By Ko de Ruyter, Debbie Keeling and David Cox

As we argued in part 1 of this rewards trilogy, loyalty program rewards are fundamental building blocks of relationships, rather than things customers can earn through transactions. Building meaningful and longer-term connections with customers through loyalty programs is an essential strategy for brands to survive in crowded marketplaces with little differentiation and low switching barriers. 

Rewards offer opportunities for unique relational positioning. From a psychological perspective they can be used to signal recognition, self-esteem, respect, hedonic value to name but a few. In a number of programs the focus is on tangible rewards in the form of cash or cash proxies. As we write, this is what members prefer when asked. 

At the same, as Steve Jobs has told us, never ask customers to come up with innovation ideas. We argue that this applies to rewards as well. So while cash may seem to be King, there is arguably also a lot of untapped potential for new, innovative and perhaps unexpected rewards to generate additional value that contributes to sustainable relationships. This is what we explore in more detail in this part of our reward trilogy. 

The psychology of rewards

What types of rewards potentially have a high relational pay-off? What happens if programs start offering unexpected, special, and extraordinary rewards to stand out from the programs crowd? And most importantly, why does this happen? It may not surprise you that the answers to these questions are rooted in motivation theory (the name of our company, Motivforce, sort of gives it away). 

A psychological notion of relevance here is ‘self-expansion’. People are inclined to expand their self and they do this through engaging in close relationships with others. They tend to include others in their perceptions of themselves. Ouch, we know, this is deep, but the more practical take-away is that people evaluate relationships that they engage in, in terms of their potential to contribute to personal growth in a variety of ways. This can include more knowledge, skills, a positive life change and novel experiences.

 So, rewards are viewed as more rewarding if they offer growth opportunities in this area. In the motivation literature there is ample evidence that when people participate in exciting and novel activities, they are likely to feel more positive and committed. 

Do novel, exiting and experiential rewards work better? 

We found the evidence to answer this question in a recent article by Gorlier and Michel (2020) in Psychology and Marketing. These authors designed an experiment, one group of bank customers were told that they could choose between 5 rewards: a circus visit, a horseback riding trip, a hot‐air balloon ride, a rafting excursion, and a skydiving lesson. A second group were given a range of more usual options: movie, sports merchandise, well‐being gift vouchers and a reloadable card. These are the rewards that people mostly say they prefer. Please note that in this set up, people were asked to choose within the reward categories, not make a trade-off between them. 

The results of the experiment revealed that:

• Members recognise the opportunities for self-expansion or personal growth that come with experiential rewards and associate this with the vendor (‘I feel that being a customer of XXX allows me to learn new things’)

• Experiential rewards lead to higher brand identification (‘XXX shares my values’), higher intentions to recommend (‘If I had to advise people around me, I would recommend XXX’) and a more positive evaluation of the vendor (‘I have a very positive opinion of XXX’).

• There is no difference in evaluation of the program between members who were offered the extraordinary vs. the usual rewards. 

The latter point is interesting. It signals that there is strategic room to vary the reward portfolio, depending on the objectives that need to be achieved. There is certainly value in meeting member preferences. 

But if the objective is to re-engage members with the program or differentiate it from competitor offerings it pays off to apply a little psychological science in establishing a solid basis for sustainable relationships with members. In short, variable reward strategies are the spice of any loyalty program’s life.