The Psychology of Rewards

We live at the best time ever to be consumers. Every brand we love and store we frequent wants to reward that loyalty. It seems marketers have figured out the big secret: We humans are just like a pack of dogs, or rather Pavlov’s dogs, and come running for rewards.

Rewards
“Rewards,” Creative Commons license. | Credit: Flickr by GotCredit

We live at the best time ever to be consumers. Every brand we love and store we frequent wants to reward that loyalty. It seems marketers have figured out the big secret: We humans are just like a pack of dogs, or rather Pavlov’s dogs, and come running for rewards.

Extrinsic motivation, or our behavior which is driven by the anticipation of being rewarded by others for engaging in specific behaviors, drives much of the choices we make in life — how we perform our jobs and what products we chose to buy.

And down deep that motivation is linked to what I’ve said before is our greatest psychological driver: our survival DNA. Unconsciously, rewards help us feel like we are getting closer to that place in life where we have what we need to survive the daily battle to fulfill needs and wants that propel us ahead of the pack.

When we get something cheaper than usual, more than what we paid for or something for free, as a rewards program often delivers — in our unconscious minds, we are stronger, better, richer, faster or have more resources than others, and so we are posed to survive. And it’s fun!

Getting rewards is like playing a game we know we can win. We do little things that take little effort on our part and get something back, like a two-for-one deal, a free gift, a big discount on a purchase. Even small prices, like a free car wash worth $10, can spark a dopamine rush. And when we drive out of that “free” car wash, we have a bigger smile on our face than when we paid for a car wash that was just as fast and clean. It’s simple how we are wired.

Loyalty Programs Spark Brain Triggers

Rewards programs have long been successful, in all industries, to spark trial, boost incremental sales and secure loyalty. We eagerly sign up for point programs that can earn us free pizzas, airline tickets, hotel nights and such.

And then really smart marketers came along and let us choose our rewards, like American Express Membership Rewards, that let consumers shop various brands for products purchased strictly through points. And today, marketers are getting even smarter and building apps for rewards programs that cater to the current frenzy and greatest needs of consumers today: instantaneousness.

Ibotta Case Study: Ugotta Love It and UGottaDo It

One of the best examples of a reward program that caters to the psychological state of most consumers today, regardless of there generation, is Ibotta, a young app birthed just five years ago in the basement of a fire station in Denver. It simply helps consumers get rewards, such as rebates and discounts, or loyalty premiums redeemed faster and easier than before. Ibotta allows users to submit their receipts online in order to get instant cash back, which is deposited into their accounts and can be cashed out via PayPal, gift cards or other digital processes, eliminating the “check in the mail” process that seems to take forever in today’s world. Just this past holiday season of 2016, Ibotta at four years old, was the third-most-used shopping app during the holiday shopping period in December 2016, outpaced only by Amazon and eBay.

Its growth has been staggering. Take a look at these numbers:

  • Nov. 16, 2012 — Ibotta app launch on iOS
  • Dec. 18, 2012 — Ibotta announces 100,000 registered users on iOS; announces Android version launch
  • Feb. 5, 2013 — Ibotta announces 500,000 registered users in just under four months
  • May 14, 2013 — Ibotta users have earned $1 million in cash rewards in just six months
  • July 20, 2013 — Ibotta users have earned $2 million in cash rewards

While every stat above is very telling about this successful new business idea and its value to consumers, take a look at the last two bullet points. In just one month, Ibotta doubled its payouts from $1 million in cash rewards earned to $2 million. And this, at just seven months old. This is serous validation as to how powerful the force of rewards is for attracting customers and keeping them actively engaged in what matters most: shopping! And shopping for rewards.

But not all rewards programs grow this quickly. Here’s what Rich Donahue, SVP of Marketing for Ibotta, has to say about the company’s success:

“What we’re focused on at Ibotta is helping consumers live a ‘Life Rewarded.’ Our goal is to make sure that you earn rewards on everything you buy, wherever and however you shop. With Ibotta, you earn cash back and make those rewards count in your life.”

