Arbeitspapier

Loyalty Programs and Consumer Behaviour: The Impact of FFPs on Consumer Surplus

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Frequent Flier Programs (FFPs) are said to impact airline consumer behaviour such that revenue of sponsoring airlines increases. Prior research relies on aggregate industry data to study FFPs. We examine the impact of FFPs on individual consumer behaviour in a quasi-natural experimental set-up using a combined discrete choice and count data model. We exploit an unanticipated change in the FFP to avoid self-selection bias. We derive the causal effect of redesigning a frequency reward program into a customer tier program on average transaction size, purchase frequency, revenues of the sponsoring airline, and compensating variation. We find that, on average, revenues increased by 8$ per member over a 16 month period. The welfare impact is small but positive. We find that, on average, consumer surplus increased by 5$ per member over a 16 month period. The results vary su bstantially across individuals. In line with previous studies, our results suggest that moderate buyers increase their average transaction size and purchase frequency most due to the introduction of the customer tier program.

Language
Englisch

Bibliographic citation
Series: Tinbergen Institute Discussion Paper ; No. 15-048/VIII

Classification
Wirtschaft
Consumer Economics: Empirical Analysis
Production, Pricing, and Market Structure; Size Distribution of Firms
Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
Air Transportation
Subject
Loyalty programs
Frequent Flier Programs
Two-stage budgeting model
Longitudinal demand models
Airline pricing

Event
Geistige Schöpfung
(who)
Behrens, Christiaan
McCaughey, Nathalie
Event
Veröffentlichung
(who)
Tinbergen Institute
(where)
Amsterdam and Rotterdam
(when)
2015

Handle
Last update
10.03.2025, 11:45 AM CET

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Object type

  • Arbeitspapier

Associated

  • Behrens, Christiaan
  • McCaughey, Nathalie
  • Tinbergen Institute

Time of origin

  • 2015

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