Should You Keep Customers Guessing?
A study conducted by Assistant Professor Tim Silk of The University of British Columbia suggests that customers might be more motivated by reward programs when they aren’t sure how many punches they need to earn a reward—but is it really best to keep customers guessing?
Silk’s experiment involved several groups of customers. Each were assigned to a loyalty program where they weren’t told how many punches they would need before they could redeem for a reward. Some groups needed the same number of punches in order to claim their prize, while for the other groups, the number was different each time. Customers in the fixed groups were able to quickly figure out how many punches were needed, and after that, the program functioned as normal. The customers for whom the rewards were randomised, however, ended up displaying much more loyalty than the customers using the normal reward system.
Why? The most likely reason is this: someone who has eight punches on their card and needs ten will be excited: only two more purchases and they can have something for free! They feel they’ve sunk time and effort into the business, and will be rewarded if they put in a little more. Unfortunately, after they claim their reward, the next reward feels very far away and the excitement is gone.
If the customer isn’t aware of how many more punches are needed, the sense of excitement is always there, because they next punch could always be the one which earns them a reward. This seems like a perfect way to extend the elevated purchasing habits of a customer who only has one or two more punches to earn, but there are potential dangers in using a randomised system.
Say the number of punches needed to claim a reward averages out to ten, but can be as low as five or as high as fifteen. After claiming a few rewards, the customer will realise roughly what number of purchases they’ll need to claim a reward. When this number turns out to be lower than the average that they’ve worked out, they’ll be excited; but when the number is higher, they’ll feel as if they’ve been cheated! Why not switch to a business whose customer loyalty reward program is fixed?
It’s possible that Silk’s experiment would have ran into this issue if it had gone on for longer.
Is it better to keep customers guessing?
We think there might be a solution which takes advantage of both the spontaneity of Silk’s system and the reliability of the traditional one: the number of punches needed to claim a reward is fixed and transparent, but the customer is routinely surprised by randomly available offerings. A few times a week, the number of punches needed to claim a reward is briefly reduced, or a new special reward shows up for a limited window of time. This way, the customer never feels as if the number of punches they needed for a reward was higher than the standard number: either the reward happens at the expected time, or it happens even sooner!