The Profitability Analysis Of The Customer Loyalty Programs Partnerships

With the development of information technology and consumer demand diversification, loyalty programs has played a very important role in improving customer loyalty and stimulating customer consumption, but there are many obvious limitations, and the customer loyalty programs partnerships emerge to eliminat the deficiencies. Nowadays, the researches of the customer loyalty programs partnerships are most on the implication among the enterprises, however it is not involve whether the business obtain a benefit or not.This paper used game theory model based on the Hotelling model to analyze the loyalty programs partnerships which reward customers with the quantity discount. The model disabuses customer transfer barriers and customer heterogeneity, and analysis the profit of the enterprise by discuss the customers' continuous buying probability, the rate of reward in the customer loyalty programs partnerships and the rate of reward in single enterprise. The result show that two symmetric equilibriums (two enterprise join in or not join in the customer loyalty programs partnerships together) and asymmetric equilibrium (one enterprise joins in the customer loyalty programs partnerships and another enterprise does not join in the customer loyalty programs partnerships) can be sustained all.In symmetric equilibrium, the enterprises could increase the price of the product or service in first stage to gain the higher profits when they join in the customer loyalty programs partnerships; then in the second stage, they made a lower price to meet the interest needs of loyalty customers and attract new customers at the same time. In asymmetric equilibrium, there are many equilibrium solutions,but the best one is when the continuous purchase probability is 0.8, the single enterprise reward rate take (0.01,0.09),and the partnershhips reward rate take (0.08,0.10). Therefore enterprise A could obtain higher profits by joining in the customer loyalty programs partnerships, enterprise B could use lower price in the first stage to attract customers and reduce the impact of the customer transfer in the second stage.This paper provides a theoretical basis for enterprises to make different pricing strategies in two phases through the customer behavior choice. In this case, enterprises could formulate customer segments by purchasing to maker higher profits.