The Psychology Behind Customer Loyalty Programs

Loyalty programs use loss aversion to motivate program members. For instance, communicating goal gradient communication (how close they are to a reward) and reducing the frequency of bad news (such as expiring rewards or tier level drops) encourages participants to continue engaging.

However, rational rewards are not enough to engender loyalty beyond reason. That is where consumer psychology comes in.

Motivation

The most common reason brands lose customer loyalty is that their products need to meet psychological needs. It’s essential to understand those needs so you can use them in your marketing. For example, if you sell day-to-day goods like tissues or paper towels, your product likely satisfies an essential consumer need. While you may have a fantastic product, the competition likely offers the same benefits at a lower price, and thus, consumers might choose to switch to your competitor. To create sustainable loyalty, you must reach higher levels of psychological need in your customers.

One way to do this is to leverage the goal gradient effect. This principle states that people are more motivated to work towards a desired outcome when they can see their progress. It can be applied to a loyalty program by offering rewards that allow members to redeem points toward a specific reward goal. For example, a car rental company can offer premium members free upgrades when a newer model is available.

Another effective way to increase motivation is through leveraging loss aversion. A study found that people are more likely to continue pursuing a goal when they see the distance between them and that goal as more minor. It can be done by instilling a sense of urgency into your loyalty program communications. For example, telling customers that they will miss out on exclusive rewards if they do not complete their purchase within an hour can generate more attitudinal commitment than simply letting them know that the reward they are chasing is limited in availability.

Reciprocity

Whether you call it paying it forward, quid pro quo, or simply returning the favor, the principle of reciprocity is one of the most important drivers of loyalty.

Incorporating the principle of reciprocity into a customer loyalty program can increase retention and revenue. Customers who feel they belong to a community that values them are likelier to spend more, recommend the brand, and even become brand ambassadors.

The key is creating more value for the customer than expected and then communicating that value. It can be as simple as sending a personalized thank you note to each member or more complex, such as allowing them to redeem rewards for free for a limited period.

Getting this right is critical, as leveraging the principle of reciprocity in a way that doesn’t backfire can have disastrous consequences. Many companies need help measuring the return on investment of their customer loyalty programs because they need the right tools to understand what motivates their customers. It can lead to a misplaced emphasis on growth and outdated measurement tools that need to account for the real benefits of customer loyalty.

Affiliation

Affiliation, defined as a person’s need to belong, is one of the most crucial driving forces behind customer loyalty. When a company fosters a strong sense of belonging with its customers, the relationship is more likely to survive the ebb and flow of the business cycle. A loyal customer will stick with your brand even through rough patches and is likelier to recommend it to others.

Loyalty is more than rewarding your best customers with better prices or free goods. It is about creating a mutually beneficial relationship built on trust. The best way to build this kind of relationship is by putting your customer at the center of all your decisions, which requires a deep understanding of what drives customer behavior.

Fortunately, gaining this understanding is easier than ever with the advent of customer loyalty analytics software. Using such tools allows you to measure the impact of your marketing and rewards programs on customer behavior. You can analyze data on program participation, churn rates, customer lifetime value, and recent account upgrades to gain insights into what’s driving your loyalty strategy.

The most successful customer loyalty programs are highly profitable and aligned with a company’s mission and purpose. Creating such a connection with your customers can help you create a loyalty program that offers a more holistic experience.

Emotion

Emotion is the felt psychological response to a situation that accompanies and motivates action. It is a complex phenomenon, but the key concepts are that emotions have a subjective experience and psychological and behavioral responses. These three interrelated components create a dynamic system that is hard to pin down. Despite this, there are many theories of emotion. These theories differ in how they conceptualize the emotions and explain their cause. Some theories, such as attributional and perceptual, have attempted to disentangle the different aspects of an emotion to understand its cause. Others, such as the attitudinal and weak perceptual theories, view them as feelings of attitude readiness irreducible to non-emotional attitudes.

Creating loyalty beyond reason requires more than just offering rewards. It means providing a meaningful experience that makes customers feel special. These surprise benefits, such as visual progress trackers and goal gradient communication, are more emotionally impactful than expected.

Companies must recognize that human emotions are complex, and a one-size-fits-all approach will fail to make customers loyal. Instead, they must consider customer psychology’s nuances and use art and science to breathe life into their programs.