Using habit formation to create a successful loyalty program
There are many theories as to why some loyalty programs succeed while others either fail or exist on autopilot without generating ongoing customer engagement. The science behind habitual consumer behavior offers insights that loyalty marketers should leverage when designing and implementing loyalty programs.
Successful loyalty programs drive habit formation
Creating a successful loyalty program isn’t just about offering members cool perks and rewards. It’s about tapping into the behavioral cues, routines, and rewards that will create a habit to drive repeat purchases over and over again.
Amazon Prime is a notable example. With two-day shipping and free returns, Amazon is daring shoppers to make their purchases elsewhere. A habit has been formed to check Amazon first and, as a result, businesses across industries are searching for ways to compete with shoppers who price-compare in-store.
How did this habit form? To start, we must understand that humans are innately lazy and our brains are always looking for ways to conserve energy through shortcuts. Decision-making is not a shortcut, but rather a conscious act that requires a great amount of energy. Enter habits; habits conserve energy. Successful loyalty programs drive habit through frequent member interaction and deliver relevant benefits that produce a pleasurable response. This combination of timeliness and gratification essentially speeds up the habit-formation process by replacing conscious decision-making with an automatic habit.
Customer cravings are key to building loyalty
Loyalty marketers are becoming more thoughtful and creative with their program offerings. Take Sephora’s Beauty Insider program, for example. When it first launched, Beauty Insider was a classic, tiered program with benefits that rewarded members based on spend: The more a customer would spend in a year, the higher their tier.
Today, the program has evolved to include a “Rewards Bazaar” where members of all levels can redeem their points for a gift of their choice. Choice taps into the idea of “craving.” As the Rewards Bazaar inventory changes, customers are persuaded to see what’s new; and as we all know, frequent website visitors translate into more sales.
Sephora’s Beauty Insider program is also a great example of how a brand has dealt with the common challenge of how to incorporate novelty into a program design without sacrificing the bottom line. Brands struggle with how to effectively include choice in their program offering. While customers want the freedom to choose rewards that appeal to them, too many choices can be overwhelming and costly for the brand to deliver.
How to create customer cravings
It all comes down to knowing your customers, and more specifically, the cravings driving them to choose your brand. Other than simply getting utility from purchasing a new product, what positive response is the customer receiving that creates the urge to engage more deeply with the brand? For example:
- When customers purchase yoga pants, are they striving for inclusion?
- When customers purchase a new iPhone, are they craving the recognition of being an early adopter?
- When customers purchase Nike shoes, are they aspiring to become an athlete?
PK recently worked with a high-end electric toothbrush brand whose customer insights work revealed consumers were willing to invest in a top-of-the-line device not because they desired the latest device, but because they craved the satisfaction of knowing they were doing all they could for their oral health. Understanding the reward was largely intangible, the brand was able to augment its program offerings to include complimentary benefits that enhanced a customer’s feeling of “completeness.”
Three key elements of a successful loyalty program
A successful loyalty program has the following elements:
Serves a clear objective
To start, brands must be clear on the objective of their programs. Is their goal to acquire new customers? Retain existing customers? Better understand their customers so they can deepen their relationship? A successful loyalty program is one that designs the customer experience to achieve the program goal.
Evolves over time
Second, a successful program grows and changes with its customers. As consumer behaviors shift, so too must the program. Whether creating an app or offering new rewards, a successful loyalty program continually flexes to deliver ongoing customer value.
Easy to use
Finally, a loyalty program must be easy for customers to use. From seamless sign-up to painless benefit redemption, programs must be effortless to use so that customers keep coming back.
Loyalty program goals and consumer behavior
Whether customer behaviors have to be modified to have a successful loyalty program depends on the program goals. For example, the following should be considered for the corresponding goals:
- If the goal of the program is to retain customers, the program design should support behaviors customers are already doing—fairly easy as the habit has already been established. That said, a trap many well-established, retention-oriented programs fall into is becoming stale. To avoid this, programs must constantly evaluate program benefits and offerings to ensure they continue to deliver a relevant and engaging customer and member experience.
- Conversely, if the goal of the program is customer acquisition, the design must influence consumer behavior—which can be difficult as you’re asking customers to create a new habit. In this sense, the program can offer benefits and rewards that help create a new habit. Recalling our electric toothbrush example, the program could use gamification to offer achievement badges and rewards, delivered at timely intervals, that drive excitement and continued engagement. As a new habit is developed, members are rewarded not only with clean teeth but with the confidence that their next dentist appointment will be positive.