How Do Loyalty Incentives Work?

What makes customer loyalty incentives work? No one formula works for all organizations. All businesses are different, as are their customer bases. There are, however, a few golden rules everyone can follow to make loyalty incentives programs more efficient and effective.

  1. Customers must see a loyalty reward worth earning.

    • First, the incentive reward must appeal to the audience. Consider the program’s participant demographic to work out which kind of incentives might best motivate them.
    • The reward should be proportionate to the task or behavior behavior you ask participants to adopt. Offer diverse or tiered rewards with a fair payout system.
  2. Participants earn a reward by adopting new behaviors.

    Common methods of rewarding customers:

    • Online loyalty software in which participants can redeem digital points for merchandise in a rewards catalog
    • Recognition and praise—commonly used in employee or HR reward programs, but customer appreciation goes a long way
    • Cash (proceed with caution! See explanation below)
    • Gift or debit card rewards
    • Incentive travel trips—they require a larger initial investment of time and money, but the payoff beats any other reward!
  3. The loyalty incentive motivates the participants to continue earning rewards.

    Once you reward customers, the reward either motivates them to earn the reward again, or they don’t see value and don’t repeat the behavior. How can you make sure it’s the former?

    • Offer non-cash loyalty incentives.

      Studies of people’s behaviors prove that, even when they say they want cash, they work harder and longer for non-cash rewards. Biometric responses measured by The Incentive Research Foundation