Increasing Retailer Loyalty Through Use of Cash Back Rebate Sites

What is the strategic role of such an intermediary? To answer this, we model competition between two retailers both of whom use the case back site

Ye Qiu; Ram C. Rao

2017

Scholarcy highlights

  • It is increasingly common for a website, often referred to as a cash back site, to inform and enable consumers to avail of discounts at competing retail stores
  • Consumers who visit a cash back site are able to take advantage of discounts at retail stores that are not available unless they enter the retailer through the cash back site
  • What is the strategic role of such an intermediary? To answer this, we model competition between two retailers both of whom use the case back site
  • In the second kind searchers act as loyal consumers when faced with low prices and switchers when faced with high prices
  • When there is a cash back site the equilibrium is such that searching consumers behave like loyal consumers, leading to the insight that cash back sites can make retailer sites more sticky
  • We show that the optimal contract has the retailer deciding the discount, under some conditions, it may be profitable for both parties to have a contract in which the cash back site decides the discount

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