Design Psychology

The Lucky Loyalty Effect: Why spending more makes us feel luckier.

The more consumers invest into your brand, the more they incorrectly believe that they’ll win entirely random promotions over less loyal customers.

I’ve been posting daily pictures on my Instagram lately, and I somehow believe that Instagram would recommend my profile to more people to follow as I’m investing so much of time into it.

Similarly, loyal customers believe they’re more likely to receive rewards from a certain company/product/platform/community. Even when it is explicitly mentioned that the chances of winning are equal, or randomly determined, and not tied to the effort put, loyal customers still feel that they have a better shot at the lucky draw than other not-so-loyal customers. The more consumers invest into a brand, the more they incorrectly believe that they’ll win over less loyal customers.

This presents marketers with a range of opportunities to persuade this particular segment of customers to engage more with the brand’s promotional events.

The more we spend with a brand, the more we believe that we’re luckier to win a promotion.

But why?

Well, consumers know that loyal customers will get treated better than “normal” customers. The more consistent consumers are with their actions of loyalty, the higher the level of deservingness they feel.

What is loyalty?

Let’s take a simple example. If I order lunch from one particular restaurant on a daily basis, then I inevitably assume that I am an elite customer and that I should get special treatment (as I’m ordering from them everyday and generating a good amount of revenue for them.) Some folks go as far as to expect complimentary desserts without asking.

And if they are already used to being rewarded by the brand for past effort, consumers create an unrealistic expectation that future efforts will be rewarded too, regardless of how the previous reward was worked out! It really doesn’t matter if it was completely random.

The salient points of Lucky Loyalty Effect are:

  1. Loyal customers feel more likely to win random rewards over customers who aren’t that loyal. They believe they belong to the “Gold” or “Platinum” class and thus have a higher status.
  2. Prior spending (for e.g., shopping on Amazon) is the primary factor. “Prime” (as in Amazon Prime membership) status alone doesn’t necessarily produce the Lucky Loyalty Effect, but spending alone can do so. This makes higher spending customers more likely to engage with promotional games, given their higher expected probability of winning. This sole effect makes Amazon Prime members engage in all the promotional sales and offers, and discounts. Prime status makes them spend more, and the more they spend, the more loyal they become.
  3. The effect only holds for events that are related with the brand. Any events or promotions outside of the brand (for e.g., a Amazon partnering with Nike for a lucky draw) don’t necessarily apply. Customers don’t feel as much loyal towards Nike as they would do towards Amazon, and vice-versa. Hence, the effect diminishes.
  4. Consumers’ tendency to believe in their greater luck prevails only when they are comparing themselves against the general consumer (folks without ‘Prime’ membership), and not other similarly-loyal (and ‘Prime’) folks.

How can designers use Lucky Loyalty Effect?

The Lucky Loyalty Effect is a powerful tool to motivate loyal spenders into engaging with the brand’s promotions.

When designing and writing copy for promotional campaigns, instead of mentioning that, “Only top tier customers have been entered into the promotion”, designers should inform the recipient that, “All customers have a chance to win”. This makes the loyal consumer more confident than other “normal” consumers.

Such loyal consumers who have made significant spending effort will be more likely to take part in promotions (and thus spend even more.)

In a popular study, a group of people were given credit cards, and were told that a certain retail company was randomly handing out 5–30% special discount cards every six months to all the credit card holders.

Among the participants who had spent at least $100 (let’s call them Spenders) in these 6 months, half were given an Elite Status because of their contribution. Among the Non-Spenders (participants who had spent less than $1000) half were chosen randomly to be of Elite Status as part of a company promotion.

Eventually, there were 4 groups — Elite Spenders, Non-Elite Spenders, Elite-Non-Spenders and Non-Elite-Non-Spenders.

All of Them were asked how likely were they to win a higher discount than others. This experiment was repeated with a lot of different groups to mitigate margin of error.

The result showed that people felt more lucky to win a bigger discount when they’d been spending with the brand. Elite status wasn’t at all relevant.

On top of that, people who had spent more with the brand felt they were more deserving to to receive higher discount than others who had spent less compared to them.

There’s a lot of value in binding together the Promotional Strategy of a firm with its Loyalty Programme. It maximises uptake of segmented campaigns, especially segments which are currently active with the brand.

Hi, I’m Abhishek. I’m a designer from Mumbai. I like to travel, read books, and tweet my thoughts & ideas that very few read.

I (try to) write verbose-free notes on mental models, decision making, and cognitive biases. You can send me an email, if you feel like getting in touch.

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