Members of VIP loyalty programs prefer awards they can share, according to a study titled, “The Entourage Effect,” which was published in the Journal of Consumer Research.
Brent McFerran, a co-author of the study as well as an assistant professor of marketing at the University of Michigan and Simon Fraser University, told Loyalty360 that consumers appreciate being able to share their perks with others and will sacrifice exclusivity to do so.
“Companies spend billions of dollars each year on customer loyalty or VIP programs in an effort to reward loyal customers and make them feel both special and a sense of status,” the study says.
Many loyalty programs, like airline lounges, luxury boxes, and hotel rooms extend benefits to guests of the VIP, or “an entourage,” McFerran says.
“These entourage members have typically done nothing to earn the preferential treatment, and may potentially dilute the prestige of the services, because the perks are extended to people merely on the basis of who they know,” he says. “In other words, entourage members receive undeserved perks, and these people make VIP rewards less scarce.”
McFerran said the research sought to find whether extending the preferential treatment to the entourage dilutes the prestige of rewards programs. Across six studies, he concludes that loyalty program members value the ability to share an experience with their guests. Most surprisingly, they are willing to trade the scarce nature of preferential treatment in order to do so.
In one study, consumers were invited up to a luxury box during a professional football game. Those who had an entourage with them felt a higher degree of status. Finally, they showed that feelings of social connection underlie the effect. An entourage makes one feel socially connected, and these feelings of connectedness with others make consumers feel a sense of personal status.
McFerran says scarcity and value are strongly linked.
“What we found most interesting was not just that people want to bring guests, but that they were willing to trade off scarcity of rewards in order to do so,” he says. “People are willing to trade rare rewards for more common ones, if they get to share these experiences with their friends.”
McFerran says no one has studied whether this type of VIP customer behavior is a good thing.
“Does my experience change if I go to an event by myself or bring a few people with me,” he says. “What about those guests? How do they feel? No one is examining it from the consumer side. If you add more guests, you make preferential treatment less scarce and you experience less status. An entourage might make you feel more special and you have something other VIPs who don’t feel that way. Or it could be bragging rights for everyone to talk about later?”
McFerran says the research is important for brands because making customers feel special is something companies invest in now to get it right.
VIP loyalty programs don’t all extend sharing perks, McFerran says.
“We found the guests are more excited than the VIPs,” he says. “The guests are the ones more likely to Facebook the experience and tell all their friends. Across the board, I don’t think the loyalty industry does a great job of experimentation. If the goal is to acquire more customers, use existing customers to get their friends excited about your brand. For a lot of companies, it’s a balancing act to start thinking about these issues and recognizing who has engaged with your brand.”
Most firms have no idea who’s talking about their brand, McFerran says.
“This is an opportunity to dig deeper,” he says.
People prefer to share VIP loyalty rewards.
“For brands who aren’t doing it, maybe VIP award sharing can be used as an acquisition and/or retention tool.”
McFerran sees considerable conservatism in the industry with a reluctance toward change.
“There is a lack of experimentation because firms are very risk-averse,” he says. “Everyone is trying to change loyalty program benefits. Firms are definitely looking to differentiate their perks. This may be one way to do so.”
Included in the study’s conclusion are the following comments:
“First, this work adds to the understanding of how the presence of guests affects the status a VIP feels during preferential treatment. Further, these programs often also make an effort to convey scarcity and exclude most consumers. Our studies show that exclusion may have its costs as well and suggest that if a firm wishes to make a VIP feel special, it should consider permitting him/her to include guests.”