Should I be using a Loyalty and Rewards Program?

Are you a fan of loyalty and reward programs? If you are like most people you probably feel somewhat “meh” about them because you have been overburdened by the sheer volume of programs you are part of, many of which seem rather pointless. If you don’t have one already, should you be using a Loyalty and Rewards Program for your business?
We think so, but only if you go about it in the proper way.
In those pre-smartphone days many of us had stacks of small plastic or paper rewards cards. At first it seemed cool to have a card that meant you were a special customer, but then everyone started doing it and soon enough you literally had enough reward cards to play poker with. Now that things have moved to a digital platform the cards have become hands free, but in many ways are less effective at helping push customers towards additional transactions.
What is the purpose of an L&R program?
The name makes it seem obvious; a loyalty and rewards program is all about making a customer feel appreciated. Or is it?
Yes, a part of the concept is certainly about giving some form of reward to regular customers. Many grocery chains have “reward cards” that allow you to obtain a discount on specific products while also offering a free item after buying a certain amount like getting your tenth loaf of bread for free.
However there is also a common psychological reason for using progressive loyalty rewards based on the Goal Gradient Effect. This is a powerful tool a marketer can use within a loyalty program to make it much more effective.
The Goal Gradient Effect
This hypothesis was developed in the 1930’s and basically states that the perception of progress towards a goal impacts human motivation to pursue the goal more quickly.
For example, many yogurt and ice cream shops still use paper loyalty cards that have contact information and a logo on one side and typically 8 or 10 checkboxes. Each box is stamped after buying a cone and when you fill the card up you get a free one.
A study that took place at Columbia University using those types of cards at a coffee shop showed that as boxes were checked, visit frequency increased in relation to obtaining the free item. Even more interesting, people that started with a 12 checkbox card with 2 boxes pre-checked purchased the additional 10 drinks faster than a person with a 10 checkbox card with no boxes pre-checked.
The closer people perceive they are to a goal, the harder they will try to get there.
How does this apply to a program?
To utilize the goal gradient effect it is important that you first have a product or service that customers repeatedly purchase. From there it is a simple matter of incorporating this concept into how you funnel the rewards so they can regularly see their progress.
The cards are a wonderful idea since you can visually track progress with every purchase. Of course they are also very low tech. Other companies use automation tools with apps or databases that then send push notifications via text, emails or app alerts letting you know your updated status, points earned, how much further to the goal etc. In both cases the key is making sure it is visual and a small enough goal to easily get excited about.
Some reward programs backfire because it simply takes too long to get the reward. It’s like when you earn 500 credit card points in a month but the minimum price of any gift in the rewards store is 10,000 points. A solution would be to double or triple rewards at certain periods to boost transactions or even to gift “free” rewards when you sign up. Or you could also reduce the number of transactions it takes per reward.
The bottom line
The bottom line is that you should be using a loyalty and rewards program if you rely on repeat business. Showing customers appreciation while also using the program as a way to track data points and even utilize additional marketing to increase conversion as loyalty goals are approached is a win-win scenario for both you and your customers.
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