Should You Offer a Customer Loyalty Program?
If you were to have a look in your own purse or wallet right now chances are that you have at least one loyalty program card in there, even if it is only one that you use at the grocery store. The question is that if you were to consider offering a loyalty program to your own business' customers would it be worthwhile?
The simple fact is that when done right a loyalty program can be a great way to build a base of customers who return again and again where some may not have done so without an incentive. Done wrong a loyalty program may just become a hassle that wastes time, especially yours, that no one really cares about. But if you have never launched such a program before how do you know what might work?
The Endowed Progress Effect
One fascinating piece of research that studied just what might work best for a loyalty program was conducted by consumer researchers Joseph C. Nunes and Xavier Drezé.
As a part of their overall study the pair wanted to analyze just what effect 'artificial endowment' would have on the success of a customer loyalty program. To do so they enlisted the aid of a local car wash and has a number of loyalty cards printed up for the car wash managers and staff to hand out.
The loyalty program that Nunes and Drezé devised was a simple one. The cards they created had small boxes. The customers given the cards were all told the same thing. Every time they came to get their car washed they would receive a stamp on the card. When the card was full they would receive a free car wash.
The plan was to give out 300 cards. but not all of the cards were the same. The first group of people were given a loyalty card that had 8 boxes to be "stamped" a free car wash was awarded. The second group were given a card with ten boxes, but two were already stamped, meaning that they only needed 8 more car washes before they got their free car wash.
You might expect that the results from the two groups would be about the same. That was not the case however. What actually happened that only 19% of the people in the first group returned often enough to complete their cards but a full 34% of that second 'head start' kept coming back often enough to claim their freebie.
This was just one of the pieces of the study but repeat efforts in other niches had very similar results. Nunes has a simple rationale for all of this - "We often view tasks that are already underway as easier to put effort in, since we have already passed what is often the most difficult part: "getting started." So it seems that by giving your customers a head start, even if it is an artificial one then you will be increasing the chance that your program will be a success.
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