Published By Upzaar Team
The Psychological Aspects of Loyalty Programs
Loyalty programs are not randomly generated statistics that increase or decrease after implementation. They can change numbers by changing consumer behavior. This change snowballs into higher engagement, retention rates, and a more profitable revenue stream. It all boils down to changing a routine, a reinforcement that, when executed correctly, can grant the needed associations to secure desired results.
Business, in general, has been associated with psychological tampering, almost deemed as the evil culprit for consumers going into a store wanting one item, and leaving with a full cart.
People were always selling. It’s not that businesses have magically become some sorcerers; instead, the consumer decided to indulge in more dopamine-doused decisions. While they’re doing that, why can’t we mutually help each other out? I give you a small reimbursement for your loyalty to my business, rather than countless others, and you give me your commitment to my business for a product or service you would want to have either way — a win-win.
What Are Loyalty Programs?
There is a more extensive list of loyalty programs and which one your business should choose here, as well as the benefits of loyalty programs in general. Those lists are more on the operational side of things, what they are and how they work. Here we’re going to be treading a bit under the surface.
Loyalty programs are a structured incentive. The company would reward certain behaviors to the consumer. Discounts and freebies are the basics. Awarding status, more extravagant getaways are being adopted by larger corporations who know their brands mean something to be associated with and trusted enough to believe, thus a higher chance of quality participation.
The point of this strategy is to increase repeat behaviors: repeat purchases and rapport for customer retention.
Affinity is a strong power to behold, and the bond brought by it isn’t a simple value exchange for every consumer. Don’t underestimate the amount of depth a brand can bleed into a customer’s identity and what that emotional attachment can do for both parties.
The Inner Works
Reinforcement is a concept we’ve grown up on. Getting a thumbs-up sticker on your quiz or a bonus after exceeding your set quota at work is all positive reinforcement. Rewarded for behavior, and thus it’ll encourage more of that behavior. It is part of operant conditioning, trying to change behavior or strengthen certain behaviors.
To reinforce a behavior, you need reinforcement. Loyalty programs have rewards as their reinforcer. They want to create a positive association habit to motivate the repetition of this behavior. Spending more on one purchase, visiting their app more, or using their service more often is done by changing their views, feelings, and attitudes towards whichever of these acts you want them to do more of.
The habit goes hard. And more emotional knots get tied among the conversions, up-sells, and larger cart sizes.
Trust is the desired outcome of an active loyalty program, especially if your company isn’t scotch-free from negative comments or perceptions. Active loyalty program customers are more likely to look past these feedback as they’re more invested in you and feel secure with your company rather than the abundance of competitors they could opt for. You have already won them over unless you get ahead of yourself, believe the customers are retained and decide to remove your re-enforcer.
The behavior you’ve implemented would gradually decline until it stops altogether if the reinforcer is removed. Whether that be greater spending or more frequency, they’re all bound to decrease if not extinguished altogether.
This is called extinction, as well-known psychologist B.F Skinner states.
Along with trust, likability is a crucial component of loyalty. If a consumer loves your company, wants to continue doing business with you, and wants to have this association. Implementing status as a reward is something to showcase with pride. Exclusivity feeds the ego; being elevated and rewarded separately from regular shoppers is a driving force consumers want to maintain.
On the same note, there’s something called escalation of commitment.
The more effort and time spent on something, the higher the value people will attach to it.
For example, rewarding consumers for personalizing their page avatars on your website, customizing color schemes for their program account, and even just creating a profile can be a slight, needed boost to become attached quicker.
Rapport is a fundamental relationship goal that all businesses should strive for if they want to succeed.
To reinforce properly, reward when the desired behavior is done rather than having them wait for a specific time period to redeem. It is called “continuous reward scheduling”; it speeds up the association process.
Balance is a sheer scale, and metrics should be implemented to ensure you can stay in the proper range of your business needs.
Rewarding too often is an unnecessary cost to be burdened with, but not rewarding enough won’t get your customers engaged.
To increase drive by a decent amount is by creating the first goal to reach a simpler, easier one. For consumers, successfully redeeming an award increases the effort to do it more often. The first achievement that’s reward worthy could simply be signing up with the program. The majority of companies incorporate this for a reason — a slight dip of initial points for a longer worthwhile investment.
The reward proposition itself plays a huge role in the program’s success. If the reward isn’t something the customers value or feel relevant to their lives, they wouldn’t feel understood as much as if they were properly aligned with their preferences, nor would they likely participate in the first place. It wouldn’t be worth their time. The value of the reward is called Reinforcement Value.
If you’re unsure, providing a choice for the consumer to pick themselves is a strategic option for your business. They’d feel more involved with the program, and that small addition can spark a closer connection.
Although connection might take a minute, having the process be as smooth and gratifying as the reward is essential. If it’s too difficult to achieve, they won’t bother giving the program a go. Make sure it’s realistically attainable. Instant gratification is the move for this millennium of over-stimulated and thrill-hungry generation. Having a time-sensitive loyalty program can minimize delayed gratification where consumers wait to purchase specific items, whether waiting for them to be discounted or picking something up later.
This is putting the concept of “Loss Aversion” into practice. The motivation to not lose can arguably be greater than the motivation to gain. Losing progress or momentum can have a significant influence on your consumer. Paired with tier-based programs, many would go to great lengths to maintain a high status with your brand. However, be careful, as this tactic doesn’t work on every program. It depends on your brand. If Wal-Mart had a gold tier vs. Crown Plaza tier program, what would be a more risky tier to lose in their eyes? They’d probably drop the Wal-Mart status much more effortlessly than go down a Crown Plaza level, right?
This is why most go for the gaining approach.
Going back to the more rewarding side of loyalty programs, seeing their progress advance closer to their goal, and putting in more effort because of seeing how the distance between them and the reward is closing is an exciting phenomenon. It’s called the Goal Gradient Effect.
This means that if the frequency of spending increases, the closer consumers are to a goal, which can potentially result in a greater chance of retention and re-engagement. Show them how close they are, not too often to smother and annoy them, but encouraging visuals and occasional notifications to remind them can be the push needed to continue.
In conclusion, profitable behavior doesn’t come naturally. Understanding the cognitive works of your consumers, playing around, and seeing how well they respond to certain incentives and processes can make or break your program — monitor to understand your customers and respond to your findings to elevate your business. Have them perceive your business as worth their investment and association. Play it up (but not drastically) without losing profit.