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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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