Using Rewards to Insulate Consumers From the Competition: the Case of Segregated Versus Integrated Frequency Program Rewards

ABSTRACT - Marketers often use frequency programs (FPs) to reward loyal consumers and/or insulate them from competitive offers. Using the framework of mental accounting, we argue that consumers can either mentally segregate the FP reward from the product being sold or integrate the two together. We report two experiments where student participants imagine that they are enrolled in a credit card frequency reward program and have a choice of switching to a competitor. The results show that an FP reward that is apparently easier to mentally segregate from the credit card (free air tickets upon accumulating sufficient points) can better insulate consumers from the competition compared to an integrated reward (e.g., cash back check at the end of the year). Implications of the results in the choice of reward currency are discussed.

Citation:

Subimal Chatterjee and Timothy B. Heath (2003) ,"Using Rewards to Insulate Consumers From the Competition: the Case of Segregated Versus Integrated Frequency Program Rewards", in E - European Advances in Consumer Research Volume 6, eds. Darach Turley and Stephen Brown, Provo, UT : Association for Consumer Research, Pages: 374.

European Advances in Consumer Research Volume 6, 2003      Page 374

USING REWARDS TO INSULATE CONSUMERS FROM THE COMPETITION: THE CASE OF SEGREGATED VERSUS INTEGRATED FREQUENCY PROGRAM REWARDS

Subimal Chatterjee, Binghamton University, USA

Timothy B. Heath, Miami University of Ohio, USA

ABSTRACT -

Marketers often use frequency programs (FPs) to reward loyal consumers and/or insulate them from competitive offers. Using the framework of mental accounting, we argue that consumers can either mentally segregate the FP reward from the product being sold or integrate the two together. We report two experiments where student participants imagine that they are enrolled in a credit card frequency reward program and have a choice of switching to a competitor. The results show that an FP reward that is apparently easier to mentally segregate from the credit card (free air tickets upon accumulating sufficient points) can better insulate consumers from the competition compared to an integrated reward (e.g., cash back check at the end of the year). Implications of the results in the choice of reward currency are discussed.

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