Featured Research

from universities, journals, and other organizations

Why do consumer loyalty rewards programs need careful crafting?

Date:
August 24, 2010
Source:
University of Chicago Press Journals
Summary:
In order to be competitive, companies can go overboard in trying to come up with creative designs for the loyalty reward programs. According to a new study, some of these designs can lead to unintended consequences.

In order to be competitive, companies can go overboard in trying to come up with creative designs for the loyalty reward programs. According to a new study in the Journal of Consumer Research, some of these designs can lead to unintended consequences.

Authors Rajesh Bagchi and Xingbo Li (both Virginia Polytechnic Institute and State University) compared reward programs where consumers could achieve the same six-percent discount by reaching either 1,000 points or 100 points. In each case, consumers had to spend $100. They found that ways rewards are structured -- the "steps" and the magnitude of the reward system -- elicited strikingly different reactions.

The distances appeared larger in the higher magnitude program, so consumers near the reward (with 800 points) felt that they had made much more progress relative to those farther away (with 200 points), as they had accumulated many more points. But participants who were near the reward in the smaller reward program (with 80 points) did not feel that they made more progress relative to those farther away (with 20 points).

The authors found that, even though the reward was the same in both instances, the magnitude of the program affected consumers' perceptions. "Consumers are cognitive misers and do not do the necessary calculations to assess redemption costs. Instead, they use step-sizes to form impressions," the authors write.

If step-sizes are large, the reward appears attainable as the progress-rate appears high (10 points/dollar). Because of the giant step-sizes, perceptions of those closer to the reward do not differ from those farther away. However, when stepsizes are smaller (1 point/dollar), those close to the reward believe that they have made a lot of progress, given the baby steps, relative to those farther away.

The authors also found that these progress perceptions affected loyalty and the likelihood of recommending a program. They believe their findings could be applied to organizations that wish to create programs that encourage financial savings or weight loss.


Story Source:

The above story is based on materials provided by University of Chicago Press Journals. Note: Materials may be edited for content and length.


Journal Reference:

  1. Rajesh Bagchi, Xingbo Li. Illusionary Progress in Loyalty Programs: Magnitudes, Reward-Distances, and Step-Size Ambiguity. Journal of Consumer Research, February 2011 [link]

Cite This Page:

University of Chicago Press Journals. "Why do consumer loyalty rewards programs need careful crafting?." ScienceDaily. ScienceDaily, 24 August 2010. <www.sciencedaily.com/releases/2010/08/100824121020.htm>.
University of Chicago Press Journals. (2010, August 24). Why do consumer loyalty rewards programs need careful crafting?. ScienceDaily. Retrieved July 31, 2014 from www.sciencedaily.com/releases/2010/08/100824121020.htm
University of Chicago Press Journals. "Why do consumer loyalty rewards programs need careful crafting?." ScienceDaily. www.sciencedaily.com/releases/2010/08/100824121020.htm (accessed July 31, 2014).

Share This




More Mind & Brain News

Thursday, July 31, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Dieting At A Young Age Might Lead To Harmful Health Habits

Dieting At A Young Age Might Lead To Harmful Health Habits

Newsy (July 30, 2014) Researchers say women who diet at a young age are at greater risk of developing harmful health habits, including eating disorders and alcohol abuse. Video provided by Newsy
Powered by NewsLook.com
It's Not Just Facebook: OKCupid Experiments With Users Too

It's Not Just Facebook: OKCupid Experiments With Users Too

Newsy (July 29, 2014) If you've been looking for love online, there's a chance somebody has been looking at how you're looking. Video provided by Newsy
Powered by NewsLook.com
How Your Face Can Leave A Good Or Bad First Impression

How Your Face Can Leave A Good Or Bad First Impression

Newsy (July 29, 2014) Researchers have found certain facial features can make us seem more attractive or trustworthy. Video provided by Newsy
Powered by NewsLook.com
Losing Sleep Leaves You Vulnerable To 'False Memories'

Losing Sleep Leaves You Vulnerable To 'False Memories'

Newsy (July 27, 2014) A new study shows sleep deprivation can make it harder for people to remember specific details of an event. Video provided by Newsy
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:

Breaking News:
from the past week

In Other News

... from NewsDaily.com

Science News

Health News

    Environment News

    Technology News



      Save/Print:
      Share:

      Free Subscriptions


      Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

      Get Social & Mobile


      Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

      Have Feedback?


      Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
      Mobile: iPhone Android Web
      Follow: Facebook Twitter Google+
      Subscribe: RSS Feeds Email Newsletters
      Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins