Abstract:

As an important component of customer relationship management, reward programs have become an increasingly popular tool for managers to develop customer loyalty. Many companies attach price tag to the rewards, while the effect is scarcely discussed in extant literatures. We suggest that there are dual roles of price tag of loyalty program reward: weakening-affective-benefits effect and external-reference-price effect. The former will decrease perceived value of the reward, while the latter have an inversed U-shape relationship with the perceived value. With a salient monetary cue, customers are more likely to focus on the economic benefits, and it may weaken the perception of affective benefits. As an external reference price, if the price tag cannot effectively raise customers’ perceived economic benefits of the reward and offset the loss of perceived affective benefits, the amount of total perceived benefits will decrease, diminishing the appeal of reward. Results of our study provide empirical evident to support the hypotheses. Finally, we discuss the theoretical, practical, and future research implications of these findings.

Key words: Price tag, reference price, customer reward program, reward