This is the 5th Article in the CXL Minidegree Program
Once we get people to become our first time customers, our goal is to make them stay and build a long lasting relationship with them. Customers will keep coming back to you if they like your product, but the real way to retain them is by creating habits. A habit is a behavior done with little or no conscious thought. Let’s discuss some ways we can shape the customers’ preferences and form habits.
Get Them Hooked!
Nir Eyal proposes the “Hook Model” in his book ‘Hooked: How to Build Habit-Forming Products’. The hook is an experience designed to connect the user’s problem to your solution, with enough frequency to form a habit. The hook works in a loop and involves the following phases:
A trigger nudges the customer to take an action, It can be of two types:
i) External Trigger:
It can be in the form of a notification, email or ad. It should tell the customer what to do and also provide the ability to do it. The goal is to, over a period of time, internalize this behavior so that external triggers are no longer required.
ii) Internal Trigger:
It arises from an emotion in the customer. External trigger is no longer required but comes through an association in the user’s memory, the user already knows what to do. Once a user starts using your products from internal triggers, you know you have become a habitual product.
A successful trigger results in an action, where the user actually does something. For an action to take place after the trigger, the customer should have two things: motivation and ability to do it.
Once the user takes the desired action, they will get a reward. Rewards are not given instantaneously and are variable to keep the novelty and anticipation alive. The anticipation of the reward is more powerful than the reward itself, which is further heightened by stimulating variability. The behavior that results into a reward should be the simplest possible task so that it can be done frequently.
Investment into a product is when users store some value while using it and hope for some return in the future. This is the final phase in the hook, and it should be able to load the next trigger keeping the process going in a loop. This increases the likelihood of the next return and helps in shaping user habits.
All Customers Like Receiving Rewards
62 percent of customers don’t feel like the brands they’re loyal to do enough in return. What better way to make your customers feel valued than to reward them. Since, rewards redemption increases reward-seeking behavior, this simultaneously acts as a way to encourage them to return consistently. Professor of Psychology Jack Mearns explains, “The likelihood of a person exhibiting a particular behavior is a function of the probability that that behavior will lead to a given outcome and the desirability of that outcome”.
You should structure your reward programs in such a manner that they bring value to both: you and your customers. There are two types of reward systems:
1. Fixed Reward
Also known as reinforcements, these rewards are awarded when the customer reaches a fixed threshold. The basic idea is when you reward a certain behavior, you encourage them to exhibit more of it. For example, a cafe can reward their frequent customers by making every tenth cup of coffee free. Predictable fixed rewards as these, where they know when to expect it, encourages customers to put in the effort to reach the reward. Customers who successfully attain a reward exhibit increased effort and drive in subsequent attempts to reach the goal. “The rewards need to come often enough so that there is reinforcement. At the same time, it can’t be too close. Then it wouldn’t be meaningful”, says Xavier Dreze, Professor of Marketing at Wharton and UCLA.
2. Variable Reward
Variable rewards are the random and surprising delights awarded to customers in forms of a offer, discount or freebie. Although random, these rewards should be desirable and result into customer engagement and retention. Surprise reward makes the customer feel special and creates a positive association with the brand. They are more likely to return to experience that positive emotion again.
Win Your Customer’s Loyalty
The kind of loyalty we want to generate is the one that comes from true emotions and experience. Getting people into rewards programs does not convert them into loyal customers. Just 13 percent of customers are complete loyalists who never shop around.
Rewards ≠ Loyalty
Rewards programs are best to be used as an incentive to encourage people to come into your environment and give them a great customer experience. Then, overtime the combination of rewards and good customer experience will win you their loyalty.
Rewards + Great CX = Loyalty
Goal Gradient Effect
Pioneered by Clark Hull, it states that the tendency to approach a goal increases with proximity to the goal. A study by Columbia University researchers studied the effects of the goal gradient effect in relation to real reward programs and found that members purchased more frequently the closer they were to earning a reward; and a stronger tendency to accelerate toward the goal predicts greater retention and faster reengagement in the program.
What this means for us is that the closer the customers feel to reach the reward, the more likely they are to increase to their efforts to achieve it. Similarly, the farther they feel the reward is, the lower is the desirability and motivation to achieve it.
Endowed Progress Effect
Dreze and Nunes further documented a phenomenon which they call the endowed progress effect. They found that it wasn’t just the proximity to the goal that induced additional effort, but the perception of progress toward the goal. In other words, as long as customers perceive that they are making progress towards a goal or reward, they will increase their efforts as a result.
Favorable ways to employ this effect would be to show customers their progress and give them a “head-start” at it. The psychology behind this is that nobody likes starting at zero, and can be very demotivating. So a “head-start”, even if illusionary, gives a notion of progress and encourages customers to make efforts to reach the reward.
Once you acquire a customer, the next step is to find ways to retain them. Building habit forming products, a good reward program and great customer experience is what makes customers loyal. Ensure the reward proposition is desirable and achievable.
Next week, I will further discuss my learnings and opinions from the next few courses I take in the Minidegree. To stay updated with my weekly blogs and explore the ‘Digital Psychology and Persuasion’ Minidegree with me, subscribe to my blog.