The Effect of Framing on Loyalty Points Redemption by Ali Ammar A Thesis presented to The University of Guelph In partial fulfilment of requirements for the degree of Master of Science in Marketing and Consumer Studies Guelph, Ontario, Canada © Ali Ammar, August, 2018 ABSTRACT THE EFFECT OF FRAMING ON LOYALTY POINTS REDEMPTION Ali Ammar Advisors: University of Guelph, 2018 Vinay Kanetkar Sunghwan Yi This research was conducted to understand the effect of framing on loyalty program (LP) points redemption. Specifically, this study investigated whether the frame of a promotional message (gain frame or loss frame) had an impact on the customer’s likelihood to redeem their reward points. This study also asked the question whether attribute framing affects consumers’ purchase choice. This study’s final question was whether LP customers consider the worth of points offered the same as those points’ equivalent dollar value. The results showed that loss framed message’s effect on participant’s likelihood to redeem was marginally more significant than that of the gain framed message. The study also found that when customers were presented with promotional offers of equal financial benefit, they did not show a significant preference towards either earning (gaining) or redeeming (losing) miles. Finally, the study also found that LP customers did not consider the worth of their loyalty points to be same as equivalent dollar value of those points. The findings have important implications for loyalty marketing managers as they suggest tactics that can be used to enhance redemption in existing LPs. iii ACKNOWLEDGEMENTS I would like to thank all the people that have helped me through my master’s thesis and the MSc. degree. I would specifically like to thank my wonderful advisors, Dr. Vinay Kanetkar and Dr. Sunghwan Yi. I will always be indebted to their kind support, guidance, and their willingness to help. Vinay, your open-door policy was a pure blessing. There were countless moments of sheer stress in this process and there was nothing better than seeing your door open. You were always ready to chat, give direction, and provide a sense of relief. Sunghwan, I really appreciate your input during my research process. Your precise and actionable feedbacks were extremely valuable through the course of this research. I would also like to thank my professors who taught the courses and laid the foundation upon which this thesis could be built. I really value the support provided by the office staff during the entire process. It was your help that made this journey a little bit easier. Most of all, I would like to acknowledge the efforts of my amazing wife, Maryam, without whom this thesis would not have been possible at all. I thank you for being there for me, being patient with me, taking all the stress of running a family, and raising our two beautiful daughters all at the same time. iv Table of Contents ABSTRACT ................................................................................................................................... ii ACKNOWLEDGEMENTS .............................................................................................................. iii LIST OF FIGURES ........................................................................................................................ vi LIST OF TABLES .......................................................................................................................... vi LIST OF APPENDICES ................................................................................................................. vii 1 Introduction ............................................................................................................................... 1 2 Literature Review ....................................................................................................................... 4 2.1 History of Loyalty Programs ............................................................................................................. 5 2.2 Retail Loyalty Programs ................................................................................................................... 6 2.3 Effectiveness of Retail LPs ............................................................................................................... 7 2.4 Profitability of Retail LPs .................................................................................................................. 9 2.5 LP Redemption ...............................................................................................................................11 2.6 Prospect theory..............................................................................................................................17 2.7 Framing Effect ................................................................................................................................19 3 Study Hypotheses ..................................................................................................................... 25 4 Methodology ............................................................................................................................ 27 4.1 Sample Selection ............................................................................................................................27 4.2 Sample Selection ............................................................................................................................28 4.3 Survey Design.................................................................................................................................29 Analysis Plan .......................................................................................................................................31 4.4 ...............................................................................................................................................................31 5 Research Findings ..................................................................................................................... 34 5.1 Sample Characteristics ...................................................................................................................34 v 5.2 Hypothesis Finding .........................................................................................................................35 6 Discussion ................................................................................................................................. 41 7 Contributions ........................................................................................................................... 43 7.1 Methodological Contribution .........................................................................................................43 7.2 Managerial Implications .................................................................................................................43 8 Limitations................................................................................................................................ 44 9 Future Research ....................................................................................................................... 45 References ................................................................................................................................ 46 Appendices ............................................................................................................................... 53 vi LIST OF FIGURES Figure 1: Screenshot from Front Page of RedFlagDeals.com (https://www.redflagdeals.com) ... 17 Figure 2: A Hypothetical Value Function (Kahneman & Tversky, 1979, p.279) ........................ 18 Figure 3: Framed Messages (Ganzach & Karsahi, 1995, p. 12) .................................................. 21 Figure 4: An example of the discrete choice questions presented to participants ........................ 31 Figure 5: Customers' preference comparison for loss miles and gain miles ................................ 39 Figure 6: Customer preference plot comparison between miles and deal amount ....................... 40 LIST OF TABLES Table 1:Summary of methodological differences in types of framing ........................................ 19 Table 2: One-way ANOVA - post-hoc test ................................................................................ 36 Table 3: Models Predicting Most Likely to Buy ........................................................................ 37 Table 4: Parameter Estimate with t statistic for Model 2 ............................................................ 38 Table 5: Parameter Estimates with t-statistic for M2.................................................................. 40 vii LIST OF APPENDICES Appendix 1: Copy presented to participants in the loss frame condition .................................... 53 Appendix 2: Copy presented to participants in the gain frame condition .................................... 54 Appendix 3: Copy presented to participants in the control frame ............................................... 55 Appendix 4: Discrete Choice Experiment - Choices presented to participants ........................... 56 Appendix 5: Proportion of Participants that Redeemed Points Because of an Email Promotion . 56 Appendix 6: Participants’ reported LP points balance................................................................ 57 1 1 Introduction Loyalty programs (LP) have been a tool in the marketing manager’s chest