5 psychology theory behind winning loyalty programs
Understanding the intricate workings of the human mind isn't just useful. It's a game-changer.
In this article, we reveal how key psychological principles can elevate your loyalty program from ordinary to exceptional.
We're not just talking about rewards and points. We're delving into the science of human motivation.
Whether you're fine-tuning an existing program or building one from scratch, this exploration into the psychology of loyalty is an essential read for anyone aiming to win the hearts and wallets of their customers.
Here are 5 psychological concepts to leverage in your loyalty program :
- Means-End theory
- Goal gradient effect
- Cognitive dissonance theory
- Reciprocity principle
- Endowed progress effect
- Loss aversion
1. Means-End theory
This theory revolves around the notion that consumers see products and services as means to achieve their end goals.
It's not just about what the product is, but what it does for them = the 'end' benefits.
These benefits can be functional, emotional, or even symbolic.
Key takeaway for your loyalty programs
Understanding this theory is like having a roadmap to your customer's heart and mind.
Loyalty programs aren't just about offering rewards. It's about aligning them with your customers' goals and core values.
It's about making every reward, every point, feel like a stepping stone towards something they really care about.
Nike nails it
Nike Plus makes masterful use of the means-ends theory in its loyalty program.
It goes beyond simple product offerings, by aligning rewards with customers' deeper fitness and lifestyle aspirations.
Members enjoy exclusive benefits, such as exclusive training plans and personalized coaching, that address not only their physical needs, but also their identity as an athlete.
This approach creates a powerful emotional and symbolic bond. It turns the program into a tool for achieving personal goals and reinforcing a health-conscious identity.
2. Goal gradient effect
The goal gradient effect suggests that individuals become increasingly motivated to complete a task as they approach its end.
In other words, the closer we get to a goal, the faster we move towards it.
This effect is due to the psychological stimulation provided by progress and the anticipation of reward.
Key takeaway for your loyalty programs
This concept is key to loyalty programs.
Brands can boost customer engagement by designing rewards in such a way that they appear increasingly accessible as customers approach them.
For example, offering tiered rewards or visible progress bars can encourage customers to take more action as they get closer to their next reward.
This increased engagement not only boosts sales, but also strengthens the relationship between customer and brand.
Princess Polly nails it
Take Princess Polly’s program for example. As customers earn points, they move up levels, from “General admission” to “Backstage Pass”.
Each level brings more tempting perks, and the closer customers get to the next level, the more they're inclined to shop to reach it.
This tiered system creates a continuous gradation of goals, with customers accelerating their purchases as they approach the next level, motivated by the enticing promise of even greater rewards.
3. Cognitive dissonance theory
The theory of cognitive dissonance, introduced by psychologist Leon Festinger, is based on the idea that people seek internal consistency.
When consumers make a purchase, particularly one that requires a significant investment (monetary, emotional or time), and then encounter contradictory information or doubts, they experience cognitive dissonance.
This discomfort prompts them to justify their choices and align their beliefs with their actions.
Key takeaway for your loyalty programs
This theory is crucial for loyalty programs, as it can be used to reinforce and validate the customer's decision to choose a specific brand.
When a customer joins a loyalty program, they are making a commitment.
If the program continually reinforces the customer's belief that they have made the right choice through exclusive benefits, personalized experiences or superior customer service, it helps to reduce any dissonance they may feel.
What's more, customers who have committed to a loyalty program are more likely to continue buying from the brand to justify their initial commitment, increasing customer retention and loyalty.
Cotsco nails it
Costco's membership model is an excellent example of exploiting cognitive dissonance in a loyalty program.
Once customers have paid for their Costco membership, they are more inclined to make purchases there to justify the cost of it.
This initial commitment translates into regular and often larger purchases, as customers are convinced they have made a wise investment.
The value and benefits offered by Costco (such as discounted prices, quality products and members-only offers) further reinforce the customer's decision, minimizing any dissonance and strengthening loyalty.
4. Reciprocity principle
The principle of reciprocity is based on the human tendency to want to give something back when we receive something.
In other words, if someone does something for us, we naturally want to return the favor.
This principle is deeply rooted in human psychology and plays an important role in social interactions.
Key takeaway for your loyalty programs
This principle is essential for loyalty programs, as it capitalizes on this natural inclination to reciprocate kindness.
When a brand offers something valuable to its customers (be it rewards, exclusive services or personalized experiences), it instinctively encourages them to respond positively.
This can translate into repeat purchases, higher spending, brand advocacy or even emotional loyalty.
The key is to offer genuine value that customers appreciate, creating a sense of goodwill but also a feeling of obligation.
This not only stimulates repeat purchases, but also fosters a deeper emotional loyalty with the brand.
The Body Shop nails it
A good example is The Body Shop's Love Your Body club.
Members of this program receive birthday gifts, reward points on their purchases and special offers.
This generosity from The Body Shop creates a sense of indebtedness among customers, encouraging them to return and make further purchases.
Customers feel part of a mutually beneficial relationship, where their loyalty is recognized and rewarded, which encourages them to continue supporting the brand.
5. Endowed progress effect
The endowed progress effect is a phenomenon where people are more likely to complete a task if they believe they have already made progress toward it.
This effect is based on the idea that getting ahead on a task, even artificially, increases people's motivation to complete it.
Key takeaway for your loyalty programs
This concept is a powerful tool in loyalty programs because it appeals to the psychology of motivation.
By giving customers a sense of initial progress at the start of their loyalty journey, companies can significantly increase their engagement and participation rates.
For example, starting a loyalty card with a few stamps, or giving a new member a few points when they sign up, can create a feeling of being one step closer to a reward.
This perception of progress is a powerful motivator and can lead to increased customer interaction and spending, as they feel more engaged in the journey to their reward.
Chubbies nails it
Chubbies' loyalty program is a great example.
New members get a 5$+ off when they sign up, giving them a head start in the program.
This immediate reward sets the tone for the relationship and subtly uses the endowed progress effect by giving new members the impression that they're already on their way to their next reward.
Earning this first reward quickly often leads to an increase in visits and purchases, as members are encouraged to continue earning other rewards.
6. Loss aversion
Loss aversion is a principle of behavioral economics, according to which people prefer to avoid losses rather than acquire equivalent gains.
In other words, the pain of losing is psychologically twice as strong as the pleasure of gaining.
This concept was popularized by Daniel Kahneman and Amos Tversky, and is a fundamental aspect of human decision-making.
Key takeaway for your loyalty programs
In loyalty programs, loss aversion can be a powerful driver.
Brands can significantly boost customer action and engagement by promoting potential rewards as losses if they are not used.
For example, indicating that customers will "lose" points or rewards if they don't make a purchase within a certain timeframe can be more motivating than simply offering points for purchases.
This tactic appeals to people's natural tendency not to lose something they already possess or could possess. It encourages more regular and often urgent participation in the loyalty program.
Zappos nails it
Zappos, a well-known shoe and clothing e-tailer, makes effective use of loss aversion in its Zappos VIP program.
This program offers its members exclusive benefits such as fast delivery, free returns and points on purchases, which can be redeemed for discounts on future orders.
The aspect of loss aversion kicks in when these VIP points expire.
Zappos regularly informs its VIP members that their accumulated points are set to expire after a certain period of inactivity.
Reminding them that they risk losing their hard-earned points if they don't make a purchase within the allotted time creates a sense of urgency.
Members, who don't want to lose the value they've already accumulated, are thus incentivized to make additional purchases to use their points and maintain their VIP status.
