Consumers prefer loyalty programmes that 'fit'
Consumers are willing to work hard for loyalty programmes they perceive as being a 'good fit' with their personal needs and preferences, according to marketing research carried out by Itamar Simonson, Sebastian Kresge (Professor of Marketing), Ran Kivetz (Assistant Professor of Marketing, Columbia Business School) at the Stanford Graduate School of Business (GSB).
Simonson and Kivetz began their research into consumer motivations and attitudes to loyalty programmes by asking a group of 195 Columbia students to eat more sushi. A lot more sushi. Participants in the experiment were offered a frequent diner programme that would reward them for their patronage at various university dining locations, and given a card that would track their purchases.
They were then assigned to one of two groups - a low requirement group and a high requirement group. Those in the low requirement group were told they would have to purchase 12 sandwiches to get two free movie tickets, whereas those in the high requirement group were told they would have to purchase 12 sandwiches and 12 orders of sushi to get the same reward.
Fitting their needs The participants were also asked how much they like sushi relative to the typical student. Those who said they liked sushi also said they were more likely to join the frequent diner programme through the 'high requirement' group.
"It shows a common mistake that consumers make. If they see an offer that seems to fit them better than other consumers - for example, a programme that requires sushi-lovers to eat sushi - that 'fit' completely colours their assessment of how attractive the offer is," explained Simonson. "As a result, by creating what appears to be a personal fit, marketers can attract consumers to frequency programmes and many other promotional offers."
Kivetz and Simonson have replicated these findings regarding influences on participation in frequency and loyalty programmes through studies of travellers interviewed at domestic airports.
Consumers don't know? The theme that pervades Simonson's work is that customers may not know what they want, and second-guessing them can be expensive. In his words, "The benefits and costs of fitting individual customer preference are more complex and less deterministic than has been assumed." That's because, Simonson says, customer preferences are often ill-defined and susceptible to various influences - and, in many cases, customers have poor insight into their own preferences.
In another recent paper, Simonson tackles the issue of one-to-one marketing and mass customisation. Supporters of these marketing approaches believe that learning what customers want and giving it to them will create customer loyalty and an insurmountable barrier to competition.
Consumer scepticism But consumers with well-defined preferences may be sceptical that a marketer can match their expectations. Those who don't know what they want may not ever see the fit with what the seller wants them to buy. So, individualised offers depend on customers' preferences, how the offer is extended, and on trust.
"Effective individual marketing requires not only an understanding of individual preferences, and matching offers to those preferences, but also a thorough familiarity with the various factors that impact customers' responses," writes Simonson.
Simonson, who has received a number of awards for his research on consumer behaviour and marketing, teaches MBA and Ph.D. marketing and consumer decision making courses.