Rewarding Money or Time? The Sunk Cost Effects of Customized Rewards in Loyalty Programs

This research investigates an overlooked aspect of firm loyalty programs: rewards for consumer temporal efforts (RTEs), which pertain to consumer time spent on firm activities, as opposed to rewards for consumer monetary efforts (RMEs), which pertain to consumer money spent on firm products. Across six main studies, the authors find robust evidence that consumers devalue time compared with money—they underestimate the sunk costs of time and consider RTE easily earned. Therefore, when select consumers receive customized RTE (vs. RME) without prior notice, they will perceive lower effort-related costs associated with the reward, making them less likely to redeem it. If they choose to redeem it, they tend to purchase more novelty products because they will categorize RTE under the mental account of windfall gains. They are also more inclined to repurchase after redemption due to an elevated sense of gratitude. However, when consumers are reminded of the opportunity costs of their prior temporal efforts, they become just as likely to redeem the reward as those rewarded with RME, owing to the heightened sunk time effect. These findings present a novel customer-engaging strategy for firm loyalty programs, namely rewarding consumer time (RTE) in an unconventional manner.