THE PSYCHOLOGY OF LOYALTY PROGRAMS

The reward proposition is what drives customer behavior

I recently had the opportunity to speak at the Loyalty@Freddie Awards conference in Las Vegas, where I spoke about customer engagement.

One aspect of my comments which elicited numerous questions over the following days was about the relevance of psychological and behavioral motivation to loyalty programs.

The real currency of any loyalty program lies in its ability to drive changes in consumer behavior.

But what behavior would we like to change / drive?

When designing, evaluating or changing a loyalty program — the first step program managers need to take is to clarify the strategic objectives of the program.

Loyalty programs can do many things, such as:

• Preventing customers from switching / defecting to competitors;
• Provide insights into consumer preferences;
• Drive incremental spend and increased demand;
• Increase share-of-wallet;
• Be profitable in their own right (just look at airline Frequent Flyer Programs).