People in loyalty schemes often fail to detect market value

People in loyalty schemes often fail to detect market
value, Canterbury PhD student says

May 19,
2014

People who signed up to loyalty schemes often failed
to detect the accurate market value, a University of
Canterbury PhD student says.

May Chan is researching
consumer psychology, specifically loyalty schemes in New
Zealand and Hong Kong. Chan is being supervised by the
Psychology Department’s Professor Simon Kemp and Dr Joerg
Finsterwalder from the School of Business and
Economics.

"Loyalty reward programmes are a significant
part of the modern economy. Currencies like frequent flyer
miles are thriving and have become the world’s largest
currency," Chan says.

"Although the basic principle of
loyalty reward currencies is similar to that of real money,
the rules it operates on are often complicated, restricted
and can be confusing to the consumer, making it harder to
accurately estimate the value and take full
advantage.

"Loyalty reward members often plan, collect,
store, and use these currencies as they would with legal
tender, but a different set of internal rules applies to
each currency. For instance, the value of a reward is not
purely measured in monetary value.

"For example, when
choosing to spend their frequent flyer miles between two
rewards of equal value, members preferred luxury rewards
because they also get to feel good. A currency can be seen
as more worthy when it can be used to purchase goods that
make their targeted customer feel more satisfied.

"I am
investigating the perceived value of such currencies. The
first stage of the research has been conducted using three
loyalty programmes operating in New Zealand - Air New
Zealand’s airpoints; Westpac Bank’s hotpoints and the
Fly Buys consumer rewards programme.

"Preliminary results
show that these currencies function as an added purchasing
power to legal tender. However, people often fail to detect
the market value of these currencies. Their perceived value
is moderated by factors such as involvement in, or awareness
of, the loyalty programme.

"This subsequently affects how
the currencies are defined, budgeted for and spent. In the
second stage of my research, I would like to test my theory
in different cultural settings.

"Hong Kong is a
multi-cultural city, with almost double the population size
of New Zealand. It is, in my opinion, the perfect place to
seek cross-cultural validation by extending my
research.

"The results will provide insight into consumer
decision-making using empirical results obtained from
population samples of east and west."

Chan is based at the
City University of Hong Kong until July and her research
while in Hong Kong has been funded by the Prime Ministers’
Asia Scholarship Fund.

The University has been awarded
$72,000 from the Prime Ministers’ Asia Scholarship Fund to
cover the costs of up to 30 selected students to complete a
popular study tour course, Chinese Business Practices and
Culture. Additionally, two other UC students studying for a
Bachelor of Commerce degree, Paige Chen and Samuel
Brosnahan, have received individual scholarships from the
same fund to spend a semester studying overseas in Hong Kong
and China in
2015.

ENDS

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