Making Loyalty Programs Work


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This is an article by Diarmaid Byrne, Editor, Social Technology Quarterly. This article was published in issue 06 of STQ.
Summary: Loyalty programs have undergone a
transformation with a shift from only rewards-based programs to well-designed,
gamified structures created based on models of motivation and of behaviour.

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Making Loyalty Programs Work

  1. 1. 24CommerceMakingLoyaltyProgramsWork
  2. 2. 25Loyalty programs rule our lives. They determine the airline we fly with.Sometimes even the schedule we take. They influence where we meet,drink coffee or have lunch. They determine the products we buy insupermarkets. They have the power to influence us to spend more thanwe need to on items that we would view as otherwise unnecessary.And they do this because companies understand that by givingtheir customers a membership number and a plastic card, they canseemingly satisfy people’s basic psychological aspirations and needs.Providing these types of symbols work at a psychological level totarget and trigger actions and behaviours that engender repeatpurchase and advocacy. That is, they create loyalty. As much as allcompanies want to distinguish themselves with a uniquely brandedloyalty program for their customers, the elements of each program areoften indistinguishable. American Airlines launched the first air milesprogram in 1981 that seemingly every other airline has since copied;ditto with supermarkets, hotels, and cafés. It is hardly their fault asthere are a limited number of elements that can be employed in theirloyalty programs:• Points: calculated by the amount a member spends• Levels: based on how much a member spends during a specificperiod of time• Badges: awarded based on what level the member has reached.It signifies, particularly to other people, the rewards and benefitsthe member receives• Rewards: offers, discounts, and benefits that a member receivesLoyalty programs have undergone atransformation with a shift from onlyrewards-based programs to well-designed, gamified structures createdbased on models of motivation and Diarmaid ByrnePhoto Credit: Onigiri-kun
  3. 3. KulizaIn the last few years, these elements have been used by gamedesigners to create environments that lead to longer-lasting andmore in-depth participation, replicating the experience people havewhile playing traditional video games. This has become known asgamification. Game designers applied these elements to insightsfrom psychology and motivation theories to create immersive andengaging experiences that ensure people continue to participate to agreater extent than in traditional loyalty programs. The best of thesegamified loyalty programs not only add points, levels, and badges, butalso combine great game designs with an understanding of behaviourand motivation theories. To understand why and how loyalty programswork it is important to understand how people behave. This is bestdone by looking at psychology models of motivation and behaviour.From a perspective based on psychology, loyalty programs aim todrive behaviours of different types of participants, at specific times,based on triggers that the program provides. Loyalty programs drawon the work of Abraham Maslow and his Hierarchy of Needs. Thepurpose was to identify the basic types of human motivations and theorder in which they generally progress. There are five needs:• Physiological: air, food, water, sex, sleep• Safety: health, employment and financial security• Belonging: friendship, family, love, intimacy• Esteem: confidence, achievement, respect, self-esteem• Self-actualization: the desire to become everything that one iscapable of becomingMaslow believed that these needs motivate people to act. Theirbehaviours are driven by their desire to satisfy their needs, startingwith fundamental physiological and safety needs, to higher-levelneeds of achievement and self-esteem. Once the needs at each levelare satisfied a person is motivated to satisfy needs at the next level.Michael Wu notes that Dan Pink expanded on Maslow’s self-actualization needs in his book Drive: The Surprising Truth AboutWhat Motivates Us. His view is that once many of the basic levelsof needs have been satisfied, people are more motivated by intrinsicmotivators. Pink identified three needs that provide intrinsic motivation:• Autonomy: people want to have control over their work• Mastery: people want to get better at what they do• Purpose: people want to be part of something that is bigger thanthey areBoth Maslow’s Hierarchy of Needs and Dan Pink’s Three IntrinsicMotivators provide an explanation about why people are motivatedto act. However, a loyalty program still needs to trigger desiredbehaviours at a specific time to ensure member participation.The key to triggering behaviours is to make sure that loyalty programswork as intended. B.J. Fogg developed a behavioural model - Fogg’s
  4. 4. Social Technology Quarterly 06
