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AN ANALYSIS OF REWARD SYSTEMS OF ELECTRONIC SERVICES

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 AN ANALYSIS OF REWARD SYSTEMS OF ELECTRONIC SERVICES

Shari S. C. Shang
Yi-Chen Yeh
Ya-Ling Wu
Department of Management Information Systems, National Chengchi University, Taipei, Taiwan, R.O.C.

99356021@nccu.edu.tw

ABSTRACT enterprises dealing with face-to-face

A reward system is a diverse and popular customers. As variant services on
program implemented by many firms in e-platforms have emerged, little research
various circumstances to motivate has been done to understand the novel
customers’ behavior for frequent and loyal concept and effects of reward systems on
patronage. With the evolving diversity of e-platforms. We propose a taxonomy of
electronic platforms (e-platforms), more e-rewards based on forms of reward, degree
dynamic, cost-effective and interactive of interaction, and targeted needs. Using
electronic rewards (e-rewards) are content analysis we examine the world’s
developed as a tool or strategy to retain most accessed 1,000 websites to define
customers and enhance frequent visits to the different types of e-reward systems: material,
platform. For instance, Facebook uses authority, achievement, personal
virtual currency to gain user participations; gratification, and affiliation. It is hoped that
Dropbox uses bonus storage to attract the findings could provide a base for further
memberships and prolong service usage; study on various impacts of reward systems
Myspace uses virtual badges to encourage and provide a guide for managers in
users to achieve specific goals in order to designing and implementing more effective
encourage frequent visits. The rewards on reward systems on e-platforms.
the e-platform can range from real items Keywords: e-reward system, reward
such as cash and discounts to virtual systems, motivation, interactivity,
recognitions to enhance self-esteem. These
strategies differ from those used by e-platform

communities, promoting businesses,

1 INTRODUCTION organizing and consolidating up-to-date
1.1 The implications of evolving knowledge, providing entertainment,
e-platforms and providing access to various digitized
platforms and applications.
Not until very recently has information
and communication technology become 1.2 The objective of e-platforms
sophisticated enough to allow more Even thorough these e-platforms serve
complex customized platforms that different purposes, each of them exists
enable businesses to offer in order to be sustainable and profitable
groundbreaking e-platforms to provide and to increase customer patronage. The
services on the Internet. Nowadays, the main challenges for the e-platform
diversity of e-platforms based on the service providers are attracting visitors
Web 2.0 concepts are still evolving. to the site and generating significant
Various e-platforms are becoming quantities of repeat visits (Williamson &
more dynamic and cost-effective, Johnson, 1995) [1]. The repeat visit
making a huge difference in the way issue is partly a function of web site
businesses interact with customers. design(Salomon, 1995) [2] and depends
e-platforms may be used to provide on the extent of satisfaction of customer
services such as processing transactions needs.
online, building and maintaining virtual

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1.3 The introduction of traditional and prolong service usage; and Myspace
reward system uses virtual badges to encourage users to
To date, most Americans are members achieve specific goals in order to
of at least one customer rewards encourage frequent visits.
program (Kim T. & Gordon.K, 2005) [3]. Due to the high speed, unlimited reach,
Many enterprises encourage repeat and virtually interactive feature of
purchasing and enhance customer e-platforms, their reward systems, which
loyalty by providing targets at which we will refer to as e-reward systems, can
various rewards are provided (O’Malley, demonstrate great differences from the
1998) [4]: airlines, credit cards, retail reward systems designed by
stores, and hotel chains (Kivetz, 2005; brick-and-mortar–based services.
Kivetz & Simonson, 2003; Kivetz, Although the underlying purpose is the
Urminsky, & Zheng, 2006) [5], [6], [7] same—to create and retain
developed various loyalty programs customers—rewards on the e-platform
attempting to develop loyal customers can range from real items such as cash
who are perceived as more profitable to and discounts to virtual recognitions to
a firm. For instance, American Airlines's enhance customers’ self-esteem. As
“AAdvantage Program”, or so-called variant services on e-platforms continue
Frequent Flyer Program, is one of the to emerge, however, little research has
largest and most popular reward been done to understand the novel
programs worldwide since 1981. concept and effects of various e-reward
Members can earn miles for flying and systems.
for transactions with over 1,000
1.5 Research objective
participating companies, and members
can redeem accumulated miles for The objective of this study is to
awards including flight upgrades, understand different types of e-reward
vacation packages, car rentals, hotel systems on e-platforms and try to
stays, and other retail products. classify them. The data used for the first
Starbucks is a leading coffee retailer, stage is collected from the 1,000
and Starbucks Rewards is another most-visited sites on the Web and uses
typical frequent buyer program. With content analysis to discover what reward
rewards, customers can earn free coffee, systems have been adopted by
refills, or other products Starbucks e-platforms. And we also analyzed
offers. e-rewards characteristics based on the
e-rewards taxonomy: 1).forms of
1.4 The importance of e-reward motivation, 2).degree of interaction. In
system the second stage, we plan to conduct
There are many tactics such as focus group to examine the rationality of
customer notification, constant content the e-rewards taxonomy.
updating, and search engine
optimization (SEO) that can aid
e-platforms in gaining customer access, 2 LITERATURE REVIEW
but these methods are passive ways to 2.1 Distinctive features of e-reward
attract customers. Various reward systems
systems on e-platforms have been
developed that apply various activities to Due to information technology and
attract frequent and repeat visits. For Internet evolution, the characteristics of
instance, Facebook uses virtual currency e-rewards have significant differences
to gain user participation; Dropbox uses from contemporary general reward
bonus storage to attract memberships systems environment. Both physical

