It’s the timing and context of the reward that’s crucial.
If you walk into Best Buy and the door greeter smiles and hands you a coupon for 20% off any purchase over $100 during your visit, that’s not a reward. It’s an incentive to make a purchase. While that coupon might increase the chance that you will make a purchase during that trip to Best Buy, in the grand scheme of things it’s probably not going to make you more loyal to the chain.
If you walk into your favorite antique mall and the owner greets you and says “BTW, do you still need that final glass to complete your Pepsi collection from 1975? Because we just bought a large collection of glassware and I found it and put it aside to ask you about the next time you came in. Here you go!” That’s a true reward because it comes as a result of previous purchases and isn’t directly tied to a future purchase.
Above that, this type of reward communicates appreciation to the customer for their business. That builds loyalty because the business is literally saying Thank You.
The Best Buy example communicates a desire to have you buy something. So even though you are getting a coupon, you understand that Best Buy is acting in its best interest. And yes, the antique shop owner is also acting in their best interest by giving you the Pepsi glass you need, because they could sell that to someone else. So it is worth money to the owner, but the owner also understands the value that you place on this item. It’s the final glass you need to complete a collection that you’ve been assembling for 10 years!
So if you are wanting to offer rewards that also build loyalty, focus on ways to reward existing behavior versus trying to incentivize new behavior.
Now, what about loyalty punch cards? You’ve probably seen these at restaurants, coffee shops and the like. Buy 5/10 meals, get one free. Is that what we mean by building loyalty by rewarding after the purchase?
No, because even though the reward comes after the purchase, there’s an incentive to make the next purchase. So really, punch cards like this are building loyalty to the offer, not the brand. For example, let’s say it’s your lunch hour and you are about to run to Subway, when you remember that you have a Pizza Hut lunch buffet punch card, and that with one more punch you card will be full and you’ll get a free meal. That will probably swing your lunch decision to Pizza Hut, but what happens next week when your Pizza Hut punch card is empty? Will there still be the same level of incentive to start a new punch card, or will you then decide to go to Subway for lunch?
Remember, the timing and context of the reward is crucial to building loyalty. It determines if you are saying ‘Thank you!’ for existing behavior, or attempting to create new behavior.
Also, when a business shows you that they appreciate your business, it validates your loyalty to them. It makes you feel better about supporting them, and it does become an incentive to make an additional purchase.
But the incentive doesn’t come from the brand, it comes from you. We all want to support the brands that we feel appreciate us and act in our best interests, as well as their own. There’s a feeling of ‘well they did something for me, now I want to do something for them!’
You don’t get that with coupons and incentives, because we understand that the brand is offering these to entice sales. Which means its motivation lies in its own best interests.
You build loyalty by offering the reward after and independently of the purchase. Not by offering it before and tying it to a purchase.
PS: In the above picture the incentive is obvious but the reward might not be. On June 13th, 2010, Taylor Swift held a special free autograph signing for her fans in Nashville. She started signing at 8am in the morning, and finally stopped at 10:30PM that night. This was one of the many ways that Taylor says Thank You to her fans for their existing behavior. And it’s one of the many reasons why they love her.