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Study Shows Loyalty Programs Increase Purchases by 20%

July 27, 2016

When thinking about the value proposition of a loyalty program, the benefits to the business owner are generally pretty clear. A loyalty/rewards program should build long-term loyalty and increase the amount of consumer spend as well as the number of times they visit.

But is there any proof that’s actually true?

The answer is yes. Recently, a marketing professor at the University of Chicago Booth School of Business took a closer look at a phenomenon he’d noticed in everyday life: people exert more effort as they get closer to achieving a goal.

For example, people speed up their driving after a long commute when they get close to home. But can this simple fact—what marketing professors call the “goal-gradient” effect—be used to maximize response improvement in programs like Clover Rewards?

Another yes.

Here’s what Dr. Urminsky and his team learned:

  • Customers accelerate their purchase frequency by 20% when they’re close to earning a reward. Urminsky’s team studied a standard loyalty program at a university coffee shop: a paper-based punchcard where customers could earn 1 free coffee after buying 10. This group’s behavior was compared to a control group, whose purchases were tracked via punchcard but who didn’t earn any reward. “As participants in the rewards program accumulated more stamps on their cards … members bought that next coffee sooner the closer they were to getting a free one,”the study found. “In fact, the average time between purchases accelerated by about 20% from the first to the last stamp on the card.”
  • Customers also buy 20% more product in less time when motivated by a reward. The study continued: “In other words, members purchased two more coffees in the time it took to complete the card than they would have if they hadn’t accelerated their purchases.”
  • Customers buy more when businesses give them a “head start.” Imagine you participate in rewards programs at two equivalent coffee shops. Coffee Shop A is a standard buy-10-get-1 free program. Coffee Shop B is a buy-12-get-1 free program – sounds tougher, right? However, B gives you two bonus punches when you join the program.

Even though both programs require 10 coffee purchases before you get a free one, customers feel more motivated by B’s program. “The illusion of having already made progress would compel customers to complete those 10 purchases faster,” says Urminsky. It took study customers 15.6 days to complete the 10-stamp card compared with only 12.7 days for the 12- stamp card with the bonus stamps. That’s 23% faster.

How to Maximize the Impact of Your Clover Rewards Program

How can you get the most bang out of your customer loyalty program? The Booth study provides a few smart tips:

  • Give customers a sense they’re making progress. We’ve already seen how bonus points can jump-start a customer into feeling they’re making progress. Many merchants launch their Clover Rewards program with a signup special: get a small freebie just for signing up. Immediate gratification doesn’t have to cost much, but if it gives your customers the glow of achievement, it can accelerate their purchase frequency and amounts.
  • Remind customers where they stand—particularly when they’re nearing a reward. Here’s where Clover Rewards mobile offers shine compared to paper punch cards. You may not dig out that wrinkled, torn punch card to check your progress, but a well-timed ping on your mobile phone may prompt you to head back to a store you like but haven’t visited lately. Consider bundling bonus points with a Clover Rewards special offer: you’ll not only drive in-store traffic, you’ll also reignite a customer’s motivation to earn enough punches for that next freebie.
  • Even less-motivated customers can be goosed into action. Not every customer will be raring to participate in a loyalty program. But if you’ve managed to sign them up at all, don’t give up on them with the first sign of flagging enthusiasm. Even less motivated customers changed their behavior—according to the Booth study—and accelerated purchases when a reward seems within reach.

Source: University of Chicago Booth School of Business

[image: Food Trucks Around Town by CityofStPete on flickr]