Contrary to conventional thinking that scarcity increases something’s value and therefore its owner’s status, research now shows that by allowing VIPs to share otherwise-exclusive privileges with a wider group, the VIP’s status is actually elevated.
McFerran & Argo (2014) The Entourage Effect, Journal of Consumer Research, Vol. 40, No. 5
We humans are social creatures, and we all naturally crave status amongst our peers (Fiske and Taylor 2008; Taylor and Brown 1988). Digging a little deeper, we tend to do things that hint at our desired position within a social hierarchy (Berger and Heath 2008; Berger and Ward 2010). In modern life, examples of such behaviour include buying premium brands, large houses, expensive cars and exotic holidays.
Brands understand this constant quest for status, knowing that preferential treatment affects our perceived status (Drèze and Nunes 2009). This then leads to stronger brand relationships, elevates customer happiness and leads to higher purchase levels (Homburg, Droll, and Totzek 2008). Some brands even go further for their most important VIP customers, extending this exclusivity to their close friends.
But doesn’t sharing these privileges with others dilute the VIP’s experience? The reasoning here being that an entourage might potentially add to the total number of consumers receiving special treatment, and the overall exclusivity of the treats bestowed on the VIP might therefore be reduced. The basic socio-economic idea behind this is that normally, the more exclusive and scarce a good, service, or reward is, the more valuable it becomes, and therefore its potential for signalling one’s status becomes higher (Bourdieu 1986).
Well, this recent research suggests this isn’t the case! Actually, VIPs experience higher status when receiving widely available special treatment with their entourage, as compared to an experience available to fewer people but experienced alone.
But why? Well, it’s not because VIPs a) don’t want to be lonely, b) crave more public visibility of their social position, c) want to exercise their ability to share their resources with others, or d) want to create a feeling of indebtedness. Actually, the real reason that the entourage effect occurs is because of the heightened feeling of social connection that the VIP experiences.
All in all, given that the majority of your sales often come from a small fraction of consumers (often called the Pareto principle or the 80/20 rule), deciding on the best strategy for rewarding the most loyal customers is an important business question. The entourage effect has important ramifications for any brand with a premium loyalty scheme…
Takeaways for decision-makers
Understand that while loyalty programmes often make an effort to create feelings of scarcity and exclusivity, research shows that exclusion may have its costs as well. If a company wishes to make a VIP feel truly special, it should adapt its existing programme to also permit him/her to include guests.
If you run a premium loyalty programme, know that by adding guests associated with the main VIP member, you’ll elevate (rather than reduce) the VIP’s perceived status, despite the decreased scarcity of the privilege. The studies in the paper suggest this is a powerful opportunity to increase loyalty and sales from an influential, financially-desirable customer segment.
The notion of the “trophy wife” - a relatively-rare individual who elevates the status of the other person maintaining that relationship - doesn’t apply here. Whereas it’s the individual’s duty to maintain the trophy wife (Baumeister and Vohs, 2004), the onus is on you, the brand, to foster and maintain the relationship with the entourage - an abundant resource, in comparison. There will be increased loyalty programme costs incurred.
When setting up your premium loyalty programme, see the VIP not as an individual, but as a group. Target your offering - especially at the highest end - around that group, and understand that powerful, positive effects will channel back to the main VIP.