146
rewards and virtual rewards can be organizations are concerned with how
offered by e-platforms. Digitized employees can best be motivated
rewards can be delivered with no time through such means as incentives and
and geographical limitation at very low leadership to achieve sustained high
or no cost. With the wide range of levels of performance (ARMSTRONG,
customers online at the same time, the 2006) [8].Wages or salaries are usually
design of rewards can involve multiple not enough to motivate employee to
levels of interactions, including one-way work hard, so many companies offer
communication with customers from the incentives as well (Angelo & Brian,
business (B2C), two-way 2006) [9].In the marketing field, various
communication between business and rewards such as cash back and gifts are
customers, customer to customer (C2C) used to encourage repeat purchases.
and customer to customer to business Game designers use exciting rewards to
(C2C2B). And the form of rewards can lead players to indulge in the virtual
involve different combinations of online gaming world(Wang & Sun, 2011) [10].
and offline formats. A comparison of Each of these efforts uses rewards to
general (non-digital) and e-reward influence stakeholders’ behavior by
systems is shown in Table 1. satisfying certain inner needs of
stakeholders.
Table 1. Difference between general reward
The concept of motivation can provide a
valuable foundation to explain such
systems and e-reward systems behaviors as why users habitually rack
General e-Reward up points, collect badges, compete with
Reward System others, and complete various tasks on an
System
e-platform. In general, motivation is a
Environment Physical e-platforms
stores, , Internet
force which arises with enthusiasm from
organization within the individual, activating the
Proposition To acquire To individual to persistently pursue a
and retain encourage particular task or goal.(Daft & Marcic,
customers frequent 2008; McKenna, 2000) [11], [12]
and repeat From the psychologists’ point of view,
visits
(De Charms, 1968) [13] suggested the
Reward Forms Entity-oriente Entity and
d virtual-orie
dichotomy of intrinsic versus extrinsic
nted motivation that differentiates the loci of
Interact One-way Multiple causality. Intrinsic motivation is defined
ion communicatio ways with as the doing of an activity for its
n different inherent satisfaction rather than for some
stakeholder separable consequence or instrumental
s value: doing an activity simply for the
Deliver Cost Relatively Relatively
enjoyment of the activity itself, rather
high low
Speed Relatively Relatively than the additional rewards(Ryan &
inconsistent consistent Deci, 2000) [14]. For instance, Stack
Overflow provides badges as a reward to
encourage knowledge contribution to the
community; many active members
2.2 Motivation volunteer to accomplish activities
(which often are challenging to achieve
Rewards systems have been widely and with relatively long-term goals) in
applied in many areas to motivate order to get accomplishment or
different kinds of behaviors. First,

