You don’t bring me flowers anymore - thinking about consumer loyalty

The average American is a member of more than 14 loyalty programs , but hasn’t used at least half of those in the past year.  Makes you wonder if those programs are really creating loyalty. When first introduced, things like grocery store club cards produced discounts that felt like a a treat, but over time these programs have just turned into tablestakes. Do you know a coffee shop, juice bar, or airline without some kind of frequent buyer benefit?

Columbia University professor Ran Kivetz’s work around motivation and incentives explores what makes some reward systems (irrationally) more compelling than others. One experiment looks at how the structure of the reward systems motivates behavior. Kivetz finds that people increase their rewarded behavior the closer they get to the goal . For example, people with a “buy ten coffees get one free” punch card buy their last coffees in more rapid succession than their first. The research indicates tiered systems where rewards are always close on the horizon should increase the frequency of purchase or engagement. Beyond the structure, it also matters what the actual reward is. Kivetz finds that people are willing to do more work for a hedonic reward  like a spa massage than a comparably valued utilitarian reward that makes practical sense, like an oil change.

Reward systems can be constructed and tweaked to increase loyalty, if by loyalty you mean increased frequency of visits or purchases. But how do you drive the deeper, more human kind of loyalty? The kind where a customer is emotionally connected to a company, is willing to rave about it at parties and defend it on blogs?

Trader Joe’s is a company that inspires this kind of fierce consumer enthusiasm. Both intangibly–like the excited buzz that is generated on a neighborhood blog when a new location is announced and by the numbers– sales per square foot is estimated to be double that of Whole Foods. Trader Joe’s doesn’t have a loyalty program, it just has loyalty. How irrational is that? People are excited to go to a store that doesn’t have everything they need, is hard to get to, and is difficult to navigate. We posit that because the incentives are embedded in the very Trader Joe’s experience, they don’t need an extra rewards program. The shopping experience is the loyalty program.

Looking at it from a consumer standpoint, Trader Joe’s does two things well. First, the shopping experience is consistent. A person shopping at Trader Joe’s will reliably encounter upbeat, enthusiastic “crew members,” who TJ’s hangs onto through an employee compensation system that reduces turn-over. Trader Joe’s also drives consistency with a highly controlled product selection process that gives consumers confidence that if Trader Joe’s has only one kind of pesto, it’s probably the best pesto for the price.

The second, complimentary driver of consumer loyalty is variation. While the experience of shopping at Trader Joe’s is steady, the content of what you’ll find in the aisle is always changing. This change in how the experience is expressed is risky. It means that a consumer (let’s call her Ann), might no longer be able to find a favorite treat (crystallized ginger). While Ann may be disappointed, Trader Joe’s knows that to be a treat, things need to change. Because the company is so good at selecting products people like Ann like, this minor upheaval won’t shrink her ticket or decrease the frequency of her visit but will cause her to explore the store for a new treat (mini palmiers) and keep her engaged in the store.

Thinking of this balance between consistency and change, brings to mind Csikszentmihalyi’s definition of Flow - the place between being bored and being uneasy that engaging experiences deliver. Building loyalty through this “consumer flow” isn’t easy. It requires a clear understanding of your consumer and willingness to shake things up in order to keep things fresh. But unlike improvements to the structure and incentives of loyalty systems, consumer flow is hard to replicate and can drive that sustainable loyalty that stands up to competitive reaction.

written by: Ann Hintzman and Gigi Gormley