The Loyalty Program Mechanic
When was the last time you claimed your free coffee from your stamp card? How many coffees did you buy to get there? Five maybe? Eight? Ten?
Loyalty programs are a great way to keep customers coming back, and providing that one free coffee means that you have attracted a loyal customer. Monetary rewards like this can be very attractive to consumers, and not just for the savings. Customers who receive loyalty rewards often feel a sense of achievement and a feeling of status. They feel recognised and valued by the cafe.
It is not only in cafes who use this loyalty program mechanic. Almost all airlines have a ‘frequent flyer’ program - the more you fly, the more rewards you receive. These tiered programs typically have different tiers, such as Bronze, Silver, Gold, Platinum, and Platinum. The higher the tier, the more rewards are on offer. One of these prized rewards is the lounge. This elicits a sense of elite status and achievement, comparing oneself to all those in the regular airport terminal through social comparison theory.
How you can learn from loyalty programs
Successful loyalty programs:
strengthen the relationship between the business and existing customers
increase customer life cycles
increase customer expenditure
strengthen brand recognition and customer loyalty
Loyalty programs not only keep the customer coming back, but it will also encourage them to tell their friends and family about their good experiences and love for the company.
While ensuring that the reward threshold is not too high, companies also need to make sure it is not too low. A low reward threshold is likely to diminish the attractiveness of the reward. If everyone can easily attain loyalty status, the perception of exclusivity or acquired status is lost.
We know Loyalty Programs work, particularly for transactional purchases like coffee and flights. But this mechanic can be applied to other brand and organisation transactions as well.
How could you use this mechanic in your work?
The Drivers of Loyalty Program Success: An organizing Framework and Research Agenda, by Michael McCall and Clay Voorhees
Feeling Superior: The Impact of Loyalty Program Structure on Consumers’ Perceptions of Status, by Xavier Drèze and Joseph C. Nunes