Abstract
A frequent rewards program is a sales promotion strategy used by retailers worldwide. If consumers are rational, price discounts should be preferred over earning equivalent amounts of points, because actual money is highly liquid. However, previous studies show that awarding points is more effective in bringing in high sales than offering price discounts. A question then arises, which carries higher perceived benefit between price discounts and offering points? This study investigated the effects of promotion type: price discounts and offering points, in two experimental studies. We found that offering points equivalent to price discounts are perceived to give a higher benefit than price discounts for low benefit level, but on the contrary, offering points and price discounts were not perceived as giving significantly different benefits for high benefit level. These findings provide further empirical support for the assertion on utility perception made by the mental accounting theory.
