Special Session Summary: Consumer Preferences Towards Frequency Programs

Ran Kivetz, Columbia University
[ to cite ]:
Ran Kivetz (2001) ,"Special Session Summary: Consumer Preferences Towards Frequency Programs", in NA - Advances in Consumer Research Volume 28, eds. Mary C. Gilly and Joan Meyers-Levy, Valdosta, GA : Association for Consumer Research, Pages: 125.

Advances in Consumer Research Volume 28, 2001     Page 125

SPECIAL SESSION SUMMARY:

CONSUMER PREFERENCES TOWARDS FREQUENCY PROGRAMS

Ran Kivetz, Columbia University

Frequency (loyalty) programs that recognize and reward frequent customers have become one of the most commonly used marketing tools for retaining customers and stimulating product or service usage. Nevertheless, we still know very little about the factors that influence consumer perception of and response to such programs and why some programs are highly successful whereas other programs fail. Thus, the main goal of this session was to improve our understanding of consumer preference towards frequency programs (FPs) and, more generally, towards streams of efforts that lead to future rewards (e.g., publishing to get tenure and dieting to get thin). The papers in this session addressed a broad range of questions regarding how consumers construct their preference towards FPs. In the process of examining these questions, the session participants and the discussion leader, Steve Hoch, provided insights into important topics in consumer research, such as intertemporal choice, consumer motivation, mental accounting, and reinforcement schedules and conditioning.

First, Hsee demonstrates that the presence of a "medium" can increase people’s willingness to exert effort. Medium is defined here as currency (e.g., points) that is obtained for exerting effort and that can be traded for rewards. Why, then, would points increase consumers’ tendency to engage in the required effort? Hsee proposes that the medium can make an otherwise concave effort-reward relationship look linear and/or make an otherwise ambiguous effort-reward relationship look clear.

Second, Kivetz and Simonson show that, under certain conditions, increasing the program requirements (e.g., twenty vs. ten gasoline purchases)Bwhile holding the reward constantBenhances the likelihood of joining the program and the willingness to pay membership fees. They explain the results based on the notion of idiosyncratic fit, whereby in certain cases, consumers construe their effort as being lower than a reference effort (e.g., the typical effort of others). That is, when consumers have an idiosyncratic fit with a program (e.g., they live especially close to a gas station offering a FP), they derive additional transaction utility (Thaler 1985), which can increase with greater program requirements.

Third, van Osselaer and Alba employ two simulated buying experiments to show that consumers’ choices are influenced by the way loyalty programs allocate points to purchases, even whn the number of purchases needed for a reward is held constant. In particular, options with flat reward schedules (200 points per purchase) are chosen more often than increasing (100 points for first, 200 for second, for 300 third purchase) and step-descending (400, 100, 100) but not more than linear-descending (300, 200, 100) schedules. The results are consistent with a tendency to meliorate that is only weakly counteracted by a tendency to stick with one option in order to minimize losses due to point expiration.

Finally, Steve Hoch led a discussion on the papers presented in the session and on FPs in general. Steve integrated the three papers and proposed some underlying principles that could account for the performance of various FPs (e.g., highly successful frequent flyer programs). Furthermore, Steve proposed several intriguing directions for future research, such as investigating the intertemporal aspects of FPs, the impact of different reward currencies, and more.

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