The psychology of rewards, how different rewards drive different behaviors, plus some tips for selecting the right rewards for your customers.
Training a puppy can be a difficult thing. How do you communicate that chewing the sofa is bad but chewing a toy is good? Any dog trainer worth their salt will tell you that the most effective training is rewarding good behaviors; aka positive reinforcement. A reward, like a treat, motivates a certain behavior that you want to encourage.
Positive reinforcement is a powerful tool for all mammals – not just dogs. When trying to increase engagement with your new and existing companies, you’d do well to remember the lesson of the dog trainer: Positively reinforce the desired behavior with rewards.
Companies, now more than ever, are prioritizing loyalty programs to foster and improve customer loyalty. Popular Chinese fast food chain Panda Express recently launched Panda Rewards, which allows customers to start earning points with qualifying purchases that go toward rewards and special offers. Hardware store Lowe’s created Lowe’s MVPs Pro in February to let loyal customers start earning money back in the form of gift cards when they’ve made enough purchases.
If you’re skeptical of these programs, that’s understandable. After all, it seems a bit counterintuitive: how can your brand benefit from giving things away? Why do customers find these programs so enticing?
The psychology of rewards
Dogs probably can’t engage with your loyalty programs (yet?), but many of the principles that apply to encouraging behavior patterns in animals apply to us humans as well. Psychologists have created such theories to determine what is driving certain human needs and desires. We can use these theories as a lens for better understanding what’s driving the everyday choices a person makes.
Maslow’s Hierarchy of Needs (MHN)
MHN is a theory that organizes human needs into a pyramid. This model suggests that certain needs at the base of the pyramid have to be met before they can begin to want higher, more complex things. At the lowest level are basic physiological needs like water, food, shelter, and air. While at the highest level is the need to realize full creative and intellectual potential.
What we can learn from MHN is that the needs that motivate humans are all related to one another. A need to find a community with a sense of belonging may eventually inform someone’s desire to achieve something within that community to feel a sense of accomplishment or pride. A person won’t have these desires, however, if they’re not safe, secure, and have access to food and water.
Self-Determination Theory (SDT)
SDT suggests that people have innate psychological needs: autonomy, competence, and relatedness. These experiences relate to an individual’s ability to make and manage the decisions in their life. In this theory, all behavior a person makes will be directed toward growth and the success of self-motivated actions.
SDT relates to rewards because a rewards program can be aligned with those psychological needs that motivate a person. For example, points allow users to choose the rewards most relevant to their interests and desires, which relates to an individual’s autonomy. Some reward programs also gamify the experience by creating challenges and obstacles meant to be overcome, which relates to an individual’s competence. With relatedness, you may structure your program to understand individual customers and offer them rewards most relevant to them based on the data you collect.
Take a psychological approach to your rewards program
To know how to use these different theories to structure your rewards program, you first have to know your customers. What values does a person buying from your brand actually have? What are their motivations and desires, and how do they express this with their purchases?
Suppose your brand is a luxury vehicle dealer. What motivated your previous customers to buy one of your brand-new cars? Someone purchasing a luxury vehicle is likely looking for something that transcends the bare minimum required for transportation. There is a reason, after all, that they aren’t shopping for a used car. Purchasing a higher quality vehicle is tied to feelings of comfort, prestige, and efficiency. Therefore, a rewards program should match with feelings of esteem or individual competence, as that customer has worked hard in order to purchase their luxury vehicle.
When understanding your customers, consider how your audience sees you, or, effective brand positioning. A brand positioning model looks at how your brand presents itself to your audience to see how a customer perceives your brand. This includes your brand’s voice, tone, design, values, decisions, and more.
Knowing what people want is no easy task. Wolf of Wall Street’s Jordan Belfort claims everyone wants to get rich while Succession’s Logan Roy thinks everyone wants what he has. But ultimately a person’s desires and interests are far more complicated than this. It’s your job to analyze your customer’s motivators and see what kind of rewards their motivations point you toward.
Offer different reward types
Rewards can take lots of different forms, each having its own benefit depending on your customers and brand. But in general, all rewards fall into 1 of 3 different categories:
1. Monetary Rewards - Discounts, coupons, special offers, etc.
Monetary rewards are excellent for when your customer doesn’t have a lot of disposable income and is looking for the best bang for their buck. These rewards target customers concerned with basic safety needs. They’re also generally the easiest to see immediate value in.
However, customers not concerned about the best value will ignore these rewards programs or find them not worth the effort. A rewards program that offers discounts is also easily ignored, as it doesn’t stand out from the competition.
2. Experiential - Events, special experiences & behind the scenes info
Experiential rewards fit with customers looking for relatedness; a place of belonging where they can be recognized and respected. These rewards create experiences where interconnectivity is fostered and customers feel included and relevant to a brand. Creative solutions for experiences can be very cost-effective.
That said, experiential rewards can also become very expensive for a brand to host if not properly planned. To a customer, the value of an experience may not always be immediately apparent.
3. Recognition - Achievements, awards & progress benchmarks
Recognition rewards target customers that strive for competence and esteem. These are the people that want to become the best versions of themselves. Recognition awards like achievements or benchmarks will display a person’s incremental improvement in skill and ability. Rewarding customers for their achievements will help you retain your leads.
Recognition rewards are only effective with customers that have that innate competitive nature or are on a path of self-improvement. To certain audiences, recognition rewards may be irrelevant to their self-image.
Match rewards to customers’ behavior & preferences
With an overview of how customer behaviors and preferences can be analyzed as well as the different structures of rewards programs, how do you match the right program to your brand’s customers?
We can’t emphasize enough how important it is to think of your customers as individuals rather than a monolith. An important part of your brand’s CRM marketing is segmenting parts of your audience based on their preferences, buying patterns, and behaviors. The more specific individual segments of your audience are, the better.
The goal here is to collect as much data as possible (remember, customers are comfortable with sharing data if it leads to products or services that benefit them!) so that you can tailor your rewards to individual customers. The more specific the rewards are to preferences, the better.
Beyond this, a well-crafted rewards program will build long-lasting positive emotional connections with your customers. Customers are 83% more likely to make a purchase from a brand they feel an emotional connection with. Authenticity is a significant part of forming this emotional connection. A rewards program not matching the desires, motivations, and values of your customers will appear false and shallow.
On the most fundamental level, rewards should be surprising and delightful. An unexpected experience or achievement should be something your customer enjoys and is excited to share with others. Spotify Wrapped is a simple yearly report of individual customer listening habits. Beyond quantifying what they listened to, the Wrapped report gave statistics about what percentile an individual was in listeners for a specific audience. Spotify customers were rightfully surprised by this and encouraged to share their data with other users across the globe, comparing their favorite songs and listening habits.
Choosing and crafting the right rewards program won’t be a cut-and-paste operation for your brand. But if you carefully consider the rewards program types and conduct a careful analysis of your audience, you’ll be rewarded with significant increases in your customer retention. Remember: 80% of your future profits will come from just 20% of your existing customers.