Profit from Status with Loyal Customers

The opportunity to show off their status is an influential motivator for retail customers. Even when showing it off only to themselves. People do this to assure themselves of their enhanced position, rising above other customers.
     Researchers at University of San Diego explored circumstances in which a loyalty program granted special status privileges, but the recipient had to incur costs to use those privileges and was not conspicuously showing off the privileges to others. The researchers found that customers in these circumstances still took advantage of the privileges.
     The lessons for retailers: Design loyalty programs to reward customers with status in ways which require the customers to spend money with you. Private sales for these special customers are one example of this profitability tactic.
     Still, please note that there was an important exception to the overall finding: Customers who felt highly secure in their elevated positions were no longer motivated by status-reinforcing actions that would cost them. So the loyalty program characteristics optimal at one point can differ from what works best at another point.
     Another example of this: 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 mindsets I’ll call “Will I ever buy enough to earn a reward?” and “How much more do I have to buy to earn a reward?”
     At the start of the loyalty program participation, a quick accumulation of points is evidence that goal attainment is possible. But, further along, 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 compared 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.

For your profitability: Sell Well: What Really Moves Your Shoppers

Click below for more: 
Vary Velocity for Loyalty Program Motivation
Announce Limits on Item-Based Loyalty Programs
Tier Your Loyalty Programs Apart
Offer a Buffet of Loyalty Program Rewards
Tailor Loyalty Programs to Customer Culture
Reward the Customer in Front of An Entourage