147
satisfaction from the activity itself rather 2.4 The taxonomy of e-reward systems
than the badges shown on the profile. In order to differentiate complex
Extrinsic motivation can be defined as characteristics of e-rewards, we try to
performance of an activity in order to propose a taxonomy for e-reward
attain some separate outcome (Ryan &
systems. The taxonomy consists of a
Deci, 2000) [14]. For instance,
dual axis: forms of motivation and the
Amazon.com rewards purchase behavior
degree of interaction. The form of
with redeemable points that purchasers motivation emphasizes the intrinsic and
can redeem for their favorite
extrinsic type of motivation of e-rewards,
merchandise. Customers are and the degree of interaction emphasizes
extrinsically motivated by these points;
the interactivity level of an e-reward that
they may purchase more with this may be oriented toward personal needs
platform service in order to accumulate (low interactivity) or distributed among
more points for further credit. Stack
the virtual society (high interactivity).
Overflow, on the other hand, rewards According to our clear definitions, there
high contribution and trust ratings by are mainly four patterns of e-rewards
empowering the contributor as a classifications with different motivation
moderator in the community. The type and interactivity level.
moderator assumes a privileged status in
the community and restricts other
members’ undesirable behavior. 3 METHODOLOGY
The objective of this study is to discover
2.3 Degree of Interaction different types of e-reward systems on
The Internet has become a prime venue e-platforms. Based on this purpose, the
for social interaction. The World Wide study conducts three steps of research
Web enables users to get to know other process: literature review, case content
people and to seek out affiliation, review, and expert discussion. The
companionship, and support (Mynatt, literature review is used to developing a
E.D. et al., 1999; Farnham et al., e-reward taxonomy .Case content review
2002).[15], [16] The property of social has been done iteratively for exploring
interaction is where e-rewards most e-reward systems on various e-platform
differ from traditional rewards. Some services. Expert discussion is applied in
e-rewards can help satisfy the need for classifying e-reward systems based on
affiliation and belongingness. For the rewards taxonomy proposed in the
example, the Facebook “like” and literature review and used for
Twitter “follow” functions are designed classification validity.
to satisfy affiliation, as a sort of public 3.1 Data Collection and Analysis
praise given from the other group
members. Twitter “follow” can allow a The major source of the study for
member to receive the posts of others in content analysis is “Ad Planner Top
the online community. The Social Power 1000 Sites” as identified by
Theory (French & Raven, 1959) [17] Google(Google, 2011) [7]. From the
even considers that power and influence 1,000 sites we selected 143 e-platform
involve relations between at least two cases for content analysis by the
agents or even within a group with following selection criteria: 1) have
diverse degrees of interactions. implemented reward systems, 2)
Therefore, all the rewarding activities accessible (some sites are not accessible
involve different degree of interactions due to unknown errors or specific
among members in the virtual society. service access requirements), 3) no
redundant services (several sites have

148
same service but offered in different same characteristics toward dichotomy
regions), 4) not official sites, 5) sites are of motivation and interaction. These five
in English. And each of the 143 different types of e-rewards obviously
e-platforms was iteratively reviewed present corresponding motivation and
from February 2 to March 20, 2012, and interactivity patterns, and these types of
analyzing each e-rewards from various e-reward were identified and labeled
e-platforms focusing on two e-rewards Material, Authority, Affiliation,
characteristics: 1) forms of motivation 2) Achievement, and Personal Gratification
degree of interaction, the complete 143 respectively. Material e-rewards inclined
e-platform lists are shown in Appendix to extrinsic motivation and low
I. interaction, Authority e-rewards inclined
to extrinsic motivation but higher
3.2 Expert discussion and
interaction, Affiliate e-rewards inclined
classification
to intrinsic motivation and with high
After the content reviews for each interaction, Achievement e-rewards may
e-platform we discovered that there are both inclined to intrinsic and extrinsic
total 215 e-reward cases from 143 motivation and with high and low
e-platforms. At the initial expert interaction either. The characteristics
discussion phase we invited three differences of e-rewards based on the
experts to review these 215 e-reward taxonomy are illustrated in Figure 1. We
cases. One professor who devotes to will discuss these five categories of
study of e-business and innovation e-rewards in several representative
research with over twenty years cases.
experiences and with ten years work
experiences relevant to e-business
management, and two MIS Ph.D.
candidates, one of the Ph.D. candidate
with over fifteen years management
experiences in e-commerce platform
operation.
The three reviewers analyzed 215
e-rewards focusing on the form of
motivation and degree of interaction,
each e-rewards was classified into four
types of reward taxonomy basically.

