Consumers Work Hard for Certain Loyalty Programs

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Consumers Work Hard for Certain Loyalty Programs

Offers that feel tailored to one's taste cause people to view the offer as more attractive, and work much harder for it.

Eat sushi in the name of consumer research. That's what Stanford GSB marketing professor Itamar Simonson and Ran Kivetz, an assistant professor at Columbia University, asked a group of 195 Columbia students to do — eat a lot of sushi.

Participants were offered a "frequent diner" program that would reward them for their patronage at various university dining locations and given a card that would track their purchases. They were randomly assigned to one of two groups — 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 two free movie tickets. So, the second group had to do much more to receive the same reward. Kivetz and Simonson also asked participants how much they liked sushi relative to the typical student.

The result? Students who liked sushi were much more likely to join the "frequent diner" program that required them to purchase both 12 sandwiches and 12 orders of sushi. "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 program that requires sushi-lovers to eat sushi, that fit completely colors their assessment of how attractive the offer is," Simonson says. "As a result, by creating what appears like personal fit, marketers can attract consumers to frequency programs and many other promotional offers." Kivetz and Simonson replicated these findings regarding influences on participation in frequency, or loyalty, programs in studies with travelers interviewed at domestic airports.

The sushi study is among a number of studies Simonson has been conducting since the late 1980s about how consumers make choices. Much of his work debunks the accepted theory that giving consumers what they want and making a profit are the most basic principles of marketing.

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 preferences."

In another recent paper, Simonson tackles the issue of one-to-one marketing and mass customization. Supporters of these marketing approaches have suggested that learning what customers want and giving them exactly what they want will create customer loyalty and an insurmountable barrier to competition.

In an example taken to the extreme in the 2002 movie Minority Report, Tom Cruise's character Anderton runs through a shopping mall past talking billboards that recognize him by name and urge him to buy products he has expressed interest in such as jeans and Ray-Bans — the ultimate in personalized advertising. But Simonson has this to say: "The fact that consumer preferences are often fuzzy, unstable, and manipulatable is unlikely to change. So, the effectiveness of methods to give customers exactly what they (say they) want has been grossly exaggerated." His take on the long-held assumption that individual marketing will supplant targeted marketing is "not so fast." That's because consumers are very difficult to figure out, science fiction and technology notwithstanding. "Furthermore, even when customers have well-defined preferences and receive offers that fit those preferences, it is far from certain that the response to such offers will consistently be more favorable than those directed at larger market segments."

It's all psychology. Consumers with well-defined preferences may be skeptical that a marketer could match expectations. Those who don't know what they want may not ever see the fit with what the seller wants them to buy. So, individualized offers depend on customers' preferences — how the offer was 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," he writes.

This is a tall order, one that some companies have been able to fill at least to some extent. For example, Amazon keeps track of customers' purchases and suggests other books they might like. Dell builds computers from mass-made parts to customers' specifications. But Simonson argues some companies can take the concept too far, like the Custom Foot chain of shoe stores that took detailed measurements and specifications from each customer to design one-of-a-kind shoes. Simonson argues that Custom Foot didn't take into account that some customers were put off by the individualized attention and felt obligated to buy the shoes because the store went to so much trouble. They often didn't come back. Indeed, an internet search produces no website.

Simonson, who has received many prestigious awards for his research on consumer behavior and marketing, teaches MBA and Ph.D. marketing and consumer decision-making courses. The loyalty program article is slated for publication in the Journal of Marketing Research this year.

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