With consumer behaviour constantly evolving, so too must the loyalty market and the study of behaviour.
Loyalty Strategy

Behavioural Economics and the Loyalty Market — Small Tweaks, Big Impacts

Photo by Gianandrea Villa on Unsplash

With consumer behaviour constantly evolving, so too must the loyalty market and the study of behaviour.

When we think about shifts in customer behaviour, we think about consumerism and the cheap and cheerful mentality that China introduced in the 1980’s by mass manufacturing items at a lower cost and a lower quality.

We also think about historic big household staple brands like Toys ”R” Us, Woolworths, Blockbuster, and most recently Debenhams who fell victim to the behaviour changes by not shifting their business model in time to keep up with the changing trends.

So how do companies keep up with the ever-shifting behaviour trends and how can they keep consumers loyal when cheap and disposable is so deeply ingrained in consumer mentality and perceived as greater value above all else?

By: Melanie Parker

In the 2010’s, brands started to invest heavily in loyalty and applying behavioural economic principles to create a brand conscious audience. Nike Jordan’s sell out in minutes. Starbucks sold out of their branded coffee cups in hours. Consumers are known to even go as far as to sleep outside of Apple stores to get the latest technology.

All of these brands have ingrained themselves as the elite; a must have; a social status. They rely on social media and the consumer themselves making the brand more valuable and more desired.

So what is behavioural economics?

Behavioural economics is the study of human behaviour to explain how and why consumers are motivated to buy products and/or engage with a company.

The 10 principles of Behavioural Economics:

  1. The Say-Do Principle
  2. Goal Gradient Theory
  3. The Loss Principle
  4. The Fairness Principles
  5. Idiosyncratic Fit
  6. Time Principle
  7. Anchoring Bias
  8. Choice Architecture
  9. Decoy Principle
  10. Illusionary Goal Progress

Download our Guide to the 10 Principles of Behavioural Economics at the end of this article and see how you can implement these strategies in your own business to supercharge engagement with your customers.

How do brands utilise the 10 principles to encourage loyalty?

Loyalty is ultimately gained when a consumer feels that the products are costed fairly, they feel positive by engaging with a brand, and if they have a membership, they feel that they are gaining something extra by participating.

Amazon, Tesco, and Next for example all offer rewards to consumers that are part of a loyalty programme. In some cases, such as Amazon and Next, you have to pay or spend a certain amount in order to gain access to those VIP benefits. The benefits that they receive though, to the consumer, far outweigh the costs that is needed to participate. The costs also comes with no indulgence guilt.

Big brands also tailor their programmes to have an idiosyncratic fit to the individual consumer. Amazon looks at your viewing behaviour and suggests similar items that you may be interested in. Spotify creates personalised playlists. Next makes you a VIP for spending X amount a year.

If the consumer feels like the programme or brand is tailored to them and they get a distinct advance by participating, they are more engaged, motivated and satisfied.

Another key factor to consider with a loyalty programme is time principles. These principles state that when running a loyalty programme, immediate low cost rewards are better received than less frequent, but higher value rewards. Example: if a brand offered a consumer an immediate £50 to complete 10 surveys that day or £100 in a year to complete 1 survey every three months, most consumers would elect for the more time consuming task for the immediate reward.

Within that, you must be mindful that the task and the reward are either balanced or that the reward is perceived to be worth more than the time required to earn it. If you offered a consumer £10 to complete 10 surveys that take 10 minutes each, most consumers would decline the £10, or even £20 — as £20 is not worth over an hour of their time.

If, however you offered a free main course and dessert at a restaurant e.g. Pizza Express, which would still be a reward of £20, the consumer would be more likely to engage and complete the survey as they would perceive the value to be far higher than £20. This also ties into hedonic rewards and consumers valuing experiences/merchandise over money or cash equivalents.

Brands also greatly utilise choice architecture. For example, if they have excess stock of a cheap item e.g. pringles, they would put that item at the front of the store and by the tills or if it were an online store, they would put it on their homepage advertising the sale — even if that sale is only 50p off.

Choice architecture states that consumers make decisions based on the layout, sequence, and way that choices are presented to them. Your environment shapes your choice. This principle is best utilised for quick decision making where there is no feeling of financial loss or a potential loss of control.

Putting It into Action

If your business is spending more and more on consumer acquisition and not retaining a good proportion of your existing consumer base, it could be time to ask yourself whether your business has adapted over the past few years to keep up with the consumer behaviour changes.

If the answer is no, you may need to revaluate your existing loyalty programme so that it incorporates some of those key behavioural economic principles. And if you haven’t invested in a loyalty programme, well, there is no better time than today to start those conversations!

Download our guide on the 10 principles of behavioural economics and see how to implement these strategies in your business.

Stream Loyalty - The Ten Principles

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Melanie Parker is a Director at Stream Loyalty, a UK-based Loyalty Service Provider with clients in England, New Zealand, Australia, France, Spain, Italy, Germany, SwitzerlandCanada and the US. She is a Certified Loyalty Marketing Professional and frequent contributor to The Wise Marketer.

Behavioural Economics and the Loyalty Market — Small Tweaks, Big Impacts
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