of reward points. Based on a unique data set that comprises
information on customers’ loyalty app adoption status, loyalty point redemption patterns,
and purchase behaviors in MVLP environments, we investigate how the transition from
plastic-based programs to loyalty apps influences the out-of-pocket spending and point
redemption patterns of consumers. Our findings reveal that the adoption of loyalty apps is
associated with an increase in purchases and the predilection for point redemption. Despite
these positive outcomes, however, potential adverse consequences may arise in the form of
deal-susceptible behaviors and reduced store-specific loyalty. Loyalty app adopters tend to
be more vulnerable to deals, with these customers selectively buying highly discounted
products of low margin. Additionally, loyalty app consumers visit more stores but spend
less in a focal store, thereby diminishing loyalty to this specific store. These results have
managerial implications on optimal mobile-based loyalty program designs and imple-
mentation, reward-driven platform strategies, and risk management initiatives in an
MVLP setting.

History: Saby Mitra, Senior Editor; Sam Ransbotham, Associate Editor.

Supplemental Material: The online appendix is available at https://doi.org/10.1287/isre.2019.0918.

Keywords: mobile apps • mobile customer relationship management (mCRM) • loyalty programs • mobile channel • deal-susceptible behaviors •
difference-in-differences • econometrics • spillover effects • propensity score matching • mere exposure • technology adoption

1. Introduction LPs are easier to implement and require fewer economic

Customer loyalty programs (LPs)—marketing schemes
that enable repeat consumers to earn reward points for
use in future purchases and service upgrades—have
facilitated customer relationship management (CRM)
across a wide range of retail sectors from airlines and
supermarkets to coffee shops. These “purchase-and-
reward” programs are intended to foster increased trust
from patrons, create switching barriers, and immerse
consumers in brand experience, all of which translate
into increased revenue in the short or long term (Dorotic
et al. 2012).
Plastic cards have long been the medium through
which loyalty is cultivated. Many vendors continue to
rely on these marketing avenues because card-based
resources to operate compared with their digital coun-
terparts.1 However, because these physical schemes
place greater weight on transactions than information
accessibility, they are limited in terms of promoting and
preserving consumer engagement (Viswanathan et al.
2017). Moreover, carrying a collection of plastic cards
in overflowing wallets is regarded by consumers as in-
convenient and makes them feel forced to remember
redeeming their rewards. This deficiency in consumer
experience may explain why LPs accessed through plastic
card membership cannot completely capture customer
loyalty (Shugan 2005).
As such, businesses are rapidly replacing plastic cards
with mobile-based loyalty apps, hoping that digitalizing
“fidelity” can reduce consumer friction. Mobile devices

