Monday, January 2, 2012

Vary Velocity for Loyalty Program Motivation

You’d like customers to remain motivated when accumulating points in your frequent shopper program. The challenge is that what motivates the customer starting the program is different from what works as the customer draws closer to the reward. Researchers at University of Texas-Austin distinguish between what I’ll call a “Will I ever buy enough to earn a reward?” mindset at the start and a “How much more do I have to buy to earn a reward?” mindset once deep into the program.
     What motivates the first mindset to keep coming to your store is a quick accumulation of points. This says that goal attainment is, in fact, possible. But what motivates the “How much more?” mindset is a relatively slower velocity. The reason for this second one is less direct: If it takes more effort to achieve a goal, as long as the goal is attainable, the payoff seems more valuable.
     The researchers tested how this works by comparing the effectiveness of two types of loyalty club cards at a coffee shop. The uniform velocity card gave the customer three points for each purchase, and when the customer got 24 points, there was a reward. The variable velocity card gave five points for each of the first four purchases, and then one point for each of the next four purchases. Again, when the customer got 24 points, there was a reward, so what was required for each card was a total of eight purchases.
     Consumers with the variable velocity card completed the card more quickly, evidencing higher motivation. The variable velocity card gave the consumer a jumpstart.
     Researchers at University of Southern California and University of Pennsylvania achieved the same sort of result in a different way. One group of customers were told they’d receive a reward after purchasing ten car washes, but they’d start off the program with a free credit for the first two washes. They had to get eight more. The other group were required to get eight washes before receiving the reward, and they didn’t start off with any free washes.
     Of customers in the “get eight, no jumpstart” group, about 20% ended up participating in the program to the point where they received a free wash, compared to 35% for the group getting the jumpstart. In addition, the jumpstart group completed their quota more quickly and kept coming to the car wash more often.

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Give Loyalty Program Head Starts

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