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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
 
It’s All about Motivation

Companies should not necessarily think of a customer rewards programme as just a system for rewarding loyal customers. Such programmes mainly bank on switching costs to keep customers faithful to their products. While it is true that having half the number of stamps on a coffee card would make it costly to move to another coffee brand and start all over again, companies can make the most of a customer rewards programme by taking advantage of people’s tendency to put in more effort as they approach a goal. Even a company that does not offer a customer rewards programme (perhaps because it feels that it is much stronger than its competitors) should rethink this strategy, because participation in a programme can actually motivate customers to make more purchases faster.

To maximise the benefits of a loyalty programme, marketers should design one in such a way that people perceive that they’re getting closer to a reward.

Creating the illusion of progress, for instance, enhances motivation by reducing the perceived distance remaining to a goal. Marketers can give customers a head start by providing bonus points when customers sign up for the programme, while simultaneously increasing the required number of points for a reward by the same amount. This not only makes it more attractive than other programmes that don’t give away free points, but it also encourages customers to actively pursue the reward once they join.

Another important aspect of motivating customers is to provide them with regular updates about where they are in the programme. It’s important for customers to know how much progress they’re making. Coffee club members, for instance, see the number of stamps on their card every time they open their wallets. If customers have no idea of how close they are to a reward, then the goal might fade from their attention and they might lose interest, slow their purchases, or even quit.

If marketers want to target less motivated customers, they should also track their customers’ progress in the programme. Marketers can find out who the less motivated consumers are, since acceleration seems to be a good measure of motivation and decelerating customers are less likely to finish the programme. Our study found that consumers who accelerated more quickly toward the first reward were more likely to come back, re-enroll in the programme, and even earn a second reward. That should give companies an incentive to pay close attention to their loyalty programmes, which – far from being passive – can actually engage customers and change their behaviour if done the right way.
 

Amir Moin           
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