835

836
as channels for program delivery and in-app functions
that are available through loyalty apps enhance the por-
tability, interactivity, and accessibility of loyalty points.
Furthermore, digitalized LPs offer consumers personal-
ized promotions and instant access to their accounts for
an improved service experience (Ransbotham 2015).
However, in spite of these merits, whether con-
verting loyalty measures into mobile-oriented en-
deavors can live up to firms’ expectations, boost sales,
and expand customer engagement remain unproven.
Moreover, the low search costs associated with mobile-
driven LPs can motivate consumers to exhibit deal-prone
behaviors, thereby creating an environment that en-
courages membership from customers who are un-
profitable for the respective firms.
Another important transformation witnessed in the
race to secure loyalty is the emergence of partnerships
and platform developments by way of reward schemes
(Breugelmans et al. 2015). The rapid evolution of the
loyalty landscape has recently encouraged retailers to
join multivendor loyalty programs (MVLPs) through
which customers can earn reward points from an
affiliated retailer that they can use as cash at another
vendor participating in the point-sharing venture
(Berman 2006). However, notwithstanding the syn-
ergistic benefits accrued from collaboration, this shift
may also reshape the competitive dynamics among
participating retailers, with the phenomenon exerting
spillover effects across brands and stores that com-
pete for devoted customers.
Despite the rapid penetration of mobile-based LPs
and the shared loyalty initiatives (i.e., MVLP), a
significant gap remains in our understanding of how
digitalized and coalition-oriented loyalty alters the
purchase behaviors of customers, their relationship
and engagement with a firm, and the competition across
participating stores. Numerous scholarly works focus on
traditional CRM (Reinartz and Kumar 2003, Rust and
Huang 2014) while largely neglecting mobile CRM
(mCRM) and the associated app-based LPs in the
MVLP environment. This lack of attention stems
mostly from the novelty of and minimal participation
to date in mobile and shared LPs.
To fill this gap, we first explain how turning loyalty
schemes into mobile measures reduces consumer
search costs and increases the accessibility of reward-
related information. We then develop relevant hypoth-
eses regarding how the transition from card-based
loyalty initiatives to mobile-driven LPs affects customer
behaviors when multiple brands form a cross-brand LP.
To empirically disentangle these issues, we analyze a
large-scale individual-level panel data set containing
information on 7,712 randomly selected customers and
their loyalty app adoption, transactions, and reward
point redemption behaviors. This unique data set comes
from a large multinational retailer that offers an MVLP.
Son et al.: When Loyalty Goes Mobile
Information Systems Research, 2020, vol. 31, no. 3, pp. 835–847, © 2020 INFORMS
For econometric validation, we carry out propensity
score matching (PSM) with difference-in-differences
(DID) analysis to compare the changes in purchase
and reward redemption among loyalty app adopters
and nonadopters before and after the use of mobile-
driven LPs. Consumers’ purchase frequencies and
spending levels often serve as key measures for es-
timating customer value, and reward redemption is
regarded as a critical aspect of a loyalty reward
program (Dorotic et al. 2012). Correspondingly, we
examine how the transition from card-based schemes
to mobile LPs affects four dimensions of consumer
behaviors, namely (1) out-of-pocket (i.e., cash and
credit card) expenditure, (2) frequency of out-of-
pocket purchase, (3) amount of points redeemed,
and (4) frequency of point redemption.
Our results indicate that the adoption of mobile
loyalty apps positively influences purchase and point
redemption. Loyalty app adoption also encourages
consumers to visit stores that they would otherwise
ignore but spend less in focal stores where they ex-
pend the most resources. This finding suggests that
competition among retailers can further intensify in a
mobile-based MVLP environment and that store-
specific loyalty can diminish when MVLP initia-
tives are in place. Furthermore, loyalty app adoption
is also associated with deal susceptibility among
consumers. These empirical patterns highlight the
potential risk presented by loyalty apps, accentuating
the vulnerability of customers to deals with which
they are encouraged to selectively purchase highly
discounted products of low margins. Finally, the ef-
fects of both mobile channels and in-app functions are
related to spending behaviors, but in-app features are
associated with the spillover effect of stores visited
under an MVLP scheme.
This study offers several important contributions to
the growing body of literature that revolves around
the effects of LP digitalization on the dynamics of
customer behaviors and the performance of busi-
nesses as follows. First, we scrutinize how the adoption
of mobile-driven loyalty initiatives affects a customer’s
interaction with brands and consequently leads to
purchase. Although studies on mobile targeting
(Andrews et al. 2016) have adequately demonstrated
the advantages of mobile platforms, they focus ex-
clusively on particular spontaneous purchase events
(e.g., coupon redemption) rather than on sustained
efforts to foster customer–firm relationships. Second,
our research broadens the current understanding of
loyalty points through the integrated lens of search
costs and mere exposure effects (Zajonc 1968, Rishika
et al. 2013) with an explanation of consumers’ point
spending and management behaviors after loyalty
app adoption. This study articulates how the reduced
search costs and enhanced accessibility driven by
Son et al.: When Loyalty Goes Mobile
Information Systems Research, 2020, vol. 31, no. 3, pp. 835–847, © 2020 INFORMS
mobile channel and in-app function effects influence
consumers’ spending behaviors and point redemp-
tion patterns. Third, this study delves into the MVLP
environment, wherein multiple brands collaborate in
point-sharing programs. This orientation broadens
extant literature because it introduces the dynamics
unique to the MVLP setting and uncovers how the
transferability of reward points causes potential
spillover effects and influences competition among
brands and stores. Fourth, although the benefits of
mobile technologies are well established in the litera-
ture (Fong et al. 2015), the knowledge concerning
potential business-related hazards posed by such
innovations is scarce. Our study demonstrates that
although the digitalization of loyalty may yield many
tangible benefits, retailers should nevertheless be
alerted to potential threats that can adversely affect
their performance.
2. Related Literature
The first stream of literature relevant to our study
concerns LPs. This stream of literature investigates
the relationship between reward point redemption
and cash expenditure behaviors (Kivetz et al. 2006,
Dorotic et al. 2014). These authors show that cus-
tomers exhibit a forward-looking behavior and has-
ten their purchase as they become closer to redeeming
a reward (Kivetz et al. 2006) and that redemption
itself can be a by-product of positive learning (Taylor
and Neslin 2005). Furthermore, such effects are main-
tained regardless of the amount and timing of redemp-
tion (Dorotic et al. 2014). Previous studies draw on
the mental accounting framework (Thaler 1985) to
highlight how customers perceive cash and reward
points differently when they purchase products from
the store where they earned points (Drèze and Nunes
2004, Stourm et al. 2015), despite their equal eco-
nomic value.
A recent stream of the literature focuses on MVLPs
because they have become increasingly prominent
(Breugelmans et al. 2015). To date, studies have
presented mixed evidence of the effects of MVLPs
using only limited data (Lemon and Wangenheim
2009, Dorotic et al. 2012, Schumann et al. 2014). On
the one hand, MVLPs can create positive synergy among
participating partners as a result of consumers’ cross-
buying behaviors (Lemon and Wangenheim 2009).
On the other hand, they can also generate negative
spillover effects when service failure by one partner
within the MVLP negatively affects not only company
loyalty but also program loyalty (Schumann et al. 2014).
Our research also draws on the growing literature
related to the effect of commercial apps. The ad-
vancement of information technology (IT) innovations
(i.e., mobile technologies) has led the customer–firm
837
relationship to become one in which consumers take
charge of business dealings. Among the analytical
efforts concerned with commercial app adoption and
customer behaviors, Bellman et al. (2011) use a lab-
oratory experiment designed to examine the effects of
a branded mobile app on customers’ brand attitude
and purchase intention. The results indicate that app
usage increases customers’ interest in a brand and its
product category while also promoting their pur-
chase intention. Similarly, Kim et al. (2015) show that
app adoption and the continued use of a branded
app raise adopters’ spending levels, whereas the
abandonment of the apps decreases their spending
levels. The authors also inquire into the manner by
which information lookups and check-ins influence
adopters’ spending. Lastly, Viswanathan et al. (2017)
use data from an LP and examine how customer
engagement and purchase behaviors influence each
other over time. They find that customers’ disen-
gagement with mobile apps can negatively affect the
long-term success of vendors. To the best of our
knowledge, little research has been devoted to mobile
innovations for LPs, and only limited studies have
analyzed the competitive nature of brands and stores
(Fong et al. 2015) as well as the role of IT within an
MVLP setting. In contrast to previous research, we fur-
ther examine the spillover effects associated with loyalty
app adoption from the viewpoints of firms. We also
provide an understanding of the underlying mecha-
nism that may have driven the results in the empirical
analyses by disentangling the estimated business im-
pact (i.e., mobile channel and in-app function effects)
engendered by the loyalty app adoption.
3. Theoretical Background and
Hypothesis Development
3.1. Effects of Loyalty App Adoption on Point
Redemption and Out-of-Pocket Spending
Information search (one of the key tasks in consumers’
purchase decision processes) profoundly affects custo-
mer behavior and preferences (Punj and Staelin 1983).
However, the search for and gathering of informa-
tion involve both tangible and intangible monetary
costs (i.e., time and effort) that often exceed expected
benefits. High search costs can prevent consumers
from actively engaging in information search, af-
fecting their inclination to purchase products (Bakos
1997, Huang et al. 2009). However, such an impedi-
ment may be less problematic with the advent of
mobile technologies that allow customers ubiquitous
access to desired information and, accordingly, re-
duce the costs incurred from searching for products
and services (Ghose et al. 2013).
In this light, two major features of interest arise.
First, the high intrinsic portability and communicative

