What is the entourage effect?

Psychological research explores a phenomenon known as the “entourage effect” in which allowing individuals, referred to as VIPs, to share otherwise-exclusive privileges with a circle of friends, elevates the status of the VIP.

Economists and marketers alike have known for a long time now that the perceived status of a product has a tremendous impact on sales and who the customer base is. The basic economic reasoning is that the scarcer a product or service is, the more valuable it is perceived to be. The scarcity or exclusivity of the product or service signals its status.

Research on this topic, however, highlights the ultimate form of status: the entourage.

Brent McFerran of the University of Michigan, Stephen M. Ross School of Business and Jennifer Argo of the University of Alberta, Department of Marketing, Business Economics, & Law published a paper in September 2012 called the “The Entourage Effect” in which they demonstrated that when an individual earns or wins a reward, they enjoy it more if they can share it with people they like. This individual, referred to as the VIP because a priviledge has been granted to them, gains status from the act of sharing.  The authors write, “the presence of others (i.e., an entourage) alters a VIP’s personal feelings of status.” In particular, they show that “VIPs feel higher levels of status when they are able to experience preferential treatment with an entourage, even if this results in the rewards associated with the treatment becoming less scarce.”  Even though VIPs are sharing their reward, reducing its exclusivity, they nonetheless feel higher levels of status.

Many of us can intuitively relate to this phenomenon.  If we call into a radio show and win concert tickets, we prefer to win at least two so we can take a friend, and if we earn mileage rewards with our credit card, we also like to upgrade our traveling companions.

Why is this?

A few theories have circulated, including that people have an aversion to being alone, crave enhanced public visibility, want to share their resources with others, or want to create a feeling of indebtedness in their peers.  McFerran and Argo dispute these theories, stating that, “the entourage effect arises due to a heightened feeling of social connection that the VIP experiences.”

Using realistic settings like a luxury suite at a football game and hypothetical scenarios like a VIP dinner with a political figure of choice, the researchers discovered that individuals enjoy trading the scarcity of the reward in order to feel more connected.

Nevertheless, the authors also point out that satisfaction with VIP status is diminished if members of the entourage are not in close physical proximity to the VIP, if the treatment provided isn’t preferential, or if members of the entourage are also VIPs in their own right.  Thus, while we are social creatures whose happiness is dependent on feeling connected, we also like to feel special.

The entourage effect may help to explain the popularity of social media sites worldwide.  As we’ve mentioned on this blog, mobile devices are hugely popular around the world, and social media accounts for a great amount of the timepeople spent on them. Logging on to Facebook, Twitter, Instagram and others to share photographs of our experiences and solicit feedback may very well be an expression of our need to share experiences and feel connected with our entourage of followers.

Moreover, the entourage effect can have a positive impact on cementing brand loyalty or program participation.  If a loyalty program is offered, the provider would benefit from allowing the VIP member to bring guests. This will increase, rather than decrease, the VIP’s perceived status.  This can be a great way for an organization to expand their reach while locking in their customer base.

The authors also found that allowing VIPs to bring guests influenced the guests more than the VIPs themselves.  The guests used fewer of the amenities associated with preferential treatment, but they felt more status and were more willing to spread positive word of mouth than the VIPs. The guests, then, are less expensive for the organization but generate more positive buzz…. Seems too good to be true, doesn’t it?

Smart businesses and project managers would be wise to consider their customers’ need for social connection when they design rewards or outreach programs. It may require balancingbrand’s identity with new engagement, but it’s clear that the costs of exclusivity are real.

This article is published in collaboration with The World Bank’s People, Spaces and Deliberation Blog. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Roxannne Bauer is a consultant of External and Corporate Relations at The World Bank.

Image: A couple holds hands as they walk across a street in New York, September 4, 2013. REUTERS/Lucas Jackson.