  5. 5. KulizaBehavioural Model or FBM - to help designers and marketers ensurethat all psychological elements are present to trigger behaviour. Heposits that there are three factors with subcomponents that lead tocertain behaviours:• Motivation: pleasure / pain, hope / fear, social acceptance /rejection• Ability: time, money, physical effort • Triggers: facilitator, spark, signalFogg argues that in order to trigger desired behaviours, all threefactors need to converge at the same time. Thus, the loyaltyprogram needs to be crafted in a way that these three factors occurat the same time. It must provide a trigger to initiate the behavioursit wants from its members. It then needs to ensure that they aremotivated and have the ability to complete those behaviours. Thatis, the loyalty program should offer sufficient rewards to the personto be motivated enough to do the action, and the person should havethe ability to complete the action.Along with understanding motivation, designers of loyalty programsneed to understand how their members would engage with the loyaltyprogram. When conceptualizing a program, designers need to ensureit appeals to as many people as possible. Richard Bartle developed asimple player typology with four basic player types to understand themotivations that drive people to play:• Achievers: people who are motivated to achieve points and otherrewards for the prestige of having them• Explorers: people who prefer to discover and learn about thegame, often at their own pace• Socializers: people who play for the social aspect rather thanthe game itself• Killers: people who enjoy competing against othersBy understanding that there are different types of players, designersand marketers are better able to ensure that aspects of the loyaltyprogram appeal and motivate as broad a range of people as possible.Loyalty programs are designed to meet the needs of people in a way thatmotivates them to behave in a specific manner. They need to be broadenough to attract different types of people, whether they are achievementorientated or socializers. When we apply Maslow’s Hierarchy of Needs,Dan Pink’s focus on factors that provide intrinsic motivation, Fogg’sBehavioural Model and Bartle’s player typology, we can see why loyaltyprograms are successful in motivating specific behaviours. Maslow andPink explain what people need, and in order to satisfy these needs peopleare motivated into action. The belonging needs in Maslow’s Hierarchycorrespond to the social aspect of participating in loyalty programs. Theesteem needs correspond to status, achievements and leaderboards.In the case of Dan Pink’s three factors, mastery corresponds to points,progression and levels, and purpose corresponds to goals and targets.For loyalty programs to be successful, they need to meet these needsto motivate member behaviour. However, to trigger this behaviour,according to Fogg, the program’s mechanics must ensure that thesethree factors all occur at precisely the same time.Credit: Dijle
  6. 6. Social Technology Quarterly 06By examining airline loyalty programs, it is possible to see how theseapply insights from psychology and motivation theories. They appealespecially to Bartle’s achievers and killers typography. People aremotivated to achieve a certain level of status from their membershipprogram so that it satisfies their belonging and esteem needs. Theyare part of a (possibly) small percentage who are platinum membersand who receive platinum-level benefits. As such, they also have thesymbols to reflect this status - platinum membership card, dedicatedcheck-in lane, lounge access.Another example of a loyalty program that applies insights frompsychology and motivation theories is Nike+. It is not a traditionalloyalty program; in fact it gamifies running. However, by aligning withpeople’s goal - improving their athletic performance - Nike ensures itshares a common purpose with people. Nike helps them achieve theirgoal with their runners, clothing, and Nike+ apps, while increasing theswitching costs from Nike to one of their competitors.The Nike+ fitness tool uses game elements to encourage people toimprove their fitness. A device is fitted into Nike runners and thensynchs with an iPhone or iPod. Users can track their activities,performance - distance, time, pace, calories burned - and theirprogression, set challenges, and compete with their friends. They canpost their run on Facebook and Path and hear real-time cheers forevery comment or like they receive.Nike+ has been extremely successful, and looking at how it works itis easy to see why. It appeals to all four of Bartle’s player typologiesby allowing people to interact in different ways with the tool:compete against others, work to achieve goals, meet other exerciseenthusiasts, or work on fitness at their own pace. It also satisfies thesafety, belonging and esteem needs of Maslow’s hierarchy, and theintrinsic motivators that Dan Pink identified. Nike+ also shows Fogg’sBehavioural Model in action: users have targets and challengesbased on their ability and the app motivates them while running toachieve them, triggering behaviours.Loyalty programs will evolve to being a constant partner in theirmembers’ lives through smart phone apps, and not just thought ofwhen queuing to purchase products in a store. Nike+ is one suchexample of where loyalty programs are heading. They will be gamifiedto create more engagement from members. To do this well they needto be cognizant of the psychology of motivation and behaviour. Loyaltyprograms will have a clear purpose that is shared by their membersand they will help their members achieve it.References“Abraham Maslow.”Wikipedia,The Free Encyclopedia.17 Sep 2012.Wu, Michael. “Gamification 101: The Psychology of Motivation.”Lithosphere.03 Jan 2011.Fogg, BJ.“Fogg’s Behavioural Model.” Online Posting to Twitter.Web.30 Oct.2012.