838
utility of mobile channels offer the advantage of con-
venience, that is, the value of achieving a task effec-
tively. Loyalty app users spend less time and effort
viewing and managing current loyalty points because
this information is instantly accessible through a single
touch on a loyalty app. Hence, loyalty apps repeatedly
expose users to loyalty points via the familiarity that
develops through mere exposure (Sun et al. 2017). The
low search costs incurred over mobile apps can en-
courage consumers to repeatedly monitor their re-
sources (i.e., reward points) through their devices—a
behavior that produces and reinforces the positive
effects of loyalty apps. Moreover, mobile-based re-
minders, which can further strengthen the need for
point maintenance, exert an immediate effect on how
an individual conducts himself or herself (Calzolari
and Nardotto 2016). The same positive influence of
exposure on the behaviors of loyalty app users can thus
originate from a prompt regarding loyalty points.
These convenient features strikingly contrast with
the extra effort required to view and manage loyalty
point balances in plastic card–based LPs—an incon-
venience that drives consumers to perceive loyalty
points as a secondary source of funds (Drèze and
Nunes 2004). Plastic card users are therefore rela-
tively less likely to be exposed to loyalty points than
are loyalty app users. This lack of mere exposure ef-
fects (Zajonc 1968) translates to a mutually reinforcing
cycle of unfavorable outcomes, where the increased
time and procedure required to access information
reduce convenience and accessibility, which, in turn,
discourage endeavors to keep track of loyalty points.
The effects of adopting a loyalty app do not result
solely from the intrinsic advantages of mobile chan-
nels (e.g., portability, accessibility, and convenience)
but also result from additional features embedded in
loyalty apps (e.g., in-app functions). With in-app
functions, concern revolves around the supplemen-
tary functions that are offered exclusively by loyalty
apps and mostly unavailable on web browsers. Hence,
unlike the plastic card users who can access only core
information and functions (i.e., checking loyalty points),
loyalty app consumers can activate auxiliary in-app
functions that are unique to mobile innovations. Such
empowerment is also engendered through mobile-
driven functions, such as the increasingly personal-
ized communication enabled by location flexibility and
high accessibility (Ghose et al. 2013, Ransbotham
et al. 2019).
Because mobile-based artifacts (e.g., loyalty apps)
augment convenience and accessibility as well as
reduce search costs associated with shopping and
managing the time and effort devoted to resources,
customers who transact through such technologies
are likely to actively purchase products and services
(Gupta and Kim 2010). Thus the intrinsic features of
Son et al.: When Loyalty Goes Mobile
Information Systems Research, 2020, vol. 31, no. 3, pp. 835–847, © 2020 INFORMS
mobile channels and the supplementary functional
elements provided by loyalty apps may favorably
affect behaviors, such as point redemption and out-
of-pocket spending. In this respect, we hypothesize
the following.
Hypothesis 1. Loyalty app adoption is positively associated
with point redemption and out-of-pocket purchase behaviors.
3.2. Effects of Loyalty App Adoption on
Cross-Store Sales
In contrast to a single-vendor LP, an MVLP allows
customers to purchase products as well as accumu-
late and redeem loyalty points from multiple stores
that are affiliated with the LP. This single membership
but multioption character of MVLPs affords cus-
tomers increased convenience and redemption op-
tions (Bijmolt and Verhoef 2017) and generates a
network effect.
We posit that before loyalty app adoption, cus-
tomers’ consideration of a set of stores is restricted
and static because of limited touchpoints between
vendors and consumers under a plastic card–based
scheme. Specifically, the time and effort expended in
searching for information on multiple stores that are
banded together through MVLP arrangements would
be high for plastic card users relative to those required
from loyalty app users. However, after loyalty app
adoption, customers freely access information on
different stores that participate in the respective
MVLP without temporal and geographic restrictions
because loyalty app usage reduces search costs while
enhancing information accessibility. Customers can
also take advantage of in-app functions such as location-
based technology (i.e., Global Positioning System) to
search for nearby stores. Consequently, they become
aware of stores they have previously overlooked.
Additionally, customers more actively establish
meaningful contact over loyalty apps than over plastic
card–based initiatives given that the interactivity,
engagement, and control advanced by mobile tech-
nology bring forth a positive persuasive effect, cor-
respondingly increasing interest in not only a store
but also its product categories (Bellman et al. 2011).
Before loyalty app adoption, the search for suitable
alternatives (i.e., other stores offering similar product
categories) may be relatively complicated given the
dispersion of limited information and the high costs
associated with searches and evaluations (Ray et al.
2012). However, the increased information availability
allowed by loyalty apps enhances consumers’ aware-
ness of alternative stores. When an alternative is viewed
as complementary to an existing option, customers may
easily track expenses for related selections within the
same category and easily transfer allocated budgets from
existing to alternative choices (Netemeyer et al. 2012).
Son et al.: When Loyalty Goes Mobile
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These effects, in turn, facilitate purchases from a nonfocal that the retailer operates in Korea. The firm has more
store (James 2005) and decrease store-specific loy- than 18,000 offline stores nationwide, serves millions
alty. Correspondingly, we put forward the following of customers, and offers one of the most widely
hypothesis. known customer loyalty reward programs in the
country. Enrolled customers can earn 5% of their
Hypothesis 2. In MVLP environments, loyalty app adop-
expenditure as reward points, which are redeemable
tion is positively related to the number of stores from which
as cash.2 A noteworthy attribute is that the MVLP
customers purchase but negatively associated with store-
permits customers to earn points at a store of an af-
specific loyalty.
filiated brand and use them as cash at another store,
even for a different brand within the same MVLP.
3.3. Effects of Loyalty App Adoption on Customers’
This transferability engenders potential spillover ef-
Susceptibility to Deals
fects among brands and stores.
The innate characteristics of mobile channels broaden
In addition to the plastic cards through which
LP engagement from a transaction-based occupation
customers can accumulate points, a loyalty app was
to an engagement-based activity. Consumers can
launched to enhance customer engagement with the
proactively acquire information on promotions and
brands. When customers first enroll, they can either
redeemable points via loyalty apps with increased
receive a plastic card or directly register on the firm’s
accessibility—a convenience that facilitates enriched
loyalty app after download. A customer who initially
interactions between customers and firms. We believe
opted for the plastic card can still register on the
that the convenience and information accessibility
loyalty app. A notable feature of the loyalty app is that
made possible by loyalty apps promote customers’
its users can instantly check their point status and
efficient spending behaviors and preference for deals.
ongoing promotions in real time (e.g., accumulated
Loyalty apps may motivate consumers to become in-
loyalty points and redeemable coupons), whereas the
creasingly price conscious and responsive to promotional
plastic card users have to search the web or log in to
deals and campaigns because of the ease and enhanced
the firm’s website to access the same functions. We
in-app functions offered by these programs. The
define loyalty app adopters as those who first registered
control placed in the hands of consumers may alter how
for the plastic card LP, later enrolled in the loyalty app
they search for products and make purchase decisions
scheme, and accumulated records of loyalty app
(Rishika et al. 2013). For instance, low search cost can
usage to earn and redeem loyalty points. Our em-
facilitate the active use of loyalty apps instead of
pirical data set contains individual consumer-level
passive involvement in promotions (Hui et al. 2013).
panel data (7,712 consumers) on cash (“out-of-pocket”)3
It also increases price sensitivity and changes con-
and point transactions as well as demographic pro-
sumer’s willingness to pay (Clemons 2008) and the
files from January 2015 to July 2015 (seven months) on
price elasticity of demand (Granados et al. 2012).
a monthly basis. Table 1 lists the variable definitions
This loyalty app–enabled opportunity for vigorous
and summary statistics for our data set.
participation translates into an effortless search for
price promotions, which prompts customers to satisfy
5. Methodology and Main Results
their desire to increase the transaction utility of each
5.1. Identification Strategies
purchase. However, this situation does not neces-
Given that our data are not obtained from a controlled
sarily imply that a customer reduces the expenditure
field experiment, the estimate of loyalty app adoption
allocated to a firm following loyalty app adoption
can be biased because of potential self-selection. We
because not all products are offered under a pro-
address this problem by using a PSM method in
motion. Rather, customers exhibit efficient purchase
constructing a matched control group for each cus-
behaviors when alternative price options exist and
tomer in the treatment group. After constructing a
technological intervention expedites search and pur-
matched customer data set, we carried out DID es-
chase processes. Following this line of reasoning, we
timations to probe into the effects of loyalty app
formulate the next hypothesis.
adoption on purchase and point redemption behav-
Hypothesis 3. Loyalty app adoption is positively associated iors. We also perform store-level analysis and explain
with susceptibility to promoted deals. the mechanism under which loyalty app adoption
may pose risks to certain stores.
4. Empirical Setting
The data set for this study comes from a large mul- 5.2. Propensity Score Matching
tinational offline firm that provides an extensive PSM is used to find a matched pair of control and
MVLP, encompassing 15 brands (i.e., Baskin Robbins, treatment groups in accordance with the proximity of
Jamba Juice, and others) of baked goods and other their propensity scores (Rosenbaum and Rubin 1983).
food categories. We focus on the brands and stores In this study, the major difference between the two
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Table 1. Variable Definition and Summary Statistics (Monthly Average)

