Reward programs work best when customers are working to achieve a larger goal rather than a smaller one, researchers say.
Regardless of the reward, researchers at Virginia Tech concluded, reward programs elicit distinctly more favorable responses as consumers approach their goal, especially when the goal is larger. They also said their findings could be applied to organizations wanting to create programs that encourage financial savings or weight loss.
In the study, researchers compared reward programs in which consumers could achieve the same discount by reaching either 1,000 or 100 on a point scale. In both cases, consumers had to spend $100 to earn the reward. Participants said the distances between each step toward the goal appeared larger for the 1,000-point requirement.
For example, consumers with 800 points felt they had made much more progress relative to those with 200 points. But participants with 80 points who were near the reward in the smaller program did not feel they made more progress relative to those with 20 points. Ultimately, participants reported larger step-sizes – the distance between each level toward the goal – made them feel as though they had made more progress.
“Consumers are cognitive misers and do not do the necessary calculations to assess redemption costs. Instead, they use step-sizes to form impressions,” said researchers Rajesh Bagchi and Xingbo Li in a statement.
Another rewards program expert agrees with the researchers' findings.
“People like to see progress toward a goal and feel good about it. Consumers … will place a value on those rewards that they feel that they have earned,” consumer psychologist Michael McCall told BusinessNewsDaily.
“When rewards are simply given away and the customer does not feel that they have actually earned them, perceptions of the reward program are likely to be adversely affected,” added McCall, a professor of marketing and law at Ithaca College and a visiting scholar at Cornell University School of Hotel Administration, who was not involved in the study.
Businesses can use these findings to help build an effective reward program, keeping in mind that they “need to understand how the customer views the program, the reward structure and the amount of effort required to reach and pass through various tier levels,” McCall said.