My wife loves flight miles. It has become the fall back justification for any large purchase we need to make. The car needs new tires: “At least we’ll get flight miles.” We have to replace all of the siding on the house: “At least we’ll get flight miles.”
To be fair, I love them, too. I was going to spend the money anyway, so it feels like I’m getting something for nothing. It also means I end up using my card more frequently. It turns out that’s exactly what the airlines and the credit card companies want.
Over the years, I’ve noticed that the perception of value of a reward or discount is not necessarily based on the dollar value. For example, with many employees, a $50 bonus on a paycheck is not nearly as effective as a bonus of a $50 gift card to Neiman Marcus. A paycheck bonus gets lost in the other money relegated toward bills and expenses. A gift card is a license to spend money on a luxury probably not justifiable otherwise.
Service providers would do well to take note of this psychological phenomenon. The cosmetic industry has used the free gift with purchase technique to drive sales for a number of years. They package up some of their products and sell them in larger bundles with a free gift. Inevitably they end up selling more products using this method. Instead of just giving a discount, they have mastered the art of convincing buyers they are getting something for nothing. In reality, buyers are just receiving a form of a discount for buying more products.
It seems to me there are opportunities for service providers to leverage this idea.
Instead of offering discounts for repeat customers, what about a rewards program?