Category and Standard

variable Definition Mean deviation Minimum Maximum Median

Time variant
(53,984 observations)
Monetary value
Spending levelit Amount transacted by the customer (in U.S. dollars) 24.65 22.31 0.00 418.50 19.54
Frequency
Purchase freqit Number of transactions made 2.74 2.69 0.00 45 2.00
Mean IPTit Average interpurchase time (IPT; in days) 11.90 6.48 0.00 185.00 9.75
Recency
SD Dayit Standard deviation of purchase time (in days) 12.35 7.85 0.00 129.40 8.71
SD Hourit Standard deviation of purchase time (in hours) 3.65 1.00 0.00 16.26 3.05
Reward points
Usage levelit Average reward point redemption amount 1.20 4.10 0.00 40.45 1.24
Usage freqit Number of point redemptions 0.20 0.52 0.00 11.00 0.00
Promotion
Prom spendingit Amount transacted by the customer on promoted 0.33 2.95 0.00 42.27 0.45
products (in U.S. dollars)
Prom freqit Number of transactions made on promoted 1.07 0.36 0.00 7.00 0.00
products
Multivendor
Brandit Number of brands visited 1.50 0.40 0.00 6.00 1.00
Storeit Number of stores visited 2.03 0.76 0.00 13.00 2.00
Time invariant
(7,712 observations)
Direct marketing
SMSi 1 if customer opted for SMS marketing, 0 otherwise 0.83 0.38 0.00 1.00 1.00
Emaili 1 if customer opted for email marketing, 0 otherwise 0.64 0.48 0.00 1.00 1.00
Demographics
Agei Age of customer 37.06 10.19 10.00 67.00 38.00
Genderi 1 if customer is male, 0 otherwise 0.17 0.37 0.00 1.00 0.00
Cityi 1 if customer resides in the urban areas, 0 otherwise 0.56 0.50 0.00 1.00 1.00

Notes. The units of time-variant variables are individual (i) and month (t). The units of time-invariant variables are individual (i). The time-variant
variables are measured by calculating the monthly average of each customer, and observations of time-variant variables totaling 53,984 are
obtained by multiplying the number of consumers by the number of months (7,712 × 7). Months with no purchase records are excluded for the
recency variables. SMS, short message service.