4 PRELIMINARY FINDINGS
Figure 1.Five types of e-reward system
4.1 Preliminary findings of e-reward
system 4.1.1 Material e-rewards
Material e-rewards are commonly
According to the content review results used to fulfill customers’ physiological
and expert discussion, we discovered a needs. These rewards are mostly in the
list of mainstream but incomplete form of extrinsic motivation with little
eighteen e-rewards methods that were interaction among stakeholders.
summarized from 215 Customers are usually motivated by
e-rewards(e-rewards may still be these rewards in order to acquire
evolving and changing), and then we practical benefits rather than to enjoy the
classify them into five types of behavior itself. This type of e-reward is
e-rewards in further according to their usually given as redeemable points, cash

149
back and discounts, affiliate program, member to refer their website visitors
services extension, or virtual currency. through banner links to purchase.
 Redeemable points  Service extension agreement
Redeemable points are accumulated by Service extension agreements are free
performing eligible behavior. The most service rewards for inviting other users
common such behavior is goods to join or use a service frequently. For
purchasing. These points usually equal example, Dropbox is an online storage
to money that is exchangeable for prizes and synchronization service that enables
in a predefined usage scope. Point members to access their digital files
programs may have complicated rules to anywhere they have Internet capability.
encourage repeated purchasing. For For every invited friend who joins and
instance, the Bing search engine service installs Dropbox, both the member and
adopted a point program that encourages the friend will be rewarded with an
members to search as usual to earn additional 250 MB of storage. A similar
points and to redeem rewards for service, Depositfile, offters its members
amazon.com merchandise or Xbox Live an opportunity to get GOLD status for
points. using the service regularly, enabling
 Cash back and discount them to download files with no speed
limitations.
Cash back refers to cash rebates
 Virtual currency
earned for online purchases, but they
must be used for the next purchase or be Virtual currency is a monetized
accumulated to redeem merchandise. currency issued by specific platforms
Online discounts are similar to cash that can make payments in virtual
back but more simple, offering a direct environments such as online game play
reward to customers. The rebate is often or purchase of virtual items. Although
binding with merchandise. For instance, real money can be exchanged for virtual
eBay is a popular online retailer that currency, there are also other ways to
implemented a cash back program called get free currency, such as by completing
eBay Bucks, a reward for members who free offers and activities. For instance,
shop on eBay: they get eBay Bucks Facebook members can earn credits by
equivalent to 2% of qualifying purchases; joining Facebook application (apps)
the credit will calculate automatically. games at the first time. Facebook also
 Affiliate program offers credits for downloading software,
linking apps, and so forth. Party Poker
Affiliate program is kind of a member encourages members to sign up to be
profit sharing program, member can be new member and gives virtual credits to
affiliate with company, and it play games free for the first time; the
encourages affiliate member to refer a site also offers abundant promotions for
paying customer or friends (potential members to play Party Poker for free.
customer) to become new members, These rewards come for activities such
affiliate member would get commissions as playing more games or winning a
for their success referral. For example, game.
Document sharing service Wupload
adopted “Pay-per-download program” 4.1.2 Affiliation e-rewards
for member to get earnings for each Affiliation e-rewards are designed to
accumulated 1,000 file downloads. facilitate relationship building between
Online retailer STAPLES.com also participants within the virtual
adopted affiliate program to encourage community. This addresses human needs
for love, affection, and acceptance in

