Insight: Do instant rewards change behavior?

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By: RickFerguson |

Posted on June 27, 2017

PYMNTS.com has an interesting discussion with FIS chief product officer Bob Legters and PYMNTS CEO Karen Webster on the importance of behavior change to the success of loyalty marketing initiatives. As we know, a loyalty program that only runs in the background, that doesn't require active engagement, or which offers too little in the form of incentives is likely only to subsidize existing customer behavior, which certainly doesn't benefit the program operater and arguably doesn't benefit the customer either. Legters is an advocate of instant POS rewards, which is certainly the trend in retail loyalty. The question remains, however: Do instant cash redemptions and surprise-and-delight rewards really change behavior?
By Rick Ferguson
Legter places the conversation on a strong foundation by pointing out that loyalty is an outcome of a relationship built on fundamental product/service drivers as well as foundational relationship elements. Money quote #1:
"In the same way, a credit card company can't fix a program with low engagement by offering more (or better) rewards. A card with high rates and fees just isn't going to be popular among consumers. The company needs to fix the actual product first, and then it can adjust the rewards to match... 'The loyalty effect is confidence, trust and consistency, all built around a good product, plus an incentive or reward,' Legters said. 'If you want to get to disciple status, where your customer is loyal beyond any type of measure of evaluation, like Harley-Davidson or Starbucks coffee...those pieces are all important, but the sum of those is even greater.'"
This is all well put, and illustrates a fundamental axiom of loyalty marketing: loyal relationships are an outcome of combining your core product and service offerings with reward and recognition targeted to your best customers. With that foundation, Legters and Webster argue, retailers can leverage reward programs to create "surprise and delight" with a new generation of flexible, fungible reward currencies redeemed instantly at the point of sale. Money quote #2:
"In the new loyalty economy, [PYMNTS CEO Karen] Webster said, 'Points become money. It's always been that, but now customers can apply them when making a purchase in real time. It's elevated the significance of points in a way that wasn't quite as tangible before for consumers. Before, you were watching your balance accrue, but there was never a motivator to apply them at that moment.'"
And then Webster continues with this:
"good loyalty program makes retailers happy because they don't have to sacrifice anything — except, perhaps, the time and effort it takes to implement a point-of-sale system that can process rewards. Loyalty programs make financial institutions happy because they increase engagement. And, of course, these offerings make consumers happy because they had a convenient, rewarding experience that inspired them to shop again."
But did the experience really inspire them to shop again? That's the million-dollar question. There's no doubt that loyalty programs change customer behavior; copious research and case studies demonstrate that this is so. Legters points to FIS research that reveals 69 percent of people will break their existing habits to earn more rewards. He makes another comment, however, that I wonder if the evidence supports:
"The biggest change since is the consumer demand for immediacy, Legters said. Rewards that take 12 to 36 months to earn are too much work. There's no sense of urgency to use the product or service again soon. Conversely, rewards that pay off a few times a year are more attainable and feel more like true rewards, thus inspiring repeat business. 'The consumer wants that road shorter,' Legters said, 'and the institution or retailer wants to know that they're getting there faster, because a rewarded customer re-engages twice as fast."
Fast is good; research also demonstrates that younger consumers do indeed expect to earn rewards faster than the olds, and the old model of waiting months to earn a discount voucher is as dead as compact disk sales. What neither Legters nor Webster touches upon - at least in this summation of their discussion - is the idea of active participation: the idea that, in order for a program to drive sustainable behavior change, consumers must see enough value in the program to exert effort in order to participate.
After all, the logical evolution of the frictionless loyalty economy that Legters envisions is the same one touted by blockchain proponents: a seamless, decentralized loyalty currency that can be earned and redeemed instantly anywhere within the loyalty network. The criticism of that system - leveled often here - is that once a loyalty program becomes so seamless that consumers no longer have to think about it in order to earn, and can redeem a few dollars here or there off of commodities or other items fairly far down on Maslow's heirarchy of needs, there isn't a whole lot of incentive for them to do anything differently.
On the other hand, a program that incorporates fundamental behavioral effects will change behavior: effects such as goal gradience, which demonstrates that consumers are more likely to exert effort to earn a reward the closer they get to achieving it; or Julian Rotter's Behavior Potential formula, which argues that the likelihood of behavior change (behavior potential) is a function of the perceived likelihood of reaching the reward and the perceived desirability of the reward. Applying Rotter's formula to Legter's instant redemption model doesn't necessarily build confidence that consumers will shop more often, or buy more when they shop, as a result of the program stimulus. They'll happily take the rewards, but their behavior won't change.
Legters hints at this possibility by advocating for gamifation elements such as program tiers that create a much-needed sense of a goal ahead to drive behavior change. Likewise, soft benefits can encourage high-value customers to maintain their relationship with you even when bombarded with programmatic ads encouraging them to switch to your competitor. Targeted bonuses along specific behavioral variables can also spur granular behavior change such as frequency-, location, or temporal-based changes.
There's no doubt that retail loyalty programs are moving full-speed toward the frictionless future. Overall, this evolution is both right and proper. The point, however, is that instant redemptions and surprise-and-delight alone may not be enough to convince consumers to behave differently - and may soon become a commoditized entitlement. Encourage active, rather than passive, program participation, and you'll find customers clamoring to engage in a deeper relationship with you. Instant rewards are a part of that mix - but alone may offer limited incremental results.
Rick Ferguson is CMO and Editor in Chief of the Wise Marketer Group.