groups is that although they both initially enrolled in
the company’s plastic card scheme, the customers
constituting the treatment group subsequently adop-
ted the loyalty app. Moreover, we focus on the sample
of customers who registered in the LP before the ini-
tiation of our data-collection period and made at least
three purchases during the preadoption period of our
analysis. Through PSM, we use three months of data
before adoption to identify a control group that is
similar to the treatment group in the preadoption
period to mirror a randomized experimental setup
(Rubin 2006). Because of this, loyalty app adoptions
occur in month 4 of our data or after. This procedure
leaves us with 3,856 pairs of customers. The valida-
tion results of the PSM procedure are presented in
Online Appendix A.
5.3. Effects of Loyalty App Adoption on Point
Redemption and Purchase Behaviors
In our DID estimation, we compare the relative change
in the purchase and reward redemption behaviors of
adopters and nonadopters before and after loyalty app
adoption using the following model:
( )
ln Oijt
β1 Adoptionijt + β2 Adoptionijt × Treatmenti
+ αt + τi + εit , (1)
where i denotes customer i, j denotes a matched pair
of customers, and t represents month t. Oijt is the
dependent variable (i.e., expenditure and purchase
frequency of cash and point redemption transac-
tions), and Treatmenti is a treatment dummy variable
that equals one if the customer belongs to the treat-
ment group and zero otherwise. Adoptionijt denotes an
adoption dummy variable that equals one in periods
on and after the month of loyalty app adoption and
zero prior to the adoption month for each treated user
and the matched untreated user. Hence, if a treated
user in a pair adopts a loyalty app in the first month
of our adoption period, the pair’s indicator of the
adoption dummy variable will be one for that month
and the following months and zero for months before
Son et al.: When Loyalty Goes Mobile
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the adoption month. Such operationalization of the
variables accounts for temporal factors that may si-
multaneously affect loyalty app adoption in between
users (Xu et al. 2016). Individual (τi ) and monthly (αt )
dummy variables are included to control for customer-
specific heterogeneity and longitudinal systematic
changes common across all customers. The coefficient of
interest, β2 , captures the effects of loyalty app adoption
on the four key dependent variables for adopters after
adoption in comparison with nonadopters.
Table 2 reports the estimation results of model (1)
using a sample based on our baseline matching tech-
nique (i.e., one-to-one matching without replacement).
The estimates of β2 indicate that point redemption
expenditure and purchase frequency increase by
21.05% and 23.49%, respectively. Furthermore, the out-
of-pocket expenditure and purchase frequency also
increase by 37.58% and 40.49%, respectively, thus
supporting Hypothesis 1 (p < 0.01).
These results indicate that consumers spend more
money and purchase more often on pure cash transac-
tions and pure point redemption transactions after loy-
alty app adoption. To validate our findings, we perform
two sensitivity analyses—Rosenbaum bounds analy-
sis (Rosenbaum 2002) to account for the magnitude of
hidden bias and the relative correlation restriction
analysis (Krauth 2016) to account for the presence of
unobserved selection with regard to the treatment
effect (see Online Appendix B). Nonetheless, the
causal relationship between loyalty app adoption and
behavior change should be interpreted with caution
because the selection biases related to unobservable
attributes cannot be completely ruled out in our
setting in which the adoption of loyalty apps was
not exogenously assigned to each customer.4
5.4. Spillover Effects Across Stores
Despite the merits of loyalty apps, there are risks
associated with the integration of mobile technology
with the card-based LP. For instance, the ease of
location-based search via loyalty apps may create a
store-level spillover effect, wherein loyalty app
adopters visit more stores that they would otherwise
disregard. From a firm’s perspective, such spillover
effects may not necessarily be constantly advanta-
geous and may not be equally applicable to all stores
within an MVLP.
To ascertain the existence of cross-store spillover
effects, we calculate individual customer’s expendi-
ture in every store during the pretreatment period
and identify in which store the customer spent the
most (we refer to the store as a focal store). Given that
loyalty app adopters increase their spending and
store visits (compared with plastic card users) after
adoption, we assess whether customers change their
spending share and amount from the focal store after
adopting the loyalty app. To this end, we first cal-
culate the number of stores visited and use this
as a dependent variable. Second, we divide each
customer’s expenditure at the focal store by the
total expenditure during the pre- and posttreatment
periods to obtain the variable focal store purchase
percentage. Hence, a negative coefficient would imply
that despite an increase in total expenditure, cus-
tomers spend disproportionately less in their focal
store after adoption of the loyalty app. We also cal-
culate purchase frequency ( focal store purchase fre-
quency) and expenditure level ( focal store expenditure
level) from a focal store in the absolute values because
the absolute amount of expenditure could increase
despite a decrease in the percentage spent.
Results in panel A of Table 3 indicate that customers
visit more stores after adoption of the loyalty app.
However, despite the increase in an individual’s total
expenditure after adoption, customers spend less in
their focal store in terms of both percentage and ab-
solute amount.
These findings suggest that the use of loyalty apps
is associated with an increase in store-level compe-
tition, providing support for Hypothesis 2 (p < 0.01).

Table 2. Effects of Loyalty App Adoption on Point Redemption and Purchase Behaviors

Point redemption Out of pocket

Hypothesis 1 Expenditure Frequency Expenditure Frequency

Adoption (β1 ) 0.136*** 0.193*** −0.0173 −0.0315

(0.0140) (0.0180) (0.0302) (0.0300)
Adoption × Treatment (β2 ) 0.191*** 0.211*** 0.319*** 0.340***
(0.0090) (0.0118) (0.0233) (0.0236)
R2 0.342 0.355 0.182 0.201
No. of observations 53,984 53,984 53,984 53,984
No. of users 7,712 7,712 7,712 7,712

Notes. The robust standard errors are enclosed in parentheses (clustered on individuals). We used one-
to-one matching with common support and a caliper size of 0.2× standard deviation. The unit of analysis
is at the user-month level. After the inclusion of individual time-invariant variables without individual
fixed effects, the results remained robust for all of the variables.
***p < 0.01.
 Son et al.: When Loyalty Goes Mobile
842 Information Systems Research, 2020, vol. 31, no. 3, pp. 835–847, © 2020 INFORMS

