Keep the Consumer Coming Back

Lately we’ve been thinking of ways to reward our most enthusiastic consumers which got me thinking about thestartegies we use to build consumer loyalty. To fully understand reward programs, we must understand basic psychological principles, and the relationship between stimulant, desired response and reward. Skinner’s research on positive reinforcement helps us understand how incentives work in the mind of a consumer and how effective they are.

In his most well-known experiments, Skinner placed a mouse in a box with a lever. When the mouse pressed the lever, food came down a chute into the box. In a Continuous Reinforcement scenario, there is a reward every time. Every time the mouse presses the lever, the food comes. Taken into the context of the business world, a reward like this is “free shipping with every order.” With fixed ratio rewards, the reward occurs precisely every X times. So every 10th time the mouse presses the lever, the food comes down the chute. This is like a punch card: “For every 10 pairs of shoes you buy, you get one free pair.” With a variable ratio, X isn’t a constant number so your odds of getting the reward fluctuate. This is similar to entering a contest and playing a game every day to increase your chances to win a daily prize. You may never win. But you keep playing because you have an equal chance of winning each time. There are also rewards based on time intervals. In the fixed scenario, no matter how many times the mouse presses the lever, food comes out only at a specific time interval, for example every 10 minutes. For example holding annual sales. In the variable version, food comes out randomly approximately every 10 minutes. Radio contests give away prizes “sometime this hour.” You don’t know exactly when, but basically it’s every hour.

To realize the effectiveness of a reward program or contest, we must consider:

• Learning curve. How quickly does the consumer understand the reward, and how quickly does his behavior change because the reward is in effect? This is the measure of how quickly a promotion takes effect.
• Frequency. Frequency shows how often the user interacts with the system when the reward is in place. How often does the consumer come back to the site to get the reward?
• Decay. This is the most important metric. Decay measures the consumer’s behaviour once the reward ends. How many customers do we retain after the promotion or reward ends? If you offer free giveaways for a limited time, how many of those customers will still shop with you after the promotion ends? Is that number more or less than had the promotion been something else.

A good promotion works to retain customer loyalty, not just increase sales when the promotion is on. The mouse, like the consumer will keep coming back, but only if the incentive is right. So it is up to us to know our target demographic and find the perfect prizes.