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Why offer promotional bonuses? New study shows how (fake) progress can motivate customers

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31.01.2006

An important new study explores the impact of artificial bonuses on customer loyalty. For example, putting a few extra "bonus" stamps on a frequent-buyer card – instead of just requiring more purchases in the first place – leads to an artificial feeling of advancement towards a goal…and repeat business. In a forthcoming paper in the Journal of Consumer Research, this phenomenon is termed the "endowed progress effect."

"The endowed progress effect we document is shown to affect the attractiveness of a program to consumers, their perceived likelihood of joining a program, and their expectations of purchasing enough to earn the reward," explain Joseph C. Nunes (University of Southern California) and Xavier Drèze (University of Pennsylvania).

In other words, people are more likely to join and stay loyal to a program if they feel like they are consistently making progress. Nunes and Drèze show this in several scenarios, and also examine the motivational source of these reactions, finding that the dollar value of the bonus is not nearly as important as what fraction of the promotion is completed by the bonus. The critical distinction between whether a program works or not has more to do with consumers perceiving that they are moving along closer toward the goal rather than estimating their losses if they discontinue.

The researchers also point out that the effect is dependent on critical factors such as the reason for the endowment, or bonus. "When there is no reason offered," they explain, "the effect only occurs if the endowment is issued in an alternative currency such as points. However, when progress is recorded in the number of purchases made, the firm must offer a reason for the endowment, even a specious one."

Suzanne Wu | Source: EurekAlert!
Further information: www.uchicago.edu

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