This result is contrary to the motivation behind the
implementation of MVLPs: firms expect a greater
share of profit as customers visit more stores on a
regular basis. Thus, despite an increase in the number
of stores from which customers purchase products
after the adoption of the loyalty app, such spillover
may not always be rewarding for all parties.
5.5. Deal-Susceptible Behaviors of Customers
Previous literature asserts that because not all cus-
tomers enrolled in an LP are profitable for a firm, a
more beneficial strategy is to exclude unprofitable
customers and concentrate on serving high-profit
consumers (Shin et al. 2012). Likewise, although
previous analyses highlight the positive aspects of
a mobile medium, low search costs for promotions
and discounts may lead to deal-susceptible behav-
iors among customers, thereby fostering an environ-
ment that encourages membership from unprofit-
able customers.
The high information accessibility provided by
mobile devices may expose consumers to promo-
tional information anywhere and anytime, and it may
also strengthen the bond between a firm and its
customers. At the same time, the low search cost
enabled by mobile technology may engender a deal-
susceptible behavior that involves hunting for dis-
counts, generating negative profits for retailers
(Talukdar et al. 2010). We operationalize the deal
susceptibility as discount percentage from purchases.
Panel B of Table 3 illustrates that, on average, cus-
tomers tend to reserve a high proportion of their
spending for promoted products after loyalty app
adoption, lending support for Hypothesis 3 (p < 0.01).
To delve into the economic impact of the deal
proneness evoked by loyalty apps, we first create
indicators for the number of purchases by individuals
during the pretreatment period. We then interact the
interaction dummy of the treatment and adoption
variables with the dummies for each subgroup.
Hence, the interaction is incorporated into the analysis
on the basis of the number of purchases during the
pretreatment period, allowing an estimation of the
following specification (Blake et al. 2015):
Discount percentageigt
( )

β1 Treatmenti × Adoptionit × Indicatorig
+ βg + εit . (2)
In Equation (2), g (= 4, . . . , 16) indicates the user
segment based on purchase frequency. For example,
customers who purchased seven times in the pre-
treatment period would belong to the g = 7 segment.
Figure 1 plots the DID interaction estimates (β1 ) for
each segment and shows that less active users en-
gage in deal-susceptible behaviors more frequently.
We can therefore infer that loyalty app adoption is
related to the susceptibility of consumers to deals
and may thereby undermine the profitability of loy-
alty programs.
6. Disentangling the Mobile Channel Effect
and In-app Function Effect of Loyalty
App Adoption
In this section, we focus on the two underlying factors
that markedly differentiate loyalty apps from plastic
cards: mobile channel and in-app function effects. The
mobile channel effect refers to the intrinsic characteristic
of mobile channels (i.e., portability and always-on
connectivity), which reflects the lower time and effort
required to initiate a search process for acquiring
information.5 Meanwhile, the in-app function effect
mainly concerns the additional in-app functions pro-
vided exclusively by loyalty apps and that are

Table 3. Increased Store-Level Competition and Customer-Level Deal-Susceptible Behavior

No. of No. of
Dependent variable Interaction term R2 observations users

Panel A: Store-level competition (Hypothesis 2)

(1) Number of stores visited 0.077*** (0.0098) 0.404 53,984 7,712

(2) Focal store purchase percentage −0.0354*** (0.00733) 0.437 45,244 7,712
(3) Focal store purchase frequency −0.0292*** (0.00714) 0.218 53,984 7,712
(4) Focal store expenditure level −0.0738** (0.0324) 0.341 53,984 7,712

Panel B: Deal-susceptible behavior (Hypothesis 3)

