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The behavioral psychology principles behind rewards programs are particularly fascinating because they tap into various human behaviors and psychological tendencies. It’s important to have a working understanding of the principles that companies are counting on when offering rewards since it empowers you to make more informed decisions, resist manipulative tactics, and maximize your benefits. Here’s a few of the principles rewards programs rely on:
- Loss Aversion: This principle suggests that people prefer avoiding losses to acquiring equivalent gains. In the context of rewards programs, the idea of losing status or rewards can be a powerful motivator. Customers might go out of their way to book an extra flight or hotel stay, choose a slightly more expensive ticket or longer vacation to maintain their tier status or prevent their points from expiring.
- The Endowed Progress Effect: This effect occurs when people perceive they have made some progress toward a goal, making them more likely to complete it. For instance, when a rewards program gives new members a few hundred miles or points upon signup, it creates a sense that they are already on their way to earning enough for a flight, hotel stay or free car rental — encouraging further engagement with the company.
- Social Proof: People tend to follow the behavior of others. When rewards programs, or compensated influencers, showcase testimonials or stories of people enjoying the perks of higher-tier statuses or redeeming miles for exotic vacations, it can influence others to aspire to the same lifestyle, encouraging more bookings and engagement with the program.
- The Sunk Cost Fallacy: This fallacy occurs when people continue a behavior or endeavor as a result of previously invested resources (time, money, effort). Once customers have accumulated miles or status with one brand, they’re more likely to stick with it, even if other options might be cheaper or more convenient, to avoid “wasting” the rewards or status they’ve earned.
- Variable Ratio Schedule of Reinforcement: This principle, derived from B.F. Skinner’s work, suggests that behaviors are most robustly reinforced on a variable ratio schedule, where rewards are given after an unpredictable number of responses — e.g. slot machines. In rewards programs, the “random” nature of seat, room or car upgrades, availability of reward flights, or special promotions can keep customers consistently engaged, as they can’t predict when their next “reward” might come.
- Instant Gratification vs. Delayed Rewards: Travel companies balance the appeal of instant gratification (like priority boarding, upgrades or extra baggage allowance) with the promise of more significant, delayed rewards (free nights, reward flights, or million miler rewards). This plays into the human tendency to value immediate rewards highly while still being motivated by larger, future benefits.
- Commitment and Consistency: This principle, based on Robert Cialdini’s work, suggests that once people commit to something, they are more likely to follow through with it. By getting customers to sign up for a rewards program and start accumulating miles or points, companies are tapping into this tendency; customers are more likely to book with the same provider to remain consistent with their initial commitment.
Understanding and leveraging these behavioral psychology principles enable companies to design rewards programs that not only foster customer loyalty but also deeply influence your travel habits and spending patterns. Now that you’re aware of them you are on your way towards navigating rewards programs more effectively, making decisions that align with your preferences and avoiding common psychological traps that can lead to overspending or suboptimal choices.
Editorial Note: Information and opinions articulated in this article are solely those of the author’s, not those of a credit card company, bank, airline or hotel chain. This article has not been reviewed or approved by or otherwise endorsed by any of these companies or organizations.