INSTANTA SCIENTIFIC BASIS FOR

GRATIFICATIONBY REGAN YAN

INSTANT GRATIFICATION

Copyright © Digital Alchemy 2

A SCIENTIFIC BASIS FOR

In essence, this is the problem with what I call “legacy loyalty”; spending a lot for a long time and I will give you a reward in the future. How many conversations have you had at dinner parties where people complain that they can never redeem their frequent flyer points and question why they even bother?

Ironically, true frequent flyers care more about their tier status than they do about point accumulation. It makes you wonder what these legacy programs really drive for the “accumulation partners”. Do you really stay with your telco because you get 40 frequent flyer points per month? Have you ever thought about how much 480 frequent flyer points are worth? Well, at Qantas, it’s worth $3. So based on the future discounting theory, it’s worth about 20₵ to me right now.No wonder I have so many packets of unwanted lollies in my car.

As it turns out, our value for a reward declines exponentially over time. This explains why we will do irrationally significant things for a relatively small reward but won’t do the same thing for a larger reward that is held out for a future date.

ow many of us have gone into a petrol station and found themselves buying $5 worth of lollies to get 4₵ per litre off 40 litres of petrol. We are, in effect, spending $5 to get a $1.60 discount on a product that is twice the price it should be... and we didn’t really want it anyway because it will cost you $200 to have the cavity in your teeth filled. So why do we do it? It’s simple, we are exhibiting a phenomenon called “present bias” or “future value discounting”.

HTIME

VALU

E O

F R

EW

AR

D

Reward value declines according to the future value discounting theory

Now

Same reward given in the future

OUR VALUE FOR A REWARD DECLINES EXPONENTIALLY OVER TIME.

www.digitalalchemy.asia | info@digitalalchemy.asia

Regan founded Digital Alchemy in 2003. Under his leadership, together with over

20 years of experience in strategic and data-driven marketing, Digital Alchemy has

grown to become Asia Pacific’s leading Database Marketing Services Provider.

Today, Regan is a recognised subject matter expert of Analytical Database

Marketing and Customer Relationship Marketing, speaking regularly at Australian

and international events.

Managing Director, Digital Alchemy

Regan Yan

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Copyright © Digital Alchemy | May 2015