Creating awards around everyday routines and shopping needs has catapulted Ibotta’s growth during its mere five years of existence. As of this past week, Aug. 9, 2017, Ibotta users have earned more than $200 million in cash rewards and a download total of 23 million. On top of that, it’s become the 43rd most-used app in the App Store.

So Whatta? Marketers Ask, ‘What’s in It for Me?’

What does all this mean for marketers today? Alotta!

  • Rewards, small or big, matter — and matter a lot — as they are not just prizes for the conscious mind to get excited about. They are triggers of the unconscious mind, which drives 90 percent of our thoughts and choices.
  • Instantaneousness matters, too. Everything about our lives is instant now … instant access to information via Google searches 24/7 on our mobile devices, which are instantly available as they are in-hand or pocket 24/7.
  • And Choice matters, too. We are long past the days of reward programs for more of a brand’s product and only that brand’s product, and on that brand’s terms, not ours. Brand loyalty programs may have a lot of enrollment, but they get very little redemption. According to a Forrester report, which surveyed members from the Loyalty360 association, only 16 percent of consumers, on average, redeem points from brand loyalty programs. To succeed, brands of all sizes need to take on the Ibotta and American Express approach of letting customers be rewarded for products and services they choose vs. get rewarded with “stuff” they may not need at the moment, if ever.

Conclusion

While I’m not suggesting you expire all of the points your customers have earned with you to-date (there are many cases of this backfiring), I am suggesting you take a look at your system to make sure you are offering choices that matter, and the speed to redemption that clearly matters to consumers today.

If you don’t up your rewards program to fit our psychological need to win rewards that help us up our chances to survive (emotionally, physically, financially, socially and more) and do it quickly, you’re wasting alotta resources of your own. Make your time and effort matter by changing your game to up the fun and fulfillment of the consumers’ game when it comes to getting the best deal and reward. It’s just something you GOTTA do!

Why Do Marketers Ignore Quiet Desperation?

Thoreau famously wrote in 1849: “The mass of men lead lives of quiet desperation.” And, it rings true today. You wouldn’t necessarily realize it because most people deal with desperation quietly. With so many services and products that can help people, it’s remarkable that this deep, internal cry for help — for something, anything — is often neglected by marketers and non-profits.

Quiet Desperation: Stressed, anxious person biting finger nails.Thoreau famously wrote in 1849: “The mass of men lead lives of quiet desperation.” And, it rings true today. You wouldn’t necessarily realize it because most people deal with desperation quietly. With so many services and products that can help people, it’s remarkable that  this deep, internal cry for help — for something, anything — is often neglected by marketers and non-profits. So today, we dig into the “why” behind this topic.

My regular readers know that I both handle the marketing and perform in an International Champion Men’s Chorus. Winning more Gold Medals than any other group in this particular competition going back to the 1970s, the legacy of this organization is larger than life.

As organizations evolve, this organization has moved from a “compete and win at all costs” attitude to “share the music to touch the heart and soul.” Our musical director sums it up well when he says “music, at its core, is not competitive, but a gift to be shared with gratitude.”

So when we placed second — the Silver Medal — on July 7 in Las Vegas, in front of about 7,000 people in the audience and countless more viewing the live stream worldwide, it was a gut punch to many. Separating us from the Gold Medal winner was just 8 points out of 3,000 possible, a virtual tie.

Embracing both victory and defeat with equal humility and grace reveals much about the character of people and an organization. A line from a Kipling poem is inscribed above the entrance to Wimbledon Centre Court: “If you can meet with triumph and disaster, and treat those two imposters just the same; …”

But there is another, more important, part of this outcome that is a reminder to every marketer who is selling a product or service, or raising money for a non-profit.

It’s the stories from people who were deeply touched by the performance, yet didn’t care about the color of the medal. Here are a couple standouts:

I live in chronic pain due to an autoimmune illness. I live in emotional pain because my son is mentally ill with addiction issues. At this time I really don’t know where he is. He is 26 and as a mom if you had told me 10 years ago I would be in this position, I wouldn’t have believed you. I never know whether the calls will be suicidal or not. I’ve sort of suffered in silence because who really wants to know all this? Thank you for the music that takes me away to another place where I can be at peace.