Discount percentage 0.0038*** (0.0016) 0.794 45,244 7,712

Notes. Robust standard errors are in parentheses (clustered on individual). Equation (1) is used while using different dependent variables, and
the number of brands visited is included as a covariate to control for customers’ brand usage intensity. Results remain consistent after including
discount percentage, focal store purchase percentage, and focal store purchase frequency in the matching variables of PSM (results are available on
request). The number of observations for focal store purchase percentage and discount percentage falls short of the total observations given that the
months in which customers did not make a purchase were excluded from the analysis.
***p < 0.01; **p < 0.05.
Son et al.: When Loyalty Goes Mobile
Information Systems Research, 2020, vol. 31, no. 3, pp. 835–847, © 2020 INFORMS
Figure 1. Deal-Susceptible Behavior and Purchase
Frequency with 95% Confidence Intervals
Notes. Dotted line represents the trend line. Error bars are at 95%
confidence intervals.
unavailable on web browsers. To the best of our knowl-
edge, the opportunities offered by mobile technologies
have not motivated active inquiries into the differential
effects of loyalty app adoption in relation to MVLPs.
Because the loyalty app in our study encompasses
both effects, we disentangle them by collecting ad-
ditional data on adopters of the so-called basic app.
Plastic card users of our focal loyalty program can
enroll via two types of apps: a branded app (focal app)
and a basic app. The branded app is an innovation
launched exclusively by the brand or loyalty program
of interest (e.g., Starbucks LP) and offers various in-
app functions (i.e., sending gifts to friends or con-
necting to affiliated online shopping malls) provided
by most other loyalty apps. When customers activate
the branded app, they are directed to a landing page
that displays a range of functions and information
related specifically to the focal LP. Thus, a branded
app encompasses both the mobile channel and in-app
function effects. Unlike the branded app, the basic
app (i.e., Loyalty Card Keychain, Loyalty Card Wallet)6
refers to a mobile app that is akin to an all-inclusive
repository of customers’ memberships; that is, cus-
tomers can register several loyalty reward programs
to which they subscribe in a single basic app. For
instance, if a customer is enrolled in three LPs, he or
she can put all of these on record in the basic app,
similar to how a mobile wallet for LPs is used. A key
difference between the branded and basic apps is that
additional functions and features are unavailable via
basic apps, with which users can only register loyalty
programs and then, earn and redeem loyalty points.
Hence, basic apps include the mobile channel effect
but without the in-app function effect.7
Given the structural difference between branded
and basic apps, we explore mobile channel and in-app
function effects by comparing the treatment effects of
these two loyalty apps. We replicate our main iden-
tification strategies to control for selection bias by
conducting PSM between 21,583 basic app adopters
843
and 3,856 branded app adopters, resulting in a sample
of 3,856 pairs of matched basic app and branded app
adopters. Next, to acquire matched pairs for basic app
adopters and nonadopters, we additionally conduct
PSM between the matched 3,856 basic app adopters
and nonadopters who were not originally included in
our sample. Hence, our final sample consists of 7,712
nonadopters (3,856 users matched with basic app
adopters and 3,856 users matched with branded
app adopters) and 7,712 app adopters (3,856 basic
app adopters and 3,856 branded app adopters).
We then interact the indicator variable (BrandedApp)
that takes the value of one for branded app adopters
and zero otherwise with the interaction effect to
create a three-way interaction term and fulfill the
following specification:
( )
ln Oijt
β1 Adoptionijt + β2 Adoptionijt × Treatmenti
+ β3 Adoptionijt × Treatmenti × BrandedAppi
+ ϕX i + αt + εit . (3)
The variables Adoption and Treatment are defined the
same way as in Equation (1), and we include indi-
vidual time-invariant customer information and
BrandedApp as controls (Xi ). The key coefficients of
interest are β2 and β3 , denoting the mobile channel
and in-app function effects, respectively. The three-
way interaction term estimates the extent to which the
moderator (whether the adopters adopted branded
app or basic app) affects the app adoption effect. To
reiterate, basic apps enable users to leverage mobile
channels by allowing them to check available re-
demption points at any time with higher convenience
and accessibility (i.e., mobile channel effect), but such
apps do not generate functional effects because they
do not offer additional functions or features that are
available via branded apps. Before presenting our
results, we direct attention to the fact that our in-
tention is to disentangle channel and in-app function
effects and not the effect of each app function. As
shown in Table 4, both have a significantly positive
impact on all four dependent variables. Interestingly,
we observe a differential effect of each element on out-
of-pocket and point expenditure behaviors. For in-
stance, the channel element exhibits a strong impact
when it comes to activating out-of-pocket spending,
whereas no significant difference in magnitudes ex-
ists between the mobile channel and in-app function
effects with respect to point redemption behaviors.
Specifically, the higher information accessibility and
lower search cost (i.e., mobile channel effect) granted
by loyalty apps are effective in activating both cus-
tomer purchase and point redemption behaviors. In
addition, the availability of in-app functions also
contributes to more active purchase and point re-
demption behaviors. We also examine whether the

