The Electronic Journal of Information Systems Evaluation provides critical perspectives on topics relevant to Information Systems Evaluation, with an emphasis on the organisational and management implications
For general enquiries email administrator@ejise.com
Click here to see other Scholarly Electronic Journals published by API
For a range of research text books on this and complimentary topics visit the Academic Bookshop

Information about the European Conference on Information Management and Evaluation is available here

linkedin-120 

twitter2-125 

fb_logo-125 

 

Journal Article

Bronze, Silver and Gold: Effective Membership Design in Customer Rewards Programs  pp59-66

Anders Hederstierna, Henrik Sällberg

© Jan 2009 Volume 12 Issue 1, ECIME 2008, Editor: Dan Remenyi, pp1 - 118

Look inside Download PDF (free)

Abstract

Many companies use rewards programs to create so called "loyal" customers. Information Technology (IT) has made it possible to design such incentive programs in principle with endless variations at a low cost. It means that the company can, with the use of IT, offer non‑linear incentives that create "loyal" customers more effectively than linear ones. Internet has also reduced the cost for the customer to search and compare products and services like air flights, hotels etc. In such a competitive context, the company can use the programs to gain an advantage with a differentiated offer to the customer and to create lock‑in effects still at a low IT cost. Field observations show surprisingly that programs look very much alike and do not present as much variation as could be expected. Of special interest in this paper is the fact that companies typically offer three, or less, membership levels to increase the incentive for the customer to spend money at the company. These three levels come in different versions like, for example, "Bronze", "Silver" and "Gold" or with similar labels. The reward to the customer is generally associated and accelerated with membership level. In this paper, we analyze the consequences of using membership levels as a way to create both competitive differentiation and effective customer incentives. We suggest a model for understanding how the consumer decides on spending at a company that offers a reward program with different membership levels. The decision setting for the customer is described as a risky contract with a risky time‑state‑contingent claim. The contract is risky since the terms and conditions for membership can be altered by the company, without any legal penalties. The claim is risky since it is uncertain to the customer whether the state required for the membership will be achieved. We show with the help of this model that the present use of a small number of membership levels could be questioned as the most effective incentive mechanism.

 

Keywords: customer rewards program, customer loyalty, membership levels, incentives, differentiation, time-statecontingent claims

 

Share |