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OLEG URMINSKY, FACULTY OF MARKETING AT THE UNIVERSITY OF CHICAGO BOOTH SCHOOL OF BUSINESS
Going for the Goal: The Human Psychology of Rewards
People tend to exert more effort as they get closer to their goals. Companies can take advantage of this by designing a customer rewards programme that makes the perceived distance to the reward seem small.
Issue Date - 15/12/2011
 
In a classic experiment in the 1930s, behaviorist Clark Hull observed that rats on a straight runway ran faster as they moved closer to the food box. Knowing the reward was almost at hand presumably motivated the rats to work harder, a phenomenon that Hull called the “goal-gradient” hypothesis. While this behaviour has been extensively studied in animals, its implications for humans are unclear. Unlike most animals, people can think ahead. We pace ourselves, so we don’t have that degree of impulsive behaviour.

It’s true that people don’t quite break into a run as they approach a restaurant or a bar. But when pursuing certain goals, humans may exert more effort as they get closer to the finish line. For instance, toward the end of a long commute, people may drive a little faster as they approach their homes. However, finding clear evidence that the distance to a goal can affect motivation in humans can be difficult. A lot of times it’s unclear how much progress we’ve made with each step.

To be able to describe more precisely the relationship between efforts and rewards, I along with Ran Kivetz of Columbia University and Yuhuang Zheng of Fordham University turned to customer rewards programmes in our study “The Goal-Gradient Hypothesis Resurrected: Purchase Acceleration, Illusionary Goal Progress, and Customer Retention.” Rewards programmes, like coffee cards and frequent flyer benefits, typically give customers points for every product they purchase and the points are accumulated to redeem a prize. We analysed whether customers in a rewards programme tend to buy products more frequently or make larger purchases as they get closer to a reward.

Customer rewards programmes are a popular way for companies to give perks to loyal customers or to lock them in. But if the distance to the goal really matters – as the study asserts – then a loyalty programme can offer much more. Because participation in a programme can be highly motivating, a well-designed loyalty programme will not only help keep customers, but will also encourage them to spend more as they accelerate toward the reward.

Goal Rush

Field experiments were conducted to test the goal-gradient effect and whether consumers accelerate their efforts to earn a reward as the distance to the reward decreases. The authors examined raw data collected from the experiments and used the data to estimate a model that captures the effect of goal distance on customers’ efforts. Goal distance is measured by the proportion of the original programme requirements remaining to meet the goal.

The first experiment looked at coffee purchases by customers who participated in a coffee rewards programme at a café located within the campus of a large university. Customers were offered a card that would let them earn one free coffee after buying ten coffees. To keep track of the timing of purchases, a participant’s card was stamped after each purchase.

As participants in the rewards programme accumulated more stamps on their cards, the authors observed that the average length of time before the next coffee purchase decreased. Members bought that next coffee sooner the closer they were to getting a free one. In fact, the average time between purchases accelerated by about 20% from the first to the last stamp on the card. Even after controlling for various time trends that might affect the results, customers bought coffees more frequently as they progressed toward their reward. On the other hand, those who were issued “transparent” cards that tracked the purchases but were not eligible for a free coffee did not speed up their consumption as they approached their 10th coffee.

 
Another interesting finding is that customers who completed two consecutive cards slowed their coffee purchases right after they received their first free coffee – when they found themselves once again far away from earning the next reward. They then accelerated as they got closer to getting another free coffee on the second card. Customers seem to “reset” the speed with which they buy the next coffee after they’ve claimed a reward, which is consistent with the goal-gradient effect. This also rules out other explanations for why customers seem to come back sooner for that next cup. If interpurchase times don’t slow down after the first card is completed, then consumers learning about the programme or even an addiction to coffee may be a better explanation for why customers keep rapidly coming back for more.

The tendency to reset was also found in another test that used data from a music-rating programme called Jaboom. As an incentive to rate more music, participants in this rewards programme were given a $25 Amazon.com gift certificate for every 51 songs they rated on the Jaboom website. The authors observed that the number of songs rated increased as members got closer to earning their first gift certificate, dropped after they earned it, but then accelerated again as they moved toward their second reward. Aside from visiting the website more often and rating more songs during each visit, the authors also found that Jaboom participants were less likely to quit a music rating session the more songs they had accumulated toward the 51-song goal.

The Illusion of Progress

That effort increases with proximity to a goal could also be explained by a straightforward cost-benefit analysis. As the distance to the goal diminishes, an additional unit of effort yields a larger benefit each time because it reduces a greater percentage of the remaining requirements for earning the reward. When a customer has a card with more stamps already accumulated, the objective value of the card is higher and further participation is a better deal. This would mean that when customers were offered either a 10-stamp card or a 12-stamp card with two bonus stamps already filled in, they should have been indifferent to which they received, because both effectively required purchasing 10 coffees to earn a free cup.

However, I think that relative rather than absolute distance to the reward drives consumers to speed up their coffee purchases. These two cards may not look the same to the consumer at all and will affect their behaviour in different ways. A 12-stamp card seems like a bigger challenge, but starting out with two bonus stamps may make the consumer feel as if some progress has already been made. An empty 10-stamp card, on the other hand, can make them feel that they’re just about to begin the programme.

Giving consumers the impression that they they’re not so far away from the reward might be the kind of nudge that customers need to encourage them to buy more coffee. The illusion of having already made progress would compel customers to complete those 10 purchases faster. Indeed, we found that it took customers 15.6 days to complete the 10-stamp card compared with only 12.7 days for the 12-stamp card with the bonus stamps.
          
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