150
belonging to a group. This type of Virtual gift rewards are mainly
reward design is mainly intrinsic in that designed to increase positive
customers and members are motivated relationships with the member. Members
by being liked, followed, invited, and can receive and send special virtual gifts
consulted by other customers and to their friends, most of which are
members. This type of reward is usually non-monetary. These gifts can facilitate
given as public praise, subscription, interaction and satisfy the altruism need.
group joining, or virtual gifts. For example, entertainment services
 Public praise such as Zynga and Stardoll and social
networking site Cyworld offer virtual
Public praise is a simple relatedness gifts for those who want to show
reward that can be received from and positive thoughts toward their friends or
given to others. Members usually need members.
to receive positive praise or to be liked
in a group. For instance, YouTube , 4.1.3 Achievement e-rewards
Flickr, and Facebook are virtual Achievement rewards usually consist
communities that enable users to of virtual badges or trophies. Such
generate contents on the site. Members extrinsic rewards are bound to
share interesting contents continuously challenging activities and reward those
because they want to be praised or get who desire to demonstrate competence
affirmative words. or winning, thus fulfilling their
 Follow and Subscription achievement needs (intrinsic reward).
These activities often require
Although “follow” and “subscription” competition between members, with a
are convenient functions designed for certain degree of interaction. The
members to easily focus on specific rewards consist of intrinsic and extrinsic
content types, they also can be affiliate rewards. Four achievement reward
rewards because of the status that schemes may be noted:
accrues when a member is paid attention
by the others. For instance, Twitter  Badges
adopted the “follow” button, enabling Both in the real and virtual world,
members to follow favorite contents badges, medals, and trophies can be
generated by the followee, while the used to reward people’s excellent work.
followee’s profile shows how many They are visible recognition of
followers he or she has. completed challenges and activities. For
 Group joining instance, the Myspace and Orkut social
networking sites reward members with
Almost online communities have different badges for participation in
various groups for members to activities such as trying out various
participate in. Group invitations can be features and achieving excellent work.
seen as affiliate reward that satisfy a
member’s need to belong to a group. To  Rank and leaderboard
join some groups, members must have Leaderboard and rank are explicit
qualifications or achieve specific rewards to show off members’ excellent
behaviors. For example, deviantART is work and competence to drive valuable
an art-related social community that behavior. It encourages members to
offers group creation. Group “compete”. For example, Answer.com
administrators can set qualifications for adopts a leaderboard to gain members’
members to join the group. participation. Members compete by
 Virtual gift answering and editing questions. These
efforts are reflected by scores and result

151
in a ranking. If a member stands in a typical case of authority e-rewards:
high ranking, it can satisfy their need for privilege unlocking and moderator.
accomplishment.  Privilege unlocking
 Point and level
Privilege unlocking rewards are
Level is a common way to confirm designed to extend members’ basic
members’ achievement of behaviors or functions in the community, such as the
to encourage behavior by giving various ability to create chat rooms or groups, to
amounts of points. Level is also an collaborate in editing, to comment
indication that users have reached a everywhere, or to open votes. These
milestone, since levels are often defined rewards mainly do not afford direct
at certain point thresholds. Users can control over other members, but these
automatically level up, based on their privileges still have strong influence in
participation. For instance, the community. For instance,
entertainment services such as Miniclip programming peer community Stack
and Zynga adopt level systems in Overflow uses reputation points to
numerous Web games. Some players enhance a member’s social influence
vigorously pursue these games to earn and privilege. The more reputation
abundant experience in order to gain points you earn, the more privileges you
high levels and satisfy their achievement gain, such as the ability to vote up and
needs. down, to create chat rooms, and so on.
 Vote and rating  Moderator/Inspector
Vote and rating are assessment Moderator/Inspector is an
functions of user-generated contents, acknowledged superior reward that is
rating is a score that present how responsible for sustaining the work of
interesting or quality the content is, community. As opposed to a privilege
some member intend to post useful unlock reward, moderator/inspector is an
contents intrinsically, but they are additional title or rank that grants the
inclined to get high ratings from their power to guide or restrict other members’
audiences too, therefore, rating is also a behavior, such as granting other
direct way or reward to confirm members privileges and deleting illegal
contributors achievements given from contents published by other members.
other members in the community. For instance, Wikipedia grants authority
with titles such as Inspector, a position
with the power to delete others’ edits
and records.
4.1.4 Authority e-rewards 4.1.5 Personal gratification e-rewards
Authority e-rewards are basically Personal gratification e-reward
designed to empower qualified members systems are mainly designed to fulfill
with physical control power or privilege members’ emotional needs. Human
functions. Members must follow the beings have the need to exhibit
rules to achieve something in order to preferences reflecting their emotions in
gain authority. This type of reward interacting with the virtual community.
design is mainly extrinsic in that These emotions involve self-awareness
customers and members are motivated in with a low degree of interaction, and
order to gain power and high interaction thus are intrinsic forms of reward. There
in the community. There are two types are a few types of emotional rewards
of authority function that represent the that represent the typical case of

152
personal gratification e-rewards: virtual prizes. Players are inclined to return
avatars, completionism, and “try luck.” because they enjoy surprises and feel joy
 Virtual Avatar at experiencing luck.

