How to Convert Your Consumers to Loyal Customers
Not all loyalty programmes create long-lasting customer relationships. The key is to create a journey of achievement, as CUHK research reveals
By Jaymee Ng, Principal Writer, China Business Knowledge @ CUHK
Have you tried buying extra items in order to exchange for a special water bottle or a mug? Do you like collecting points through the loyalty programme offered by the shops that you visit? A 2016 survey published by Nielsen shows that 72% of consumers will buy from a retailer that provides a loyalty programme than those that do not. But, why do we want these things that we don’t really need? What is the rational that is driving our actions to ‘wanting more’? A research study published by the Chinese University of Hong Kong reveals the secret behind this action.
The research entitled Wanting Ever More: Acquisition Procedure Motivates Continued Reward Acquisition was conducted by Prof. Leilei Gao, Associate Professor of Marketing at CUHK Business School, in collaboration with Prof. Yan Zhang, Assistant Professor of Marketing at National University of Singapore. The researchers aimed at finding how reward systems motivate consumer interest.
It is not uncommon for credit card companies or airline companies to give out free gifts or mileages for new customers who open accounts with them. The question is, how to keep the new customers and create long-lasting customer relationships? That’s when loyalty programmes come into play.
Current loyalty programmes typically reward customers either gradually or in a lump-sum way. For example, a coffee shop may give a free biscuit to every customer who buys a coffee each time. Or, another coffee shop may prefer to reward customers a free coffee after ten purchases. Both reward systems are frequently used, but which system motivates customers to make more purchases and earn more rewards?
“A piecemeal procedure highlights an increasing trend in one’s possessions, so it offers a more satisfying experience than a lump-sum procedure. When small achievements are accumulated, it leads to a journey, not a finishing line.” – Prof. Leilei Gao
Piecemeal versus Lump-Sum Reward System
To find out whether a piecemeal reward system or a lump-sum system promote greater motivation from customers, the researchers designed six different experiments in which participants were asked to invest efforts to earn rewards.
In the first experiment, a total of 50 participants were asked to do a few letter-crossing tasks and were rewarded four magnets upon completion. Some earned one magnet after each task while the others were given four magnets after completing all four tasks. A fifth magnets were shown to the participants and they were asked to indicate their willingness to do an extra task for the additional magnet.
As predicted, those who gained magnets piece by piece showed a greater interest in the fifth magnet than those who got the magnets in a lump-sum way.
“A piecemeal procedure highlights an increasing trend in one’s possessions, so it offers a more satisfying experience than a lump-sum procedure,” Prof. Gao explains.
Gift accumulation is not the only reason that makes customers to buy more. The true power of loyalty programmes, if done correctly, is that they can generate a sense of achievement among customers. This is a crucial factor in customers’ motivation.
“People keep investing resources (e.g., time, money) to acquire possessions beyond their needs. Conceptually, any possession, as long as it is not for free, can be considered a reward for one’s investment of effort, time, or money,” says Prof. Gao. “Thus our findings imply that acquiring products piece by piece might contribute to the interest in buying yet another product.”
Sense of Achievement in Piecemeal Rewards
Given the fact that piecemeal is more satisfying than lump-sum reward. Does it produce a strong sense of achievement? The researchers set up another experiment to find out.
In this experiment, the participants were asked to do some transcribing tasks and given bookmarks as the rewards. After gaining all the bookmarks, the participants were asked whether they would like to gain one more bookmark for yet another transcribing task. The result showed that participants who were assigned to the piecemeal procedure reported a greater sense of achievement and had a higher motivation to complete the additional task.
In a piecemeal procedure, every action generates an immediate reward and this process is repeated multiple times, so exerting effort reliably contributes to the incremental growth of one’s possessions. As a result, people are more likely to establish a strong mental association between effort and outcome.
“When small achievements are accumulated, it leads to a journey, not a finishing line,” Prof. Gao says.
On the contrary, earning rewards in a lump-sum method does not allow consumers to see themselves as accumulating rewards and it has a weaker association between effort and reward. Therefore, it is less effective in motivating customers to make repeated purchases.
What Decreases Motivation
In other experiments, the study also found that if the increasing trend of possessed rewards was disrupted, such as when the customers have to consume the already earned rewards, then they will no longer be motivated to invest any further efforts.
Furthermore, if the additional reward is different from the pieces that the consumers are already collecting, then the effect of motivation will also be diminished.
Lastly, some types of rewards may induce satiation, meaning the consumers can become satisfied with what they already have so that they will stop wanting more.
“For example, rewarding consumers with a cup of coffee that must be consumed soon may not motivate continued involvement in the reward program once the free coffee is consumed. However, rewarding consumers with a collection set of small teddy bears would be more inductive to committing to a loyalty program,” says Prof. Gao.