The Psychology Behind Loyalty Incentive Programs

How to Motivate and Retain Customer

In today’s highly competitive market, retaining loyal customers have become the most challenging task for businesses. If you own a brand, you would surely be aware of how significant role loyal customers play in the success of your business. Studies have shown that loyal customers purchase more often and spend more amount on every purchase compared to one-time customers. This is the reason why businesses these days focus more on retaining loyal customers than acquiring new ones. Loyalty incentive programs are the effective strategies that help brands in achieving this goal, i.e. retaining existing customers. To understand how loyalty programs work, you must be aware of the psychology behind them.

What is a Loyalty Program?

A loyalty program is a marketing strategy used by businesses to retain loyal customers by rewarding them for every purchase they make. The rewards can be in the form of loyalty points, cashback, discount coupons, or any other benefit that can encourage customers to keep coming back. It is like as soon as a customer spends on your brand, he/she gets some rewards in return. When customers are rewarded for their purchases, they feel appreciated and are more likely to repeat their purchases.

Psychological Aspects Behind a Loyalty Program

If you think that rewards and benefits offered under a loyalty program are the only motivating factors to influence your customers’ decision about joining a customer incentive program, you are probably wrong. Though these are the primary factors, there are also a few psychological aspects that work effectively to make a loyalty program successful. Here are some most significant psychological factors behind a reward incentive program:

1. Positive Reinforcement

Positive reinforcement is a powerful strategy that encourages a person to follow a specific behavior to get rewarded. Humans tend to repeat the behaviors that are rewarding and avoid the ones that result in unpleasant consequences. By rewarding your customers for every purchase, you can encourage them to repeat their buying behavior and experience its positive impact in the form of rewards. Businesses reward customers for their profitable behavior. Once customers realize that they are getting rewarded for making a purchase, they are motivated to repeat the same behavior more often.

2. Endowment Effect

Endowment effect states that humans are more likely to value something that they already own than to buy something they don’t have. Putting it in simple words, humans tend to place higher values on items that they own than their actual market values. This psychology works behind reward incentive programs as well. Once a customer starts making progress under your loyalty program, they consider it valuable and start building more interest in the program. By offering sign-up bonuses or welcome rewards, you can make your customers feel that they have already made progress as soon as they sign up.

3. Goal Gradient Effect

As per the goal gradient effect, humans tend to put more effort into accomplishing a goal as they move closer to it. This psychological aspect especially works in milestone-based rewards programs. As customers earn more and more rewards, they are encouraged to achieve the next milestone and hence they purchase more frequently. The more your customers get closer to a milestone, the more often they purchase. This is what the goal gradient effect is all about. It states that as humans make progress toward a reward or goal, their purchase intervals will shrink, i.e. they will purchase at frequent intervals.

4. Fear of Missing Out

FOMO (Fear of Missing Out) or Loss Aversion is another effective psychological strategy that businesses use to strengthen their marketing campaigns. Brands create a sense of FOMO among their customers by giving them ownership of something and then coming up with conditions that make them feel like they might lose their ownership.

Flipkart’s customer incentive program is one of the best examples to explain this. Flipkart members get the Plus membership if they earn a certain number of SuperCoins during a year. To continue as a Plus member, they need to earn the same number of SuperCoins every year, or else their membership is expired. Customers never want to lose on something rewarding and hence, they keep making more purchases to continue their ownership over some special rewards and benefits.

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5. Personal Attachment

As humans spend more time and effort on something, it becomes more valuable for them. As per the psychological concept called ‘escalation of commitment,’ humans attach high value to something they put more effort into. You can reward your customers for knowing more about your brand, exploring your products, and of course, purchasing your products/services. As they spend more money and time with your brand, they feel more attached to it and ultimately become more loyal.

Run an Effective Loyalty Program

Watching other brands run a successful loyalty program and copying them is not a good idea. A loyalty program that is successful for some other brand might not work really well for your business. This is why it becomes important to understand your business requirements and plan a loyalty program accordingly. Reward and loyalty solution providers like RewardPort can help you run an effective loyalty program that helps you retain your customers. You can partner with such reward companies and run the best loyalty incentive program for your customers.