What it is and what it means to manage your promotions
Editor’s Note: This article on the “Lucky Loyalty Effect” phenomenon was shared with us courtesy of Professor Liu-Thompkins, Loyalty Science Lab and Member of the Board of Regents, Loyalty Academy. The behavioral study was researched by Rebecca Walker Reczek at Ohio State University who found that loyal customers can feel entitled to winning promotions from companies they are loyal to even when the outcome is supposed to be random. She explains how the phenomenon happens and how best to manage and mitigate the feelings of entitlement or disappointment that may arouse from loyal customers during promotions. The article was originally published here.
Last month, Panera Bread celebrated Earth Month with sweepstakes for a limited edition Bread Bowl Bike. This month, LEGO VIP Rewards is honoring Star Wars Day (“May the 4th Be With You”) with sweepstakes for a one-of-a-kind LEGO Star Wars “Dutch” Vander mini-figure and photo signed by actor Angus MacInnes. Now for Mother’s Day, the Today show is giving away a $145 cooking pan.
Sweepstakes and random rewards like these are used often by businesses. They are an important part of gamification strategies.
How do consumers respond to these tactics?
A research paper published in the Journal of Consumer Research says that people show interesting differences in their response depending on their relationship with the business. The research team, led by marketing professor Rebecca Walker Reczek at Ohio State University, calls the phenomenon the “lucky loyalty” effect.
What is the Lucky Loyalty Effect?
“The lucky loyalty effect describes how a business’s loyal customers tend to believe that they are luckier in promotions offered by the business, even when the outcome is supposed to be random.”
For example, in one of the studies, participants were given the scenario of potentially winning a gift basket during a single stay at a hotel. The researchers found that participants who were supposed to be frequent and elite guests at the hotel in the past considered themselves more likely to win than did infrequent guests. This was the case even though the winner of the gift basket was supposed to be picked randomly from all guests, and the draw had nothing to do with how frequently a guest had stayed in the past.
Before moving on to discuss why loyal customers would think this way, we should point out that the loyalty in “lucky loyalty” is considered strictly from how much effort individuals have put into the business (e.g., buying more), not necessarily how they feel about the business. More about this later when we spell out the necessary conditions for the lucky loyalty effect.
Why the Lucky Loyalty Effect?
The thinking process that creates the lucky loyalty effect is roughly as follows:
- “I have put more effort into the business than others.” →
- “I deserve to be treated better than others.” →
- “I will be luckier than others because I deserve it more.”
So even though loyal customers’ previous efforts had nothing to do with the current randomly determined promotion, their sense of “I deserve it” makes them (falsely) believe that they would be more likely to receive a better outcome.
This sense of entitlement that loyal customers feel has been reported in other studies too. For example, more loyal customers tend to negotiate harder because they expect better treatment from the business and they see themselves in a more powerful position than others.
In another study, enjoying an elevated status with a business makes a customer feel both grateful and entitled. The entitlement makes the customer more costly to serve over time.
When Does the Lucky Loyalty Effect Happen?
The lucky loyalty effect happens under specific conditions:
High actual effort previously. As mentioned earlier, the lucky loyalty effect applies only to customers who have made real efforts previously, such as making actual purchases. Those who were given special status without the corresponding purchase effort do not experience the lucky loyalty effect. Neither would individuals who like a brand but rarely buy it.
The promotion is directly tied to the business the consumer is loyal to. In other words, the lucky loyalty effect does not transfer from one business to another. People who buy more from business A would not feel luckier when it comes to a random reward promotion from business B or some other completely unrelated random event.
The customer is comparing him/herself with lower-effort customers. For the lucky loyalty effect to happen, the consumer needs to feel he or she has put in more effort than others. So if a consumer with a hard earned silver tier status is looking at base tier members, the lucky loyalty effect is likely to happen. But if he or she is self-comparing with those in the gold or platinum tiers, the consumer probably won’t feel so lucky any more.
Potential Consequences of the Lucky Loyalty Effect
The lucky loyalty effect can affect what consumers do and how they feel downstream.
Higher participation in random promotions
Because they feel luckier, loyal customers may find random promotions like sweepstakes and random rewards more attractive than other customers. This should make loyal customers more likely to enter into these random promotions.
But… less effort to make the magic happen
The flip side of the lucky loyalty effect is that loyal customers may also not try very hard in random promotions. They may think that their luck is enough, and they don’t need to make extra efforts to maximize their chance of winning.
For example, in the LEGO VIP Star Wars sweepstakes mentioned earlier, members redeem 50 VIP points in order to earn one entry into the sweepstakes. Each person can have up to 50 entries. Because of the lucky loyalty effect, loyal customers may not think they need as many entries to win the prize. So they may not redeem as many points for entries.
What happens if the “lucky” loyal customers do not get the random prize in the end? Since they feel that they deserve to be treated better and that they are luckier, they set up their own expectations up high. In the end, not winning the prize is likely to leave a bitter after-taste in their mouth. “I so deserved that prize and I really thought I’d get it too. It’s not fair!” This is a potentially alarming negative consequence of the lucky loyalty effect.
Adapting Promotional Design to the Lucky Loyalty Effect
How should your business adapt your promotional campaigns to this lucky loyalty effect? Here are some suggestions to consider:
Pre-manage loyal customers’ expectations in games of chance.
When offering a game of chance as a promotional campaign (e.g., scratch cards to determine the % discount), it would be wise to manage loyal customers’ expectations. This can be done in a couple of ways: (1) offer objective odds of winning (e.g., only 5% of the cards offer a 70% discount); (2) customize promotional communication to guide loyal customers to compare themselves with other similarly effortful customers; and (3) decouple the promotion from effort by offering altruistic rewards (e.g., a large donation to a charitable organization) rather than self-oriented rewards (e.g., a gift card for oneself).
Post-promotion communication is key.
When a loyal customer does not win in a random promotion, it is important to follow up with post-promotion communication to deal with any lingering disappointment and other negative feelings. This can be done, for example, by empathizing with the disappointment, offering an apology and appreciation messaging, or providing a one-time special benefit/treat to super-loyal customers.
Design customer prioritization tactics to manage loyal customers’ sense of entitlement in the long run.
It is important to make loyal customers feel valued. But if not managed properly, loyal customers’ sense of deserving may reach unrealistic levels. Research shows that out of customer prioritization tactics, providing elevated status is the most likely to increase entitlement, more so than its ability to increase feelings of gratitude. Instead, offer better core functional benefits or preferential treatment (without status elevation) to make customers feel grateful while minimizing sense of entitlement.
Although we try to cover the key insights from the research study, we highly recommend that you read the original paper to get the most complete information. Here’s the citation:
Reczek, Rebecca Walker, Kelly L. Haws, and Christopher A. Summers (2014), “Lucky Loyalty: The Effect of Consumer Effort on Predictions of Randomly Determined Marketing Outcomes,” Journal of Consumer Research, 41 (December), p.1065–1077. https://doi.org/10.1086/678052 (paywall).