Setting up your loyalty program
This article is the second in a series from a ZOOO whitepaper.
While it may seem obvious for a company that builds loyalty programs to start with a loyalty program as the first method to drive customer traffic…you’re right, that is a pretty obvious place for us to start. However, it’s also a tool that has become ubiquitous across the country, with “US companies spending more than $1.2 billion on them each year” and the average US household subscribing to nearly 22 different programs.1 With this much activity in the loyalty space, it may seem that everyone has it figured out, but some programs have actually been discontinued, paused, or reworked due to poor results.
“The average US household subscribes to nearly 22 different loyalty programs”
There are three main psychological drivers in a reward system to be aware of: gratitude, status, and unfairness. Gratitude “represents the emotional appreciation for benefits received, accompanied by a desire to reciprocate.”2 Status is how that customer is treated in relation to other customers, and unfairness is whether people feel the reward system is just. The goal of a loyalty program is to maximize gratitude and status while minimizing unfairness.
Let’s look at an airline reward program as an example. The following chart lays out different types of rewards, mapping out how they impact the Target of the reward (person receiving it) and also the Bystander (person who sees someone else get the reward).
As you can see, rewards like “Priority Check-In” and “Priority Boarding,” while beneficial for the Target, generate larger amounts of unfairness for the Bystander. This is because the reward seems to come at the expense of the Bystander. Other visible rewards like Lounge Access do not create the same amount of perceived unfairness, since it does not cost the Bystander anything (ie waiting in line while priority customers get to board/check in).
You’re probably not looking to run an airline’s reward program, but there are still important takeaways to note. The first is “that for target customers, gratitude accounts for 62% of the incremental sales effects, and status makes up 38%. For bystanders, status constitutes 32%, and unfairness accounts for 68% of the incremental sales effect. Thus, it appears as if gratitude and unfairness represent the twin pillars of loyalty program effectiveness”4. By focusing on rewards that drive gratitude in the Target while avoiding unfairness in Bystanders, you will get the maximum value out of your loyalty program.
In situations where it is impossible to hide the special treatment or higher status of a certain customer, being transparent about the loyalty level required for that treatment helps mitigate the negative bystander effects. For example, if you have a line of customers but one of them is getting an extra gift at the register, you can say “as a thank you for being a GOLD loyalty member…” letting everyone know the logic behind the act.
Lastly, a successful rewards program requires constant attention and tweaking. Like any other marketing tool, if you aren’t reviewing the data to see what is working and what isn’t, you won’t be able to maximize your ROI.
While it may seem obvious for a company that builds loyalty programs to start with a loyalty program as the first method to drive customer traffic…you’re right, that is a pretty obvious place for us to start. However, it’s also a tool that has become ubiquitous across the country, with “US companies spending more than $1.2 billion on them each year” and the average US household subscribing to nearly 22 different programs. With this much activity in the loyalty space, it may seem that everyone has it figured out, but some programs have actually been discontinued, paused, or reworked due to poor results.
There are 3 main psychological drivers in a reward system to be aware of: gratitude, status, and unfairness. Gratitude “represents the emotional appreciation for benefits received, accompanied by a desire to reciprocate.”5 Status is how that customer is treated in relation to other customers, and unfairness is whether people feel the reward system is just. The goal of a loyalty program is to maximize gratitude and status while minimizing unfairness.
Let’s look at an airline reward program as an example. The following chart lays out different types of rewards, mapping out how they impact the Target of the reward (person receiving it) and also the Bystander (person who sees someone else get the reward).
As you can see, rewards like “Priority Check-In” and “Priority Boarding,” while beneficial for the Target, generate larger amounts of unfairness for the Bystander. This is because the reward seems to come at the expense of the Bystander. Other visible rewards like Lounge Access do not create the same amount of perceived unfairness, since it does not cost the Bystander anything (ie waiting in line while priority customers get to board/check in).
You’re probably not looking to run an airline’s reward program, but there are still important takeaways to note. The first is “that for target customers, gratitude accounts for 62% of the incremental sales effects, and status makes up 38%. For bystanders, status constitutes 32%, and unfairness accounts for 68% of the incremental sales effect. Thus, it appears as if gratitude and unfairness represent the twin pillars of loyalty program effectiveness”. By focusing on rewards that drive gratitude in the Target while avoiding unfairness in Bystanders, you will get the maximum value out of your loyalty program.
In situations where it is impossible to hide the special treatment or higher status of a certain customer, being transparent about the loyalty level required for that treatment helps mitigate the negative bystander effects. For example, if you have a line of customers but one of them is getting an extra gift at the register, you can say “as a thank you for being a GOLD loyalty member…” letting everyone know the logic behind the act.
Lastly, a successful rewards program requires constant attention and tweaking. Like any other marketing tool, if you aren’t reviewing the data to see what is working and what isn’t, you won’t be able to maximize your ROI.
If you don't want to wait for the next article to drop, you can check out the whole whitepaper here.