844 Information Systems Research, 2020, vol. 31, no. 3, pp. 835–847, © 2020 INFORMS
channel and function usage factors have differential
effects on the store-level purchases and find that in-app
function effects contribute to an increase in deal-
seeking behavior; both effects contribute to an in-
crease in the number of stores visited, whereas only the
in-app function effect is associated with the spillover
effect of store-level purchases (details of these results
are available in Online Appendix C).
7. Robustness Checks
Because we used observational data in our empirical
analyses wherein customers were not randomly assigned
to either the control or treatment group, there may be
both observable and unobservable differences between
the two groups affecting the decision to adopt the
loyalty app. Hence, to validate the consistency of our
main results, we conduct a series of robustness checks
and falsification tests in multiple dimensions. First, we
account for additional observable differences that may
affect the result of loyalty app adoption. Specifically, we
use alternative PSM specifications, include additional
sets of variables in the matching procedure, and use an
alternative matching procedure (i.e., coarsened exact
matching). Second, because the matching procedures
do not capture the differences related to unobservable
factors, we carry out several analyses to examine the
robustness of our results to the unobservable differ-
ences. Specifically, we account for customers’ planned
behaviors by using alternative matching methods
and analysis periods,8 conducting forward-looking
matching (Xu et al. 2016) procedures, and using
Heckman’s two-step correction approach (Heckman
1979) and a treatment effects model (Maddala 1983).
Third, by using the relative time model (Greenwood
and Agarwal 2016), we assess whether our results are
biased by the heterogeneous trend in the preadoption
period between the two groups. Fourth, to eliminate
Table 4. Main DID Estimation Results with Mobile Channel Effect and In-app
Function Effect
Out of pocket
Expenditure
Adoption × Treatment (β2 ) 0.216***
(0.0247)
Adoption × Treatment × BrandedApp (β3 ) 0.107***
(0.0210)
R2 0.031
No. of observations 107,968
No. of users 15,424
Notes. Robust standard errors are in parentheses (clustered by individual). We confirm that the
difference in matched variables for two groups was statistically insignificant and that the matched
sample represents the entire sample used for matching.
***p < 0.01.
Son et al.: When Loyalty Goes Mobile
the possibility that our treatment effect has occurred
spuriously, we conduct a set of falsification tests. In
doing so, we randomly assign adoption period and
treatment groups to assess whether our results are not
a mere consequence of spurious correlation that oc-
curred by a random chance. Fifth, we assess the ro-
bustness of our results by using alternative model
estimators and model setup, such as using equiva-
lent gender distribution because the majority of the
customers in our sample are female, considering se-
rial correlation in standard errors, and using count
models for count-dependent variables. Sixth, we carry
out additional analyses to rule out alternative explana-
tions to our findings, such as outliers driving the treat-
ment effects. The results remain consistent throughout
the series of robustness checks, and the details are pro-
vided in Online Appendix D.
8. Implications and Conclusion
Using large-scale transaction data obtained from a
multinational retailer, we assessed how a shift from
traditional loyalty cards to mobile-driven loyalty
apps affects consumers’ reward redemption patterns,
purchase behaviors, and store-level competition. The
findings indicate that loyalty app adoption is asso-
ciated with increased expenditure and purchase fre-
quency as well as more active point redemption. In an
MVLP context, the use of loyalty apps is associated with
spillover effects in which case customers visit more
stores that they had not previously considered and
exhibit diminished allegiance to their focal shop after
they adopt a loyalty app. Finally, the adoption of loyalty
apps is related to deal-prone behaviors because in-
formed consumers tend to selectively purchase highly
discounted products.
Our findings provide several valuable implica-
tions for managers and platform owners who are
Point redemption
Purchase Purchase
frequency Expenditure frequency
0.238*** 0.110*** 0.168***
(0.0249) (0.00976) (0.0153)
0.108*** 0.114*** 0.169***
(0.0206) (0.0117) (0.0130)
0.027 0.026 0.026
107,968 107,968 107,968
15,424 15,424 15,424
Son et al.: When Loyalty Goes Mobile
Information Systems Research, 2020, vol. 31, no. 3, pp. 835–847, © 2020 INFORMS
considering launching mobile LPs and participating in
an MVLP market. Although the merits of loyalty app
adoption are apparent, we caution against potential
downsides at individual store levels. Many customers
are likely to succumb to deals, selectively purchasing
highly discounted products with low margins through
loyalty apps. Because consumers are typically in con-
stant engagement with their mobile devices, they can
easily access information and strategically forage for
inexpensive goods or products on promotion. The
thrust of LPs should be directed toward fostering a
strong connection with a brand, going beyond the
promise of deals and promotions. Yet, loyalty apps can
mold consumers into increasingly price-responsive
individuals because these apps function as channels for
promotions and deals. Managers should therefore en-
deavor to reinforce loyalty among customers who may
display a predilection for deals and discretely establish
a point redemption system with consideration that the
benefits derived from MVLPs tend to steer customers
away from their focal stores. Notwithstanding the gen-
eral increase in consumers’ total expenditure and the
number of stores they visit, the frequency with which
they purchase in focal stores can decrease. These
findings suggest that mobile-driven LPs place many
individual stores at risk and further intensify “local”
competition among participating offline stores. Store
managers should correspondingly be mindful that their
consumers can always be “mobile” as their choice sets
expand and that such mobility can further increase
after loyalty app adoption, particularly in an MVLP
environment. Focal stores may therefore face inten-
sified local rivalry and suffer from declining loyalty
from their regular patrons. This implies that collab-
oration is the principal driver of MVLP establishment
but that competition can also be pivotal in determining
the outcome of such an arrangement. That is, both col-
laboration and competition among member retailers
would increase after the adoption of loyalty apps.
Similar to other research, our study is encumbered
by certain limitations. First, panel data that cover
seven months were used in our analysis. Although
this duration should be sufficient to observe con-
sumers’ repeat purchases and degrees of loyalty to a
firm, we acknowledge that longer time horizons may
provide more comprehensive insights. Future studies
should use varying time windows to verify the con-
sistency of our results. Moreover, with longer sample
periods, future research can be grounded in a system
panel approach that casts light on dynamic structural
relationships among key dependent variables. Sec-
ond, our research did not involve a randomized field
experiment through which endogeneity issues can be
more adequately addressed. Because the customers
were not randomly assigned to treatment and control
845
groups and they adopted the loyalty apps of their
own volition, we cannot rule out selection biases re-
lated to unobservable attributes. We can only present
arguments on treatment effects after accounting for
such bias on the observable factors. Accordingly, our
results must be interpreted with caution in terms of the
causal relationship. For instance, we cannot concretely
identify whether and to what extent loyalty app
adoption drives behavior changes, and the availability
of loyalty apps determines the separation of customers
into different behavior groups. Furthermore, the cus-
tomers could plan ahead for the purchase of food and
beverages in many ways that we could not control on
the basis of the available data set. Several robustness
procedures have confirmed that biases arising from
unobservable factors do not significantly influence
findings. Nevertheless, future studies could conduct
randomized field experiments to eliminate the possi-
bility of influence from unobservable factors. Third, our
investigation did not identify how consumers use each
in-app function despite the fact that such innovations
may be used in multiple ways to engage with an LP
(e.g., checking points, obtaining localized push mes-
sages, or responding to promotions). Future studies can
capitalize on more detailed app usage data to dem-
onstrate how customer behaviors in each platform (e.g.,
mobile app or mobile web) change following mobile-
app adoption and to determine how MVLP mobile apps
work and how each function stimulates change in
consumer behaviors.
Despite the noted shortcomings, this study broadens
our understanding of the effects that mobile-based LPs
exert on the dynamics of customer behaviors and the
performance of companies. Vendors should take heed
of potential hazards that may emerge from the mobile-
driven digitalization of loyalty. Such threats may
eventually diminish profitability and sustainability in
the long run. An issue that warrants equally serious
consideration is the possibility that consumer loyalty
and dedication will decline in a digital environment
where customers are afforded increased access to in-
formation and by extension, increased choice of brands
or companies.
Endnotes
1
See https://loyaltyplant.com/blog/article-04-10-2018-why-mobile
-loyalty-apps-are-rapidly-replacing-plastic-loyalty-cards.
2
Plastic card and loyalty app users equally earn 5% of their expen-
diture as reward points.
3
Note that cash (or out of pocket) includes all monetary transactions
(e.g., cash, debit card, credit cards, electronic payments, and others)
excluding loyalty point redemptions. The terms cash and out of pocket
are used interchangeably throughout this paper.
4
Customers would have to be randomly assigned to either the control
or treatment group for us to claim the causal relationship between
loyalty app adoption and the consequent behavior changes.

846
5
Although plastic card users can also access loyalty points through
a mobile browser, they are less likely to be repeatedly exposed to
the LP than loyalty app users are. We focus on the relative con-
venience of accessing the core functions between plastic card and
mobile app LPs.
6
See https://play.google.com/store/apps/details?id=protect.card_locker
or https://play.google.com/store/apps/details?id=com.panaustik
.cardwallet (accessed on October 26, 2019).
7
More details on the difference between the two types of apps are
provided in Online Appendix C.1.
8 purchase behavior. J. Interactive Marketing 31:28–41.
We thank the senior editor for this suggestion.
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