Customers given experiences as loyalty rewards showed stronger engagement than those offered material items in a series of studies, suggesting that what a reward means to a customer can matter as much as its price.
The research, published in the Journal of Retailing, compared rewards such as activities and events with physical products. Across four laboratory studies and two field studies, researchers reported differences in measures including word of mouth, loyalty, redemptions and spending.
The results do not mean an experience will always outperform a product. They show how the design of a reward can affect the way customers respond in the settings tested.
A reward customers can connect with
A loyalty program gives customers a reason to continue buying from a business, often through points, stamps or other benefits earned over time. The relationship between a customer and a business can be influenced by many other factors, including service, convenience and price.
Researchers Ayalla Ruvio, Farnoosh Khodakarami, Forrest Morgeson and Clay Voorhees examined whether the form of a reward affected engagement. Their proposed explanation was that an experience could connect more strongly with a customer’s sense of self.
In a coffee-shop field study described in the paper, customers collected stamps and could choose between a movie ticket and a coffee mug of the same monetary value. The examples illustrate the distinction: one reward offers an activity, the other an object.
Price is only one part of value
One finding was that, in the comparisons tested, a small experiential reward generated effects comparable to a larger material reward. That does not establish that every event, class or ticket is cheaper or more effective than a physical item.
A reward that appeals to one group may be inconvenient or uninteresting to another. Travel distance, scheduling, accessibility and the availability of places can all affect whether someone can use an experience. Physical goods, in turn, can be useful and valued long after they are received.
Businesses considering a change can start by asking customers what they would actually use. A small retailer might test a workshop against a conventional product reward, keeping the spending requirement and other conditions as similar as possible.
Measure the complete program
Redemption is useful, but it is not the only measure of success. A business should also consider the cost of administering the program, whether customers increase purchases they would otherwise have made, and whether their spending continues after a reward is claimed.
Individual rewards may attract different customers. Comparing total revenue without accounting for those differences can give a misleading picture of what caused a change. A carefully designed test can help, although even a successful pilot may not transfer unchanged to another location or customer group.
The research offers a reason to look beyond the face value of a reward. The most useful design is one customers want, can realistically redeem and find relevant to their relationship with the business.
