Keeping All Customers Happy: Hierarchical Loyalty Programs and Consumers Mindsets

Transcription

1 Keeping All Customers Happy: Hierarchical Loyalty Programs and Consumers Mindsets Mauricio Palmeira, Monash University Dominic Thomas, Monash University Nicolas Pontes, Monash University Shanker Krishnan, Indiana University

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3 Loyalty Program Figures 1.3 billion members in the US Average US household belongs to 12 loyalty programs Active participation in 4.7 Ferguson and Hlavinka (2007) Fly buys: 10 million+ Top 16 retailers in Europe spent more than $1 billion in 2000 (Reinartz and Kumar 2002)

4 Research on Loyalty Programs Which reward should be given? Related, luxury - Kivetz and Simonson (2002) When to reward? Effort and attractiveness - Kivetz and Simonson (2003) How are consumers affected? Stay longer, more understanding - Bolton, Kannan and Bramlet (2000) How do they spend their points? Combine points and money - Dreze and Nunes (2004)

5 Research on Loyalty Programs Are they effective? Reinartz and Kumar (2002), Shah and Kumar (2004) The costs of serving loyal customers are less Loyal customers are less price sensitive Loyal customers spend more time with the company Loyal customers pass on positive recommendations about their favorite brands or suppliers???? Is differential treatment effective? Labbi et al. (2007), Lacey et al. (2007), Drèze and Nunes (2009)

6 Source: Labbi et al. (2007)

7 Who should receive rewards? Source: Labbi et al. (2007)

8 Hierarchical Structure Proposed Advantages Increase consumption Retain most profitable customers Commitment, share of customer, word of mouth (Lacey et al. 2007) Dreze and Nunes (2009) Not number of people Tiers below increase status Tiers above decrease status

9 Hierarchical Structure Dangers Negative feelings from nonelite (Fournier et al. 1998; Dreze and Nunes 2009) Demotion (Wagner et al. 2009)

10 Downside of Hierarchy Structure (rewards, rules, tiers, ) Communication, perception How can we alleviate negative reactions from nonelite customers?

11 Consumer inferences Price Quality Lichtenstein and Burton 1989 Country of Origin Quality Erickson, Johansson and Chao 1984 Brand name Quality Janiszewski and Van Ossealer 2000

12 Compensatory inference Zero-sum game (Von Neumann and Morgenstern 1947) Market efficiency (Chernev and Carpenter 2001; Chernev 2007) A better attribute should compensated by a worse attribute E.g. Toothpaste: whitening x whitening + tartar

13 Mindsets Compensatory vs. noncompensatory Promotion vs. prevention (Higgins 1997) Concrete vs. abstract (Trope and Liberman 2003) Browsing vs. shopping (Hamilton and Chernev 2010)

14 Status vs. Benefits Loyalty programs (Drèze and Nunes 2009; Kumar and Shah 2004) Status: recognition, priority treatment Benefits: points, upgrades, free stuff Status Ranking: one goes up, one goes down (Anderson et al. 2001; Drèze and Nunes 2009) Benefits Not zero-sum

15 Status vs. Benefits Puzzling finding from Dreze and Nunes (2009) Studies 3 and 4: tiers above, tiers below

16 Status vs. Benefits Puzzling finding from Dreze and Nunes (2009) Studies 3 and 4: tiers above, tiers below Study 5: 71% chose hierarchy Reasoning (Dreze and Nunes 2009; Henderson et al. 2011) Something to aim for Belief in a fair system From our framework Studies 3 and 4: status-focused Study 5: benefits-focused

17 Study 1: expectations 82 participants from Mturk (age: 18 67; 31) Scenario new elite tier, but do not qualify expected changes (1-Much worse, 5-Much better) 2 (benefits: listed vs. not listed) x 2 (question order: benefits first vs. status first) Prediction: Listing benefits benefits focus noncompensatory Not listing benefits + status first status focus compensatory

18 Increase Prediction 3.5 No change 3 Decrease status first benefits first 1 no listed

19 Scenario Consider the following situation: Hotel H has had a loyalty program for several years. Now, in an effort to improve their program and make it more valuable to their most loyal customers they are introducing an elite tier with a series of exclusive benefits. The new structure was designed such that approximately 15% of customers get elite membership based on their spending history. [Benefits listed condition] These benefits include: priority seating at the hotel restaurants 35% bonus points exclusive preferred member check-in counter 2 p.m. late checkout upon request

20 Measures The benefits that I receive would 1-decrease very much, 5-increase very much My hotel experience would be 1-very much inferior, 5-very much superior) The quality of service that I get would 1-decrease very much, 5-increase very much I would feel 1-much less special, 5-much more special My prestige at Hotel H would 1-decrease very much, 5-increase very much My status at Hotel H would 1-decrease very much, 5-increase very much

21 Increase Results: Status 3.5 No change 3 Decrease p <.00 status first benefits first no listed

22 Increase Results: Special No change Decrease 2 p <.00 status first benefits first no listed

23 Increase Results: Prestige 3.5 No change Decrease p <.03 p <.08 status first benefits first no listed

24 Increase Results: Benefits 3.5 No change Decrease p <.01 p =.20 status first benefits first no listed

25 Study 1: discussion Listing benefits leads to noncompensatory mindset If benefits are not listed, mindset can be induced by order of questions Status first: compensatory Benefits first: noncompensatory There were no differences for service or experience (M ~ 3, all p >.25)

26 Study 2: choice 182 participants from Mturk (age: 18 68; 29) Choice between hotels with different LP structure (hierarchical vs. egalitarian) Nonelite: should not expect to qualify 2 (benefits: listed vs. not listed) x 2 (status: explicit vs. implicit)

27 Scenario Consider the following situation: You began a job that requires some traveling. In order to make traveling arrangements, the company s travel agent asked you which of two hotel chains you would prefer to take whenever possible. The hotel chains are very good and very similar. Each has a different loyalty program, but your travel agent wasn t aware about the details of each program, except for the following information.

28 Scenario Status implicit Hotel Chain A offers some exclusive benefits to their top 15% customers At Hotel Chain B all customers have equal benefits Status explicit: At Hotel Chain A top 15% customers are granted gold status and receive some exclusive benefits At Hotel Chain B all customers have equal status

29 Results: choice of hierarchical LP 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% no listed benefits focus status focus

30 Study 3(plan) Show impact on single evaluation Use an ad for loyalty program Emphasis on Status Emphasis on Benefits Measure of preferences and expectations Manipulate focus and qualification

31 Conclusion Loyalty programs Preferential treatment Base customers Make them think about the benefits that they can get, but not about status

32 Contributions Advance the role of mindsets on evaluations of Loyalty Programs Managerial implications are easy to understand and implement Reconcile findings from previous research