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Building Customer Loyalty: Establish Loyalty Through Incentives

March 05, 2015

Customer incentive programs have been around for more than 100 years. According to Jupiter Research, more than 75 percent of consumers today have at least one loyalty card and one-third of the shopping population has two or more.

This is part four in an eight-part series on building customer loyalty. Read part three.

Customer incentive programs have been around for more than 100 years. According to Jupiter Research, more than 75 percent of consumers today have at least one loyalty card and one-third of the shopping population has two or more. U.S. companies obviously see the value in creating programs to encourage repeat business. But not all loyalty programs are successful. How do you make yours stand out with your customers?

One way is by incorporating an “endowed progress” model. This is based on research that shows when customers are provided with artificial advancement toward a goal they show greater persistence toward reaching that goal. (Source: “The Endowed Progress Effect: How Artificial Advancement Increases Effort,” Wharton marketing professor Xavier Drèze and Joseph C. Nunes of the University of Southern California’s Marshall School of Business) For example, if car wash patrons need nine car washes to get the tenth free, as people progress toward a goal, their effort will increase and completion time will decrease. Persistence depends on the progress already made, not on the amount of reward points that would be lost by failing to continue.

The research also shows that when progress is measured in points rather than purchases, both the reward and the return that customers obtain for their efforts appear more significant. In turn, customers will exert more effort.

Finally, the research revealed that customers like to know why the rewards program is being offered. Telling customers that you recognize they have a choice and offering appreciation for their business goes a long way in showing your gratitude for their patronage.

Next: Monitor and measure for success

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