Loyalty Programs — Tools to Increase Sales
Have you ever wondered, why people keep coming back to businesses for more? Regardless after being able to acquire what they minimally needed in the first place — they still keep returning. Ordering a Zinger when they pass by KFC, even after they’ve had their fill at home. Buying another pack of smokes, when they feel stressed. Or the compulsive gambler that spends all of his money at the casino. At the core of these examples, are underlying forces that influence a person to pursue (or not pursue) certain actions. One might be able to argue that there are multiple factors for these behaviors such as: environment, personality, situation, needs, etc. These of course, cannot be denied; nonetheless, in this article, we’ll focus mainly on one concept that will help business owners understand how loyalty programs affect their customers in a specific way. So in this article, you will see the relevance of psychological and behavioral motivation with regard to loyalty programs.
The Father of Operant Conditioning
Meet Burrhus Frederic Skinner, the psychologist who introduced, and is the father of Operant Conditioning, a type of learning wherein behavior is influenced through the use of either positive or negative reinforcements. In 1948, Skinner conducted experiments using animals which he placed inside boxes, aptly called ‘Skinner boxes”. He explained how positive reinforcement worked by placing a rat inside a box. The ‘Skinner box’ would have a lever installed on the walls, a lever that when moved, will trigger a mechanism that would release a pellet of food. Soon enough, a rat would randomly hit the lever and subsequently see food being released right beside it. After a few more times, the rats’ behavior would change. After learning that moving the lever would let them receive food, it finally became a learned behavior.
Reinforcements and Punishments
Skinner described the method of influencing behavior through the use of reinforcements. In the Skinner Box example, we saw how moving the lever would provide food, therefore influencing the rat’s behavior. The reinforcement — being the food that is released every time the rat moves the lever, and the act of pushing the lever as the behavior they want to keep on happening. This is an example of positive reinforcement. In the next paragraphs we’ll uncover the different types of reinforcements that have been utilized to influence behavior. We shall see how these concepts have been, and can be used by business owners who want to drive positive growth in their businesses. Punishments on the other hand is the opposite of reinforcement, instead of encouraging a specific behavior, it intends to reduce it.
Positive reinforcement
Positive reinforcement is when a positive or rewarding event is given to an individual after doing the desired behavior.
- A customer frequents a restaurant and always spends a good amount of money. The restaurant manager rewards the customer with a 20% discount on his next tab as positive reinforcement.
- A company hands out a free 1 month access of their gym amenities after a passerby gives his contact details and signature.
Negative reinforcement
Negative reinforcement is when an undesirable event is avoided by a person after doing the desired behavior.
- An example would be your morning alarm ringing, that would be the undesirable event. You quickly learn to press the stop button, and the desired outcome would be that the annoying alarm stops.
- Undesirable event would be getting constant pop-ups while browsing your favorite website if you aren’t a paid account. The desired behavior would be to pay for the monthly website membership, thus avoiding the pop-up ads.
Positive punishment
This works by showing an aversive consequence after an undesired behavior is exhibited, making the behavior less likely to happen in the future.
- A waiter shouts back at an irate customer during peak hours, the waiter is taken aside by the manager and is scolded for his conduct.
- A worker was absent for half a day at work. His next pay was reduced as penalty.
Negative punishment
Negative punishment works by taking away something positive to reduce the amount of times a specific behavior occurs.
- An honor student was caught dabbling with illegal substances, his scholarship was revoked by the school
- A highly payed computer programmer inputted wrong code into the company software resulting in delay of operations. His bonus pay and benefits were taken away.
Now we’ve established that B.F. Skinner was saying that: behavior can be influenced by either giving rewards or taking away rewards, and the like. Whether we’re aware of this or not, customers are exactly like this. If we translate this psych speak to the everyday businessman, we can see how rewarding a customer, can influence them to keep on doing a desirable thing (buying more!). By rewarding customers for doing a specific thing, a brand can encourage customers to keep on being engaged and excited about getting a reward. This is how psychology has a place in loyalty programs. It is as simple as that; give people rewards for being loyal, and they will keep on coming back for more.
Using These Principles to Your Business’ Advantage
We’ve finally seen how these basic human principles are innate, and that, as a business owner, you want to utilize these principles in order to ensure success in your business. A perfect example of using positive reinforcement for your customers would be by providing loyalty programs. Loyalty programs enable your business to reward your customer when he/she does the desired behavior of purchasing something from your business. When your customer is rewarded, this creates a reward loop that produces excitement, engagement, and anticipation.
Positive reinforcement is not the only idea that a business can utilize. Negative reinforcement can also be used to your advantage. One way would be by sending notifications or by giving restrictions to an account that has not been upgraded yet. This makes the user want to avoid these restrictions or annoying pop-ups by paying to upgrade the account.
Any business person can be creative with regard to positive and negative reinforcements, but one way for sure would be to implement loyalty programs. Time and time again, loyalty programs has been proven to create a myriad of benefits for your business. This article is one way to gain deeper knowledge with regard to how and why it works. Always remember, knowledge is worthless when not applied. Let us use everything in our arsenal to maximize growth and sales!
