Why do rewards resonate so well with customers?
Loyalty schemes, prizes and rewards have a huge impact on brand loyalty and customer engagement, right?
But why? What is going on in people’s brains when they receive a reward? Understanding this is key to making the most out of any consumer reward strategy.
Appreciation and rewards have noticeable positive psychological effects, particularly in the workplace –78% of employees say recognition motivates them in their job and a combined 68% of respondents in REBA’s The Rewards Report 2016 said recognition with a reward made them feel valued or motivated at work.
But, can the positive impacts of rewards and appreciation on employees be applied to consumers too? Can their behaviour be influenced in the same way.
The science behind rewards
The science behind kindness has been discussed previously in our blog. Where we found that kindness can positively affect people’s health by reducing anxiety, pain and depression – so what psychological impact do rewards have?
Being rewarded through a loyalty scheme or rewards program is an expression of gratitude from the brand or company to the customer for continuing to use them over another competitor. It also helps to incentivise a customer to continue to use the brand.
Gratitude itself has shown to lessen stress, increase your metabolism, and improve your sleeping habits – all of which can have a positive effect on people’s health and wellbeing. Although consumers may not necessarily associate their improved sleeping pattern with your brand, the experiences they do associate with will be positive as they feel they are getting something in return for their loyalty.
The neurotransmitter dopamine affects the pleasure and reward centres of the brain, and is crucial to affecting the positive experiences a customer has with a brand. Dopamine is often linked with addiction, meaning that once they satisfy those pleasure cravings, they want more.
Sharon Begley comments on dopamine in The New York Times, saying:
“Activity in the dopamine circuit is not so much about pleasure as about expecting pleasure, and when we don’t get it, we feel driven to seek it out, desperately and compulsively.”
That’s not to suggest getting rewards by being a loyal customer is an addiction but, in layman’s terms, if customers get pleasure from what extras brands can offer them, this can improve companies’ customer retention and brand loyalty.
Operant conditioning influences customer loyalty
Another scientific way to consider the psychology of rewards would be operant conditioning, a term coined by B.F. Skinner, which looks at how reinforcement changes behaviour. Skinner identified three responses following behaviour:
- Neutral operants: responses from the environment that neither increase nor decrease the probability of a behaviour being repeated.
- Reinforcers: Responses from the environment that increase the probability of a behaviour being repeated. Reinforcers can be either positive or negative.
- Punishers: Responses from the environment that decrease the likelihood of a behaviour being repeated. Punishment weakens behaviour.
An example of this in a commercial sense, would be if a supermarket rewarded a customer that shopped with them with a discount for signing up to their loyalty scheme.
By signing up to that loyalty scheme and receiving a discount that was relevant to them, the customer has been positively reinforced, or rewarded, and would be likely to repeat the behaviour in the hope of receiving more rewards.
The same principles can be applied to bad customer service – if a customer signs up to a loyalty scheme and is misled on what the scheme entails, and as such doesn’t receive any benefits that are relevant to them, then that bad experience means that customer is less likely to be loyal to that supermarket.
The bottom line is, if companies use appreciation and rewards on their own staff and it works, they need to do the same with their customers.
Reward for loyalty
With 56% of consumers claiming they are regularly offered irrelevant rewards or discounts, it’s important to make sure you’re offering the right rewards to your customers. Irrelevant rewards can have a negative effect on your brand, with the same study finding that 27% had left a loyalty programme because of disconnection with the brand.
Solomon Thimothy, Founder of OneIMS commented in Forbes:
“Loyalty comes down to likeability and trust. When focusing on creating long-time customer loyalty, build strong relationships based on trust. That means providing transparency in all you do and continuously working to demonstrate that you have your customers’ best interest in mind.”
Not only do likeability and trust have a big influence on customer’s association with brands, loyalty schemes can counteract negative perceptions of your brand.
A study by researchers at University of Oklahoma and University of Maryland found that customers who are in loyalty programs will overlook or ignore a negative evaluation of the company compared to the competition. Why? Because they are invested in the brand.
An effective way to achieve brand engagement is with instant gratification, which has been fuelled by the advancement of technology, quickening processes that previously took far longer.
You can order clothes for next day delivery, have food delivered to your house within minutes and have a taxi track your location to pick you up – and this means that customers increasingly expect quick solutions to their problems. Therefore, when you’re looking to build long-term relationships with customers, you need to make them feel good – and quickly.
Providing a choice
An essential factor in engaging employees is to give them choice when deciding what rewards they want – a reward that someone feels they have had an active role in choosing will be a far better motivator than one that they’ve received by default.
A great example of this is O2, and their live Twitter TV vote to decide their next Priority offer. During the ad breaks on primetime television shows on E4, customers who had the O2 Priority app could vote by using hashtags to decide the next offer, giving them the power to decide.
This choice to decide their own rewards built brand loyalty between the customer and company as it felt more like two-way communication – where customers felt involved in the process.
The effect of this is that customers get rewarded with what they want by engaging with the brand, which encourages them to choose that brand again in future, engaging with them more to get more benefits. When attracting new customers costs up to ten times more than retaining existing ones – engaging your base is key.