A. Serdar Simsek
Research
Dual Value of Delayed Incentives: An Empirical Investigation of Gift Card Promotions
(with B. Kadiyala and O. Ozer)
Abstract
Delayed promotion incentives in the form of retailer-specific gift cards are becoming increasingly popular in the retail industry.
These gift cards are offered to customers as a reward for spending more than an expenditure level on regularly priced (as opposed
to discounted) products, which can be redeemed by customers towards a future purchase at the retailer. In theory, gift card promotions
are an attractive proposition for retailers to potentially stimulate sales during the promotion (at regular price) and lock future demand.
Despite the potential benefits, little is known about whether and how gift card promotions impact customer purchase behavior. We address
these questions by taking a causal inference approach. We collaborated with a major U.S.-based department store that runs gift card
promotions on its online channel by targeting its customers through emails. We utilize discontinuities in the retailer’s targeting
policies (based on customers’ purchase recency) across several gift card promotions to estimate localized causal effects using a
collection of fuzzy regression discontinuity designs. We find that gift card promotion email increases average customer expenditure
during the promotion by $5.64, $1.37, and $1.30 for customers with 4, 13, and 16 months purchase recencies, respectively, corresponding
to 21.84%, 29.18%, and 133.55% increase in sales. Furthermore, we find that customers are induced to spend more (beyond the gift card face
value) while redeeming their gift card, thus validating the dual value of delayed incentives. We find that majority (78%–100%) of the increase
in sales due to gift card promotion email can be attributed to the effect of the email channel rather than the effect of participation in the
promotion. Our results also suggest that, contrary to popular belief, a customer’s incremental expenditure while redeeming a gift card recovers
the retailer’s promotion cost, on average, and, therefore, makes redeeming a gift card more beneficial to retailers than not redeeming it (i.e., slippage).
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