By Cindy Mielke
A common misconception in the retail and service industries is that launching a successful rewards program requires a large-scale budget. The assumption is that a business essentially needs to “spend money to make money.”
While financial investments are, to some degree, always inevitable for business, creating strong customer relationships isn’t built solely on the specific cash value of provided perks.
Sustainability is the biggest challenge many businesses face when rolling out customer initiatives. There can be a lot of emphasis placed on offering significant discounts out of the gate to help drive sales or increase website traffic. Unfortunately, relying on heavy cost reductions eventually drains margins and creates a customer dependency that makes it harder to build the business profitably.
The good news is that even small gestures can have a lasting effect on customers that can even exceed the impact of expensive financial incentives. Below are some of the ways these types of initiatives can benefit the business long-term.
Small incentives can be really effective in helping consumers develop new tendencies when making purchases. When you offer less value, but more timely rewards for certain behaviors, a psychological loop, often referred to as “habit stacking,” takes place. When a customer knows that a specific action can give them an immediate, albeit small, result, the brain begins to associate that brand with dopamine.
For example, if a local coffee shop uses a mobile application that monitors and rewards spending, this can help contribute to habit stacking. Most of these types of businesses rely on stackable points that can be put toward a free pastry or drink.
The reason why these tactics are so successful is that they provide instant feedback. Rather than waiting several months to get a larger reward, individuals receive a small gesture of gratitude whenever they complete a transaction.
Increasing Brand Value Proposition
Customers value rewards differently. Still, all businesses have a small window of opportunity to motivate certain behaviors. This is where the concept of “time discounting” comes into play. Most people inherently value a reward they can get “now” significantly more than a reward they “have to wait for”, even if the future reward is objectively more valuable.
A customer who can instantly subtract $10 from their current transaction might regard that as significantly more worthwhile compared to being obligated to wait six months for a $30 or $50 discount.
By focusing on smaller, immediate offerings, a brand gives customers instant gratification and makes their incentive programs seem more useful, even when smaller investments are made on behalf of the business.
Reducing Barriers to Program Entry
The longer it takes for your customers to collect the incentives they’ve earned, the greater the chance they’ll lose interest. When reward structures are overly complex or require a long delay before translating into concrete benefits, these barriers lead to lower engagement.
Easier-to-attain incentives are significantly less expensive for businesses to distribute on a routine basis and are typically used more frequently by customers. It helps customers from feeling like their purchases “aren’t good enough” for the business and aren’t worth rewarding.
On the flip side, if a new customer can earn a reward within their first two visits, they are statistically much more likely to return for a third. Early wins cement loyalty and prevent customers from looking more closely at competitive offerings.
Leveraging Reward Data
One of the benefits of incorporating smaller customer rewards more frequently throughout the year is the tangible data it helps to collect. If rewards are rarer for customers, this means you’re unable to track the ROI of your investments more effectively. More reward redemptions means you’ll have much cleaner data points to build off of.
Getting more data is critical to helping you improve multiple areas of your business. For example, you might see that customers ignore free shipping but are highly engaged when they’re able to access early product releases.
Implementing this continual feedback mechanism year-round helps you double down on what’s working for the business and modify or remove benefits and features that don’t really move the needle forward.
Protecting Brand Integrity Against Devaluation
A “race to the bottom” approach can quickly reduce your profit margins and can even cheapen the brand. The last thing you want to do is lead customers to believe they never need to pay full price for your products, since they’re always on sale.
Instead, introducing a combination of smaller incentives, like providing exclusive initial access to upcoming items, complimentary shipping upgrades, or “member-only” purchasing hours, can be a really effective way of increasing a customer’s motivation to buy without having them anticipate a substantial markdown. This approach provides value-added incentives while still protecting the price integrity of products and services.
Engineering Social Proof
Customers are much more likely to mention a great brand experience to their friends and family when they receive a more instantaneous reward or incentive. This is also a bit of a numbers game. The more often you provide customers with smaller, unexpected gestures, the more likely it is to create a new referral opportunity.
The great thing about social proof is that it can be much more impactful for encouraging additional purchases than simply running paid advertising campaigns. Referrals help generate natural enthusiasm for the brand, which is often one of the most effective and impactful ways to promote it.
Cementing Long-Term Customer Loyalty
Building long-term customer loyalty doesn’t necessarily equate to having an extensive budget in place for incentives. In fact, the most effective way to increase loyalty is when you focus on things like behavior, emotion, and ongoing recognition.
By strategically using more frequent, but smaller rewards, in your incentive programs, you can create more opportunities to interact and engage with your customers. This is crucial for creating a positive reputation with your customers that leads to more genuine referrals and increases growth opportunities as you move forward.
Author Bio:
Cindy is passionate about the incentive industry. In addition to her role as Vice President of Strategic Partners here at Tango, she is a Certified Professional of Incentive Management who proudly serves on two industry boards.
When she’s not working, Cindy enjoys spending time with her family—including three cats, two dogs, and a horse—and sharing her love of nature as a Nebraska Master Naturalist.
