Final answer:
Frequent buyer programs encourage repeat purchases to foster customer loyalty and establish a firm's good reputation, which can lead to higher prices and recommendations.
Step-by-step explanation:
Frequent buyer/user award programs can be used to encourage repeat purchases. These programs are designed to foster customer loyalty and ensure that consumers continue to patronize a business. The rationale behind these programs is that by offering rewards for regular purchases, companies can secure a steady customer base. This strategy is particularly crucial for monopolistically competitive firms that want to increase demand for their products aside from traditional advertising methods. A key aspect of these programs is building a good reputation, which reassures customers about the quality of the products offered and can lead to recommendations to other potential customers. As a result, firms with strong reputations are often able to command higher prices for their products.