What grabbed me about this writer’s note were the words “I’ve suffered in silence because who really wants to know all this?” She’s right, most don’t want to know the full story. The result: people live daily in quiet desperation.

Or this story:

June 2017 was the worst time I have ever experienced in my life. I thought I had lost everything. My business is gone. I also lost my mentor of 17 years. My life is now on a new path. When a man is in a dark place, sometimes dark thoughts enter his mind. Who knows what dangerous path I would have walked down. Watching how the audience immediately leaped to their feet for the applause, it healed me. I have never been so happy and excited.

At a time when marketers are often obsessed with generating leads, sales, donations and profits, sometimes we have to step back and ask ourselves, “What is our real mission and responsibility to our customers and donors? Are we offering hope during a journey of quiet desperation?”

Revenues are the typical yardstick of measuring a new attitude and strategy, and in this instance, the chorus that I perform with is in a stronger financial position than ever before, and is still considered by most in its community as the greatest chorus in the world.

So when authenticity is rare, but highly craved and valued, an organization’s great opportunity is to identify how to best serve its audience.

This may sound trite, but my experience today says that when you identify how to put your audience first so they can work through — or at least be able to take a break away from their personal quiet desperation — the leads, sales, donations, and profits will follow.

When Marketing and Politics Collide

America is politically obsessed right now. Each day there is at least one and often several news items that lead to a cycle of finger-pointing, name-calling and outrage. It doesn’t matter which party or candidate you endorsed, where you live or where you get your news — emotions are running high all across the land. What does this politically and emotionally charged climate mean for marketers?

Politics and marketingAmerica is politically obsessed right now. Each day there is at least one and often several news items that lead to a cycle of finger-pointing, name-calling and outrage.

It doesn’t matter which party or candidate you endorsed, where you live or where you get your news — emotions are running high all across the land. What does this politically and emotionally charged climate mean for marketers?

There have long been companies and business models defined by a cause or a philanthropic purpose. For instance, Tom’s Shoes is one of a host of buy one/give one modeled retailers that have a clear purpose built into their brand. But that’s different than consumer brands taking a stance on a timely and divisive political issue.

Well known corporate entities and brands like Starbucks, Nordstrom’s, Lyft and Amazon have all taken recent public, political positions — up to and including boycotts and legal action. Research from Morning Consult reveals the support behind that kind of activity — at least among young adults. Another study from J. Walter Thompson Intelligence further validated and quantified that finding, citing “Americans are […] overwhelmingly supportive of brands that take stances on issues: 78 percent agree that companies should take action to address the important issues facing society, while 88 percent agree that corporations have the power to influence social change.”

Does political activism help a brand with conventional brand metrics? Maybe. The Super Bowl LI ads that had a political message appeared to create more buzz, engender more sharing and had higher recall than non-political ads aired during the same game but reviews are mixed on whether these ads were effective at creating emotional connections, building brand favorability or purchase intent. Longer or deeper commitments to that strategy would presumably produce different results but that is not clear as yet and different, additional metrics must be considered when examining the effect of a political stance.

The decision to embrace a cause or take a political stance has potentially significant impact on market perception and brand performance. That impact could be positive or negative and requires a thoughtful approach to what must be a long term commitment.

Know Your Audience

We’re a nation split right down the middle on many critical issues so taking an action or position is a chancy endeavor unless your audience is well understood and unified on that particular issue. Even so, the threat remains that some will see a vocal and public position as unwarranted, in poor taste, or simply outside of the realm of a brand’s responsibility or authority.

For some niche or lifestyle brands it’s natural to take a stance on social or political fronts that relate to the brand’s value proposition. Their audiences accept and even expect it. That assumption should be validated with prior research of course, and be sure to factor in any potential backlash from broader populations exposed to ads. In general, the universe of active, political brands is expanding as consumers increasingly look for more than a transactional relationship with their favorite brands. If a consumer is going to emotionally connect to a brand, they want to know they are in sync on important matters. Social media has given both brands and consumers the tools to connect on multiple levels.

