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 September 2, 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 September 2, 2014).

Share This




More Mind & Brain News

Tuesday, September 2, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Can You Train Your Brain To Eat Healthy?

Can You Train Your Brain To Eat Healthy?

Newsy (Sep. 1, 2014) New research says if you condition yourself to eat healthy foods, eventually you'll crave them instead of junk food. Video provided by Newsy
Powered by NewsLook.com
Coffee Then Napping: The (New) Key To Alertness

Coffee Then Napping: The (New) Key To Alertness

Newsy (Aug. 30, 2014) Researchers say having a cup of coffee then taking a nap is more effective than a nap or coffee alone. Video provided by Newsy
Powered by NewsLook.com
Young Entrepreneurs Get $100,000, If They Quit School

Young Entrepreneurs Get $100,000, If They Quit School

AFP (Aug. 29, 2014) Twenty college-age students are getting 100,000 dollars from a Silicon Valley leader and a chance to live in San Francisco in order to work on the start-up project of their dreams, but they have to quit school first. Duration: 02:20 Video provided by AFP
Powered by NewsLook.com
Baby Babbling Might Lead To Faster Language Development

Baby Babbling Might Lead To Faster Language Development

Newsy (Aug. 29, 2014) A new study suggests babies develop language skills more quickly if their parents imitate the babies' sounds and expressions and talk to them often. 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