It’s pretty well accepted now that loyalty matters in business, whether that’s the loyalty of customers or the loyalty of employees. Significant investment goes in to making both groups feel special and appreciated. Most of the time, this investment is spent directly on the person the organisation is aiming to impress. Some new research by Brent McFerran (University of Michigan) and Jennifer J. Argo (University of Alberta) questioned whether this is indeed the best approach, or whether extending such attention to those close to the recipient can also be effective.
“These others 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,” the authors explain. “In other words, entourage members receive undeserved perks, and these people make VIP rewards less scarce.”
So, does extending preferential treatment to others dilute the value of the reward to the intended recipient? The researchers conducted six distinct studies, and found that the opposite is in fact the case. They found that recipients actually value the bonus more when they can share it with other people.
What’s more, they are in fact willing to trade the scarce nature of the bonus in order to be able to share it with others. For instance, when the reward in question was being taken to dinner with a prominent person, the perceived value of that reward increased the more people they could take with them.
A similar effect was found when the reward was a ticket to watch a sports match in a luxury box. The more people they were allowed to invite with them, the higher the perceived value of the reward. 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.
“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,” the authors write. “People are willing to trade rare rewards for more common ones, if they get to share these experiences with their friends.”
Suffice to say, this has clear implications for consumer loyalty schemes, but also for the way bonuses are handled in the workplace. Research earlier this year showed the benefits of allowing employees to share their bonuses with colleagues, with the recipient showing a significant improvement in productivity over those for whom the bonus was spent entirely on themselves.
Despite that however, most reward systems at work focus very much on the individual recipient, with little thought given to their peers or colleagues. Maybe the time is ripe for that to change.