An avatar is a virtual figure that a 4.2 Conclusion

member creates to represent him- or This research uses content review to
herself online, reflecting the emotion of discover e-rewards from “Ad Planner
the member. Members can give their Top 1000 Sites” and analyzes their
avatars a unique appearance by changing characteristics through three experts
their attributes or accessories. For discussions: 1). Forms of motivation 2).
example, Stardoll is a social Degree of interaction . According to the
entertainment service that gives result shown in the preliminary findings,
members the opportunity to create their we discovered total 253 e-rewards on
own avatars and thus fulfill their 143 e-platforms and summarized them
self-expression need; Cyworld to eighteen e-reward systems methods,
mini-apartments also offer virtual these eighteen e-rewards were classified
avatars and gadgets to let members into five e-rewards categories according
express their emotion and unique style to their motivation and interaction types:
within the community. Material, Authority, Affiliation,
 Completionism Personal gratification and Achievement.
These five different e-rewards obviously
Completionism is a concept and present corresponding characteristics
strategy that uses a series of collectable patterns. Material e- rewards are mostly
gadgets to satisfy members’ collecting in the form of extrinsic motivation with
needs. Such members wish to form little interaction among stakeholders;
complete collections of virtual items. Affiliation e- rewards are mainly
Thus, members are often encouraged to intrinsic motivation with high
revisit or participate repeatedly in order interaction; Achievement e-rewards both
to collect exclusive awards; these could be intrinsic or extrinsic with
awards usually have no value other than different degree of interaction ;
their collection value for the member. Authority e-rewards incline to be
For instance, Miniclips and Zynga offer extrinsic and high interaction ; Personal
many webgames, most of which offer gratification e-rewards are mainly
collectable virtual items. Some members intrinsic motivation with low interaction.
try to play more frequently in order to It is hoped that the finding can serve as a
collect these virtual items. basis for further study on e-rewards
 “Try Luck” systems of e-platforms, and facilitate the
“Try Luck” is a experience and understanding of e-rewards toward
random reward schedule aimed at virtual environment for website manager,
helping members have fun and feel marketer and web designer.
surprise rather than focusing on the prize
itself. For example, members could have
the chance to experience luck through a
drawing, bingo, a lottery, or other
game-playing activities. For instance,
Zynga’s Web game FarmVille uses a
random reward scheme to encourage
players to return and play more, such as
continuing to reap vegetables in order to
have the chance to win mysterious

153
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 Appendix I 143 e-platforms list selected from Google Ad planner
Facebook FRIV PartyCasino travelocity xdating
Youtube livingsocail Girsgogames.com skyrock ancestry
wikipedia hi squidoo wikiHow Gamesgames.com
bing wikia nick Star doll walgreens
twitter Hotels deviantart Etsy 1channel
amazon.com Nexttag webs AA.com Break
ebay.com livejournal.com constantcontact Hubpages issuu
linkedin.com slideshare Dropbox KAYAK Gamezer
paypal bestbuy.com DELTA shoplocal BED BATH &
Beyond
orkut.com vimeo videobash FixYa Shockwave
flickr.com Cyworld armorgames ezinearticles ziddu
myspace allrecipes.com ORBITZ BIG FISH snapdeal
booking SOUTHWEST.COM RYANAIR SpeedDate newgrounds
Answers.com The Home Depot Overstock STAPLES qvc.com
scribd TAGGED Barnes&Noble docstoc stackoverflow
tumblr twitpic Costco.com LEGO cheapair
vk (eu) Zoosk KOHL’S Zappos soundcloud.com
walmart priceline firstload Wupload veoh
target local.com Ning travelzoo Mashable
miniclip ShopAtHome.com Citysearch NORDSTROM Grooveshark
Tripadvisor hotfile Hilton Argos next.co.uk
Partypoker Lowes Marriott multiply SamsClub.com
Groupon AGAME.com 888.com toysrus united.com
metacafe jcpenny.com imvu formspring iwon
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