Minshen Li

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Job Market Paper

Why Do Consumers Care About Loyalty Points?

I separately identify two mechanisms that jointly explain why consumers would care about loyalty points in the "Collect X Points, Get A Reward" type of non-tiered loyalty program. One is an economic mechanism that incentivizes consumers through the value of the resulting price discounts: Consumers endogenously choose the timing and amount of reward redemption, and forward-looking consumers with rational expectations get incentivized by the potential realized value of vouchers from redemption. The other is a psychological mechanism that incentivizes consumers through the satisfaction of goal achievement: Consumers pursue extrinsic reward thresholds as goals and receive satisfaction upon goal achievement regardless of redemption decisions. Using an innovative panel dataset from a European credit card loyalty program with detailed records of credit card transactions, loyalty points accumulation, voucher generation, and voucher redemption, I develop and estimate a structural model of credit card spending that incorporates the two mechanisms, where primitives underlying each mechanism are identified by variations in different dimensions of spending and voucher redemption activity. Using the model estimates and through counterfactual experiments, I find that the loyalty program increases credit card spending by 5.87%, but the majority of such increase (88.66%) is driven by the psychological mechanism. Given the relative effective psychological mechanism and relatively ineffective economic mechanism, I show through counterfactual experiments that increasing points per dollar spent (points issuance ratios) would increase profits for the credit card company while increasing the voucher face value would decrease profits. To generate win-win outcomes where profits and consumer welfare would both increase, it is necessary to increase both points issuance ratios and the voucher face value.

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Other Research

Initial Biases, Product Loyalty, and Profit-Maximizing Strategies for New Products

I disentangle consumer learning and switching costs in the consumer-packaged-goods (CPG) markets, the typical two types of sources of dynamics in CGP markets. I focus on recovering the heterogeneity structure underlying consumers’ initial biases and product loyalty (the negative of switching costs). Given the structure, I revisit the conventional design of the promotion strategies for new products: introductory price discounts and free samples. The “invest-harvest” design can increase profits if consumers are initially pessimistic and have positive switching costs (i.e., are loyal to last purchased products). If consumers are initially optimistic or have negative switching costs (i.e., are variety-seeking), “harvesting” right away by increasing the introductory prices is more profitable. I use MCMC Bayesian estimation methods to structurally estimate a demand model that incorporates heterogeneous learning and switching costs using the Nielsen consumer panel data from Boston Greek Yogurt market between the years 2012 and 2013, when numerous new products were introduced. The estimation results reveal significant heterogeneity in initial biases and switching costs. Given the model estimates, I conduct a case study on “Chobani Flip” by computing the profit-maximizing introductory price adjustment and deciding whether to send out free samples. 

Teaching Experience

Course Instructor

  • Introduction to Microeconomics
  • Introduction to Microeconomics (Online)

Recitation Instructor

  • Recitation Instructor for Intermediate Microeconomics
  • Recitation Instructor for Introduction to Microeconomics

Teaching Assistant

  • TA for Microeconomics: Demand, Supply, and the Social Good (Penn Alumni Course on Coursera)
  • Head TA for Introduction to Microeconomics
Interests

Empirical IO, Applied Microeconomics, Marketing

Address

Department of Economics
The Ronald O. Perelman Center for Political Science and Economics
133 South 36th Street
Office 640
Philadelphia, PA 19104

Phone

+1 (215) 866-6134

Email

minshen@sas.upenn.edu

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Advisors

Aviv Nevo

References

Aviv Nevo (Chair)

George A. Weiss and Lydia Bravo Weiss University Professor, 

Department of Economics and The Wharton School, University of Pennsylvania, 

Email: anevo@wharton.upenn.edu

Phone: +1 (215) 898-0232 

 

Eric T. Bradlow

K.P. Chao Professor, Professor of Marketing, Statistics, Education, and Economics

The Wharton School, University of Pennsylvania, 

Email: ebradlow@wharton.upenn.edu

Phone: +1 (215) 898-8255 

 

Katja Seim

Professor of Economics

Department of Economics and School of Management, Yale University, 

Email: katja.seim@yale.edu 

Phone: +1 (203) 432-5487 

Job Market Candidate Status
I am on the job market and will be available for interviews at ASSA Annual Meetings in San Diego, CA from January 3-5, 2020.