JOURNAL ARTICLE

Loyalty Currency and Mental Accounting: Do Consumers Treat Points Like Money?

  • Published In: Manufacturing & Service Operations Management (M&SOM) (INFORMS), 2024, v. 26, n. 5. P. 1878 1 of 3

  • Database: Business Source Ultimate 2 of 3

  • Authored By: Lim, Freddy; Chun, So Yeon; Satopää, Ville 3 of 3

Abstract

This article examines how consumers decide to pay with loyalty points versus money, focusing on the behavioral and earning characteristics that influence these payment choices within a major U.S. airline's loyalty program. Using a hierarchical Bayesian model estimated on proprietary transaction data, the study finds that mental accounting, the subjective perceived value of points, and reference exchange rates significantly affect consumers' payment decisions. It reveals that consumers who earn many points primarily through the airline tend to value points more than money, whereas those earning fewer points or mainly via cobranded credit cards tend to value money more. The research identifies four distinct consumer segments based on their attitudes toward points and demonstrates how firms can leverage this heterogeneity to design targeted pricing policies that optimize revenue and influence payment behavior.

Additional Information

  • Source:Manufacturing & Service Operations Management (M&SOM) (INFORMS). 2024/09, Vol. 26, Issue 5, p1878
  • Document Type:Article
  • Subject Area:Economics
  • Publication Date:2024
  • ISSN:1523-4614
  • DOI:10.1287/msom.2022.0287
  • Accession Number:179561469
  • Copyright Statement:Copyright of Manufacturing & Service Operations Management (M&SOM) (INFORMS) is the property of INFORMS: Institute for Operations Research & the Management Sciences and its content may not be copied or emailed to multiple sites without the copyright holder's express written permission. Additionally, content may not be used with any artificial intelligence tools or machine learning technologies. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

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