That deepened brand relationship tends to happen after brands have done the hard and time-consuming work of establishing a clear brand voice and messaging platform based on consumer information, insights and feedback. In the future, more of that work and messaging will likely be around issues, causes, and policies to help develop recommendations around social and political activism. This is not familiar territory to most marketers and they may need to reach out to consultants to help them understand and frame their options.

Corporate Responsibility

What is a brand’s obligation to enter the dialogue? There are a dizzying number of issues to consider as the link between politics and business issues is becoming more direct and more visible to consumers. The decision is unique to each company but colored by an inherent lack of control over the final message.

Brand messaging is picked up and replayed in both traditional and internet media outlets and then by consumers themselves. Consumer statements are often laced with approval or condemnation and then further exaggerated by the bubbles of self-validation that social media networks and news/opinion curation encourages. This generates an exaggerated reaction to any action or statement as the sling-shot effect of the Internet magnifies both the reach and impact within certain, connected populations. So a little potentially goes a long, long way but not always in a predictable direction. Corporate responsibility and communication officers have never been more challenged.

Avoiding the One-Night Stand

Stating that all customers are not created equal is hardly an oversimplification. But, just like the pigs in Orwell’s “Animal Farm,” some customers are more equal than others. No company has unlimited resources to equally service or support all its customers. Repeat buying power, the essence of customer loyalty, is everything. Some customers are worth a great deal, some may become more valuable over time, some may be valuable for a brief period but may be easily lured away, and some are never likely to become valuable.

Stating that all customers are not created equal is hardly an oversimplification. But, just like the pigs in Orwell’s “Animal Farm,” some customers are more equal than others. No company has unlimited resources to equally service or support all its customers. Repeat buying power, the essence of customer loyalty, is everything. Some customers are worth a great deal, some may become more valuable over time, some may be valuable for a brief period but may be easily lured away, and some are never likely to become valuable.

At minimum, companies need to segment their customers so they can determine how much longer that customer will remain with them, how much revenue each customer will contribute, how much and what kind of services the customer should receive, and what efforts will be needed to keep them whether they are new, at risk, or even already lost. Also, if a company is changing product or service focus—such as beginning a new customer experience management or frequency marketing program—decisions will have to be made about which customers it wants to retain.

Just as companies are becoming smarter about keeping the customers they want or “firing” less attractive customers through stepped-down services, they have to invest more upfront, at the beginning of the customer life cycle, in learning which potential customers will be the most valuable over time. This goes beyond segmentation. It is almost pre-segmentation.

Here’s a prime example. The business of gaming in Las Vegas, Atlantic City, numerous riverboats, Indian reservations and offshore is built not on a house of cards, but a house of numbers. At Las Vegas casinos like the Rio, those players who gamble $1,000 a day with the Rio, whether they win or not, receive the designation “hosted guests.” These are the kinds of customers the Rio works hard to acquire. Their level of play accords them VIP status, with more “comps” (free dinners, show passes and other gifts). Each hosted guest has an individual staff host assigned to check on them and provide any needed services.

The host is actually a highly paid, personal customer service representative. It’s an important position, which casino operations like the Rio consider pivotal to their success. The hosts cultivate relationships with the players; and VIP players are encouraged to call their hosts before arriving at the casino, so the host can have show tickets, restaurant reservations and suites set up, per the player’s profile.

There’s even a higher echelon of gaming customers—those players who have a $1 million line of credit. They get the best suites and virtually everything the casino has to offer. They’re nicknamed “whales,” and with good reason. At the Rio, this means a suite with 7,000 square feet of space and bathroom sinks with gold-plated faucets. These players are relied upon to bet in the Rio’s secluded back room, called the Salon, where they may play baccarat and roulette with $100,000 chips.

In an industry like gaming, where the level of customer migration is very high, it is imperative that casinos not only keep the players they want but target the right customers in the first place. They do this in a number of ways, including geodemographic profiling for their acquisition. For the high rollers they’ve lost, many of the casinos make an extra effort to get them back, as well.

Advanced companies have begun applying “conversion” models, seeking customers who:

  • Need less direct motivation (incentive) or indirect motivation (promise of support and committed resources) to purchase;
  • Have demonstrated more resistance to claims and attempts to lure them away;
  • Are less price-sensitive;
  • Are more accepting of occasional value delivery lapses and are less likely to accept alternatives if the brand/service is unavailable; and
  • Demonstrate more positive attitudes about “their” brand.

In the retail automotive industry, as another example, potentially loyal new customers take less time making their purchase decisions, consider fewer dealerships, are less price-driven, and rely less on magazine articles and other media and more on previous experience and personal recommendation.

Some years ago, South African researchers Jan Hofmeyr and Butch Rice created an effective conversion model, which helped marketers develop and sustain effective customer loyalty initiatives programs for customers, both new and established. They found that, beyond customer needs and value delivery requirements, companies must understand the potential depth of a customer’s commitment to the supplier. Part of this means identifying the degree of customers’ tangible and intangible involvement with the company. Tangible involvement can include such factors as the actual dollar cost of switching to a competitor. Intangible issues include the emotional strength of the connection or the upset and insecurity created by switching suppliers. The model also measures the degree of attractiveness of competitive brands, based on what these customers want as prioritized elements of value.

Hofmeyr and Rice’s model also enabled them to view their clients’ marketplace in terms of users and non-users. Users can be divided into those who are truly committed and loyal and those who are “convertible”; that is, declining or wavering in their loyalty. Non-users—prospects and previous customers—are divided into potentially convertible and non-available (because they are committed to their current supplier).

Detailed analysis could then be developed for current customers and prospects. The percentage of current customers who are entrenched, or completely loyal, can be identified, as well as those who have moderate loyalty, shallow loyalty, or convertibility (true vulnerability). Non-users, or prospects, could also be identified in a similar manner: those who are available, or highly receptive to a competitive offer; and those who are ambivalent, but who would switch with the right value-based incentive. Other prospects, who have average or strong loyalty to their brand or supplier, are considered unavailable by the model.

The model has been used to plan the amount of advertising and promotional activity required for new customers and prospects, according to their commitment level and potential value. It has been applied in more than 50 countries and for scores of products and services.

On an everyday, or tactical, basis, companies should also always be on the lookout for customers who could represent more of a problem than the revenue they might contribute. Through our own research, we’ve identified seven such types of customers:

  • Non-Complainers—Customers who never express any negative feelings about performance or identify potential areas of improvement may just be hiding their disaffection. Marketing scientist Theodore Levitt has said: “One of the surest signs of a bad or declining relationship with a customer is the absence of complaints. Nobody is ever that satisfied, especially not over an extended period of time.”
  • Over-Complainers—Customers who tend to complain frequently, sometimes irrespective of whether their issues are really consequently or not, can beat down a company’s morale and overtax its support infrastructure.
  • Price Grinders—New customers who pressure their suppliers to lower prices on initial sales in return—they often promise—for future business that may or may not exist.
  • Chronic Defectors—When customers have a history of pulling their business without explanation or warning, this may be a sign that they’ll never be happy with any supplier’s performance. Their volatility and refusal to communicate issues makes them undesirable.
  • Friends in Need—These “quick-jump” customers who want to find new suppliers with great haste often don’t make purchase decisions very well, or they may have economic challenges.
  • Discourteous Slobs—Any customers who are chronically rude and verbally abusive, even though they may not contact their suppliers frequently, can undermine a company’s morale and operations. If they have reason to be upset or annoyed, that’s one thing. Their concerns should, obviously, be addressed and dealt with as quickly as possible. If the negative behavior continues, they’re probably not worth the effort.
  • Misfits—The needs of some new customers may simply not align well with the supplier’s ability to perform. If, for example, 99.9 percent of the deliveries to customers are made during normal business hours and the new customer wants delivery in the middle of the night, unless this customer truly represents a great deal of business, they are probably not serviceable.

If most people are like me—a statement always open to interpretation—virtually every day they will see content or promotional material from long distance telephone companies offering their latest and greatest low cost plans. Typically, they don’t try to find out about my business and personal long distance needs. They just try to push the plan. One of the enduring reasons for the high rates of customer turnover in this industry is the lack of scientific prospect targeting, and attempts to understand potential customers’ tangible and intangible switching issues, done at the outset. Perhaps it’s time for their conversion.