You Build Loyalty and Create Fans With Rewards

by Mack Collier

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.

Kathy Sierra January 18, 2013 at 3:34 pm

I was holding my breath as I read is, given how strongly I feel about rewards and incentives. But you walked the tricky line nicely :)

There is loyalty and then there is Loyalty. Capital “L” loyalty has to transcend incentivized (lower-case) loyalty, because if they are doing it for *the incentive*, it is not loyalty but simply incentivized behavior. You made this distinction by saying “loyalty to the OFFER vs. loyalty to the brand”, and I think I’m Ok with that, though I still would not use the word “loyalty”. Or I would put it in quotes :)

To stay in the safe zone when using rewards — safe meaning rewards that do not come with the psychological, subconscious negative side-effects that if/then rewards and incentives carry — I would use UNEXPECTED thanks.

When incentives are given for an interaction with a product or brand (or *any behavior at all*), it sends a subconscious message that “this is not worthy enough for you to do without the incentive”. Even when we — the one being given the incentive — feels as though the incentive has no negative effect, it doesn’t matter. The brain does not care. (See Self Determination Theory, or watch the Dan Pink TED talk for a light weight intro to the problems with incentives).

Unexpected thank-you “rewards” do not carry these potential long-term poor side-effects, as long as they ARE unexpected, somewhat random (you may have a system, but as long as customers do not perceive a system, it’s all good). Plus, the unexpected is a source of great delight.

Another possible way to think about “rewards” safely (again, “safely” meaning safe for the brand long-term), is with Awards for actual achievement that is meaningful. There are far fewer brand contexts where this actually makes sense or does not itself come with downsides (Frequent Flyer “awards” can sometimes leave people feeling trapped and *forced*), but think of a martial arts belt: this is not a REward but an Award for real achievement. Not a faux status award, an actual achievement. And almost nobody views “buying the most of X” as an actual achievement.

But someone MIGHT do something meaningful that is somehow within the context of the brand. For example, a camera maker can have a contest around actual judged photography, and an award makes sense here (vs. the horror of something like whoever generates the most LIKES or Retweets WINS!! Popularity contests are not, for most people, actual meaningful achievements).

So, Unexpected Thank-yous are awesome. A punch card is also typically awesome because it is CLEARLY an incentive to buy, and as long as nobody mistakes it for actual loyalty, it’s just a simple way to keep people choosing X over Y. A punchcard approach for the few things where it makes sense fine, but of course nobody would want that as their only competitive advantage.

Achievement Awards are *also* awesome, though there are far fewer opportunities to use them unless you consider the bigger context in which your product is used, and connect to meaningful achievements that live within that context.

But gamification-style rewards and incentives for engaging are almost ALL downsides, even if they lead to an initial engagement spike. It’s been well-proven that once a reward/incentive program is launched, it is nearly impossible to STOP it without not just losing the gains from the program, but potentially leaving things WORSE than before the incentive program. And also, there is the issue that if you need *incentives* to get people to engage, these are not “rewards” but a form of bribery, and send a clear signal that the thing is not worth it on its own.

(that’s for giving me a space for such a long rambling comment 😉

Mack Collier January 18, 2013 at 8:11 pm

It’s funny because yesterday I was talking about rewards vs incentives with someone on Twitter and I was thinking I wanted to revisit this topic, then I read the Your Customer Won’t Take a Bullet For You ( written by….someone, and decided to write this post 😉

(And BTW, I just saw Dan Pink’s TED talk, I hadn’t heard of the candle problem, but I do remember hearing about a similar study where cash was offered as an incentive and the results were worse. But for the life of me, I can’t remember the structure of the experiment).

In general, I look at the action the brand is taking, and put it into one of two different buckets. Are they really saying….

1 – Thank You

2 – Help Me

And while I think the Help Me approach can work (punch cards come to mind), I also think it’s usually an inferior approach to Thank You.

And I like your clarification about Thank Yous working better when they are unexpected. I agree, I also think if it reaches the point where the customer EXPECTS the Thank You, then in their mind it’s really a Help Me. I think the unexpectedness is an inherent quality of the Thank You from the brand.

I also think when the customer encounters what they view as a geniune ‘Thank You’ moment, their natural reaction is to want to HELP the brand. The brand did something for me, I want to do something for the brand. But really the brand was responding to something the customer had ALREADY done.

On the other hand, if the customer is offered an incentive, it comes across as Help Me. And even IF the customer fulfills the incentive and even if they get a nice deal/discount/whatever, the loyalty they feel for the brand probably won’t be as high as it would be if the customer had been given a Thank You.

And of course, my natural affinity to the Thank You approach over Help Me is that Thank You is aimed at EXISTING customers whereas Help Me is often aimed at NEW customers. And as you know from reading my book, I think it makes far more sense for companies to focus on delighting and empowering their current customers and fans, and let THEIR efforts lead to ‘acquiring’ new customers.

Not saying the Help Me approach doesn’t have merit and can’t work amazingly well. Just saying that I think too many companies want to go with an incentive first, where a true reward would probably work at least as well, if not better.

PS: For your example of a contest and award given to someone who is judged to have taken the best pictures, what if acceptance of that award also meant that the winner had to do something to explain how they created those photographs, ie they have to teach others how to take pictures like they did? Maybe create a video talking to the company about how to take better pictures, etc. Do you think that adding that requirement to the contest would be seen as a detriment to most participants, or a reward?

Linda Bernstein January 18, 2013 at 8:26 pm

Jessica Northey one time told me that Taylor Swift was told that if she wanted a gold record, she needed to shake a million hands. I think her availability to people keeps her customers loyal despite her fickle relationships, which might otherwise foster a lot of bad press.

Incentives and rewards probably wouldn’t work with me necessarily. I like getting stuff, but I stick with a brand because it’s good and, importantly, provides good customer service when I want it.

Still, it’s interesting that at #NMX one startup was handing out an unusual swag thing – a Wilson volley ball with the hand print on it, a la Tom Hank’s Wilson in Castaway. I gave mine to a friend so she could bring home something to each of her kids (mine are much too old for stuff like that). Nonetheless, this startup, Readz, has stuck in my head. I watched their demo and I keep on thinking that when I have a chance to highlight a new tool, I would choose them if relevant. They also gave a class act wine-tasting, class act being something hard to achieve in Las Vegas.

Mack Collier January 19, 2013 at 9:13 am

Hi Linda! I’ve heard from people living in Nashville that Taylor is spotted out shopping at grocery stores and malls all the time, and it’s really ‘no big deal’ to see her out and chatting with fans. I think being more accessible makes it much easier to become a fan of hers.

It’s always interesting to go to a larger event like SXSW or NMX and see how sponsors try to connect with attendees. I remember something Greg Cordell at Brains on Fire told me, he said they tell their clients to ‘sponsor the love’. Find the thing that your customers love about your brand, and sponsor events that tap into that. I think a few years ago tweetups were a good idea because it created a way to bring all your friends together and people you wanted to meet. But now they are so common-place that they are expected at larger events, and the sponsors making them possible get lost in the mix, IMO.

Hmmmm….this might be a topic for another post, I’ll have to think on this 😉 Thanks Linda!

Jennifer Kent January 21, 2013 at 3:02 pm

Very well explained Mack!!!!

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