You don't have to be a psychology professor to realize there is something about a loyalty program that just *clicks* with consumers. Loyalty programs can be extremely successful at engaging and growing a loyal customer base. Have you ever wondered why? Understanding the psychology behind a loyalty program’s success is imperative to reaching your program’s full potential.
There are four major psychological factors to a loyalty program.
Gamification is defined as “the application of game-design elements and game principles in non-game contexts.” You’ve seen it before… a punch card at your favorite coffee shop, a points system in your rewards program, or in some cases a literal game with rewards for achievements. It’s a common marketing tactic used for decades, but what makes gamification so appealing to consumers?
A better question might be, what makes games so appealing to people? For millennia, humans have been competing in games. From ancient olympics & roman gladiators, to modern sports & video games. It’s human nature to be competitive. This is the pillar of gamification’s success. Consumers want to compete, whether it’s by competing against other people, or by competing against their own goals. By integrating competitive or achievement-gated rewards, consumers feel an increased sense of accomplishment, happiness, and excitement because their reward feels earned.
A points system is a common gamification tactic in most loyalty programs. Aside from competition, there is another important psychological factor that makes a points system so successful: The Goal Gradient Effect. It was first hypothesized in 1934 by psychologist Clark Hull. Hull experimented with rats and discovered that the creatures would run faster the closer they were to their food reward.
So, rats like food. What’s that mean for your loyalty program?
Well, turns out humans also accelerate towards a goal faster, the closer they are to reaching said goal. Enter a points program. Consumers will be more likely to make purchases the closer they are to their reward. With this information, brands can implement the goal gradient effect to increase the success of their rewards program.
For example, if a brand were to give customers a 12-stamp coffee card with 2 preexisting stamps already completed VS a “regular” 10-stamp card, the card with preexisting stamps will be completed faster (The Goal-Gradient Hypothesis Resurrected, 2006). Even though both cards require the same amount of purchases for a reward, the illusion of being closer to the goal on the preexisting stamp card accelerates consumers to take action. When looking to perfect your points system, consider granting consumers “bonus” points, so they appear closer to their reward and thus are more likely to make purchases faster.
Don’t underestimate the element of surprise.
Surprise rewards often go overlooked in a loyalty program, however science shows that introducing surprise coupons can increase program participation and incentivize more purchases. Dubbed “Windfall Gains”, rewards or benefits that are unexpected by the customer can increase the amount a customer is willing to spend.
Studies have shown, rewarding consumers with surprise coupons or incentives can increase the number of unplanned purchases a consumer is willing to make. Adding windfall gains to your loyalty program can give your consumers the push they need to make more purchases. You can surprise your consumers with an offer when they enter a store location (via geofencing), when they redeem a reward, or when they sign up. The list goes on… at its core, adding surprise coupons can be a frictionless way to increase purchases while also rewarding your consumers.
The final psychological factor behind a successful loyalty program is perhaps the most obvious. Marketers have used urgency to increase sales for ages, but do you know why urgency makes us more likely to buy?
According to psychologists, when humans are placed in urgent situations, “it causes us to suspend deliberate thought and to act quickly” (9 Ways To Use Urgency Psychology To Improve Conversions, 2015). Additionally, humans instinctively try to avoid anticipated regrets. So, when urgency is added to a reward or offer, for example, consumers are more likely to redeem said reward or offer because they don’t want to regret not taking advantage of it. Without urgency, consumers can easily forget about an offer or talk themselves out of it.
Loyalty programs can be a complicated beast to tackle. By understanding the psychology behind why a loyalty program can be so appealing to consumers, you can make purposeful & informed decisions for your program. Whether you were already using these tactics and just didn't understand the science behind their success, or you have yet to include these tactics in your program at all, with the science at your back, you can be confident your program will resonate with consumers.