Illusionary Progress in Loyalty Programs: Magnitudes, Reward Distances, and Step-Size Ambiguity

Abstract

Loyalty programs offer rewards via mediums of different magnitudes (e.g., “$6 off when you accumulate 1,000 [100] points. Earn 10 [1] points/dollar”). The program medium presents two key pieces of information: reward distance (points required to redeem reward) and step size (points earned per dollar). In higher-magnitude (vs. lower-magnitude) programs, both reward distances (1,000 vs. 100) and step sizes (10 vs. 1 point[s]/dollar) are larger. How do these two pieces of information affect consumers' postenrollment inferences of progress, store loyalty, and recommendation likelihood? Do consumers always integrate both pieces? We identify a moderator, step-size ambiguity, and show that when ambiguity is high, only reward distance affects inferences. When ambiguity is lower, consumers integrate step size with reward distance, but in a biased manner. Implications arise in goal following and in physical and psychological distance estimation contexts (e.g., weight loss, savings) where distances and step sizes can vary (e.g., as a function of units: kilograms vs. pounds), but especially in loyalty rewards contexts.

How to Make a 29% Increase Look Bigger: The Unit Effect in Option Comparisons

“…In those situations, they simply fail to consider that alternative specifications may exist, and the unit effect ensues. The demonstration of unit effects in various different situations involving distinctly different attributes (see also Bagchi and Li 2011;Burson et al 2009) testifies to this presumed generality. Although the unit effect may be obtained in a host of situations, we also pointed out some potential boundary conditions; these provide an avenue for future research.…”

“…In some situations, however, one could expand the scale but at the same time keep the number of intervening steps constant. For example, Bagchi and Li (2011) investigated how the number of points needed for a reward in a loyalty program (e.g., 1,000 vs. 100) and the number of points acquired by a standard transaction (e.g., 10 per dollar vs. 1 per dollar) affect store loyalty and perceived progress toward the reward. In their studies, they jointly manipulated the points needed and the points acquired by a transaction (i.e., both were multiplied by a factor of 10).…”

The Small-Area Hypothesis: Effects of Progress Monitoring on Goal Adherence

“…The current research explores the small-area hypothesis in the context of reward programs (Bagchi and Li 2011;Deighton 2000;Lewis 2004;Taylor and Neslin 2005), in which higher motivation translates into a temporal dimension, including shorter interpurchase/visit times, and a quantity dimension, including more units of purchase and a higher participation rate. The manifestation of motivation depends on the type of program.…”

Years, Months, and Days versus 1, 12, and 365: The Influence of Units versus Numbers

“…For instance, just as choices are influenced by the number of loyalty program points (van Osselaer, Alba, and Manchanda 2004), they are also influenced by step sizes (points earned per dollar). Bagchi and Li (2011) show that step sizes are considered when they are unambiguous (receive 10 points) but ignored when they are ambiguous (receive 5-15 points). Given this, we speculate that unitosity effects will weaken for ambiguous units (e.g., Kelvin for temperature) because individuals will ignore such units.…”