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

Rajesh Bagchi and Xingbo Li

Journal of Consumer Research, 2011, vol. 37, issue 5, 888 - 901

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.

Date: 2011
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