I have a love/hate relationship with loyalty programs. I love the rewards, but I hate the program specific terms.

One annoying thing about them is the different point systems. Let's compare two of my credit cards which offer 1% cash back. Card A uses dollars as points, and I get \$0.01 of rewards for every dollar I spend, redeemable after \$50 in rewards. Card B, on the other hand, works with a point system. I get 1 point for every dollar I spend, and once I reach 5,000 points I can get a check for \$50. Mathematically, both cards offer the same 1% cash back. So the question remains: Why did card B invent a point system for the rewards?

One possible answer lies in psychology. There are times when people are sensitive to how options are presented, a cognitive bias known as "framing." For instance, studies have shown people will drive a few minutes to another store to save \$3 on a \$10 purchase, but they won't do this to save \$3 on a \$100 purchase. Although both options are about saving the same \$3, how the choices were framed made a difference.

It turns out framing matters for point systems in reward programs too. In a study that will be published in the Journal of Consumer Research, researchers considered which point systems people preferred. In one experiment, the authors set up a situation where people ordered meals from a restaurant. In one rewards program, as described in Psychology Today, subjects got 1 point per dollar and needed 10 points for a reward. In the other, subjects got 10 points per dollar and needed 100 points for a reward. While the programs were the same mathematically, people viewed them differently. As people got to 80% of their goal — either 8 points out of 10, or 80 points out of 100 — the people reported preferring the large point system. They were more likely to say they liked the program and more likely to recommend it to others.
The study suggests that the more nominal points given, the better. And that might explain why one of my cards issues 1 point per dollar, as that could appear to be a hundred times larger than giving \$0.01 per dollar. Inflating point systems is a very low-cost change, so I imagine this trend will continue, with loyalty programs offering the same rewards but offering more points. Just wait for all the new programs offering 10 points or 20 points per dollar spent. Mark my word: This will happen!

(Okay, so after I wrote this I did some research. This is already happening at Gamestop Powerup rewards which offers 10 points per dollar spent on new games and 20 points on pre-owned games.)

Have you seen signs of point inflation in any rewards programs?

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Presh Talwalkar writes a blog about game theory.

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