Change search
ReferencesLink to record
Permanent link

Direct link
Bronze, silver, and gold: Effective membership design in customer rewards programs
Blekinge Institute of Technology, Faculty of Engineering, Department of Industrial Economics.
Blekinge Institute of Technology.
2009 (English)In: Electronic Journal of Information Systems Evaluation, ISSN 1566-6379, Vol. 12, no 1, 59-66 p.Article in journal (Refereed) Published
Abstract [en]

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.

Place, publisher, year, edition, pages
2009. Vol. 12, no 1, 59-66 p.
Keyword [en]
customer rewards program, customer loyalty, membership levels, incentives, differentiation, time-statecontingent claims
National Category
Economics and Business
URN: urn:nbn:se:bth-10696OAI: diva2:854297
Available from: 2015-09-16 Created: 2015-09-16 Last updated: 2015-09-21Bibliographically approved

Open Access in DiVA

fulltext(132 kB)36 downloads
File information
File name FULLTEXT01.pdfFile size 132 kBChecksum SHA-512
Type fulltextMimetype application/pdf

Search in DiVA

By author/editor
Sällberg, HenrikHederstierna, Anders
By organisation
Department of Industrial EconomicsBlekinge Institute of Technology
In the same journal
Electronic Journal of Information Systems Evaluation
Economics and Business

Search outside of DiVA

GoogleGoogle Scholar
Total: 36 downloads
The number of downloads is the sum of all downloads of full texts. It may include eg previous versions that are now no longer available

Total: 42 hits
ReferencesLink to record
Permanent link

Direct link