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!

Customer Loyalty: Obligation or Happy Marriage?

Consumers cheat on brands in many of the same ways lovers cheat. If you don’t like your spouse, or are bored with pillow talk or household conversations, you can easily go online and “meet up” with someone new behind the closed doors in Skype, Facebook or any other online “chat” room. Pretty much the same way we hook up with new brands.

cheatingNews Alert: Marriage today has reached an all-time high and all-time low. According to research referenced in a recent Time magazine article, married people describe marriage as “more satisfying or less satisfying” than any other generation ahead of our time, meaning the degree of happiness or the opposite is higher than ever.

The author of “30 Lessons for Loving,” Karl Pillemer, also referenced in Belinda Luscombe’s Time magazine article, sums up marriage as “really, really hard work” and a “commitment device”-like a program or system that locks people into situations they may find dreary or inconvenient in order to achieve a goal or reward later on. For some, those temporal states of dreariness or inconvenience are worth it as the good outweighs the bad in the end. For others, it’s not worth even the slightest bit of dismay.

Not hard to see where I’m going with this, but it is important to ponder.

Consumers cheat on brands in many of the same ways lovers cheat. If you don’t like your spouse, or are bored with pillow talk or household conversations, you can easily go online and “meet up” with someone new behind the closed doors in Skype, Facebook or any other online “chat” room. Pretty much the same way we hook up with new brands. Without social listening devices to help identify those who are happy with us vs. frustrated, and who are “chatting” with our competitors, we brand marketers are set up to be the “last to know” — and often, it’s too late to repair the damage.

With all the alternatives for just about any product and brand these days, and the easy access to new flings, making your brand experience a “marriage” worth enduring vs. “easy to replace” is critical, no matter what business you’re in. The divorce rate for marriage is about 50 percent, and according to reports on loyalty by various research firms, that’s roughly the same percentage of customers who stay loyal to brands these days. Accenture puts the customer loyalty rate at about 48 percent, indicating that 52 percent have switched brands due to poor customer service. And around 30 percent of customers switch just for fun, which makes it that much more “fun” for brands to secure lifetime value.

Growing apart is one of the top five reasons marriages fail. And yes, it’s a big reason why many brands lose around 40 percent of their customers every year and have to spend their valuable time and resources rebuilding their base vs. enjoying their profits.

With all the attractions out there luring customers from one brand to another, and all the demands and high expectations customers have today, is there really a way to keep marriages between consumers and brands alive?

Yes. Here are just a few ways to help assure you and your customers can celebrate many anniversaries ahead.

Listen

Many sources reporting on infidelity, from Fox News to WebMD, state that women cheat because of loneliness and a need to feel emotionally connected to a man, and of course, to have someone listen to them. Customers are really no different.

According to statistics on customer loyalty compiled by Access, a report by Apptentive shows that:

  • 55 percent of consumers out there are likely to switch to another brand if their feedback or needs are being ignored by a current brand they patronize.
  • 97 percent say that they are somewhat likely to increase their loyalty to a brand that listens and acts on their feedback.

Creating dialogues with your social media rather than monologues you hope they’ll “like” and “share” or “heart” and “retweet” is more than just good social manners. Per the above statistics, it’s critical to long-term commitment and sustainable revenue.

Engage

Engagement is not just about putting a ring on it! It’s about interacting with customers in meaningful ways that spark those warm fuzzies when we feel noticed, appreciated and connected with someone who has like values and seems to like us, too. By engaging with customers in ways that allow them to speak and be heard, and providing them with experiences that enable them to be part of the brand via user-generated content, applications, events or more, customer loyalty can soar.

Just look at the video game industry that now generates about the same revenue per year as Hollywood’s film industry. Gamers love to generate ideas for the games they play, attend their events in full costume to represent their favorite characters and avatars, and they bring others to their virtual worlds as they evangelize in ways that rival the success of even the best of religious missionaries.

Engagement does not just pay off in terms of keeping customers loyal and referring others, it pays off in increased transaction value, too. Cap Gemini research shows that fully engaged customers are worth at least 23 percent more in revenue and profitability than other customers. This same research shows that actively disengaged customers — who have chosen to find new relationships due to negative feelings — represent at least a 13 percent drop in share of wallet, profitability and revenue due to spreading bad vibes about a brand. With how quickly we can share our bad experiences via social media, this is a pretty serious issue facing all brands.

Online Games, Marketing and Engagement – What Marketers Miss About FarmVille

Wide engagement with FarmVille and similar online games is the biggest web phenomenon of 2010. And while many marketers are tyring to learn from online games, most don’t really understand what’s behind the appeal.

Wide consumer engagement with FarmVille and similar online games is the biggest web phenomenon of 2010. And while I’ve read periodic stories and blog posts about advergames and what marketers can learn from online games, most of the writers don’t really get what’s behind the appeal of gaming. Customization and avatars and collecting and bragging are the big takeaways, then they’ll give the real point a quick aside at the end: games reward players for time spent. They offer a particularly fun type of engagement, and give players a reward for engaging in it.

The big secret is simply that they’re fair. The more you put in, the more you get out. It’s no coincidence online games boom while employment busts.

That’s important to understand when you’re trying to adapt games or even just game concepts to your marketing. Things like avatar customization, bragging rights and collectibles are really just subcategories of rewards, and focusing on somehow implementing customizable avatar and collectibles and letting shoppers build their very own custom princess pillow fort on your site is exactly the kind of pie-in-the-sky takeaway that can derail good ideas. They’re just different types of rewards. You spend some — or a lot of — time engaging in a fun little diversion, and at the end you get a reward.

But games reward players for their time in many ways. The most basic is that they get better at the game. It sounds stupidly self-fulfilling, but Pac-Man doled out precious little besides keeping score and showing a leader board, and people spent months of their lives engaging with those machines to get better at them.

Games today almost always give players a little something extra. Perhaps the reward is that you progressed in the game and feel some sense of accomplishment, or see more of an interesting story (games are incredible storytelling tools). Perhaps it’s collectibles and customizables that let you show off that progress to others with some flare, or in-game rewards that make your character better at the game. Perhaps you get to interact with friends at a time you otherwise wouldn’t have been able to, or have a new hobby to talk to them about.

The most successful games, like World of Warcraft, dish out hundreds of varieties of rewards: players progress, see more of an entertaining story, explore secret areas, find collectibles, earn bragging rights, build social networks … it’s practically Pavlovian.

So when you’re looking at games as a way to market your product, or just trying to find some new insight into your consumers, remember that’s it’s all about the rewards. And then you can start to think about games as a real marketing tool.

If you build an advergame, why not tie promotional offers to in-game achievements? Beat the game, get a coupon. It’s the simplest game marketing idea in the world, but no one’s doing it.

Or why not offer rewards on your site that mimic rewards players find in games? Imagine what your customers are going to say when someone finds out that putting two specific items in a shopping cart is rewarded with a secret discount? Or if after loading X number of pages on your site, you reward their time with some unannounced free gift with purchase?

Don’t get caught up in the cartoony, sparkly bits of the gaming phenomenon — they’re not the reason games are finding wide appeal. What can your brand offer consumers for playing that others couldn’t, and how can you get them to chase that and have fun at the same time? That’s what marketers can really learn from gaming.

You want engagement? Reward the time customers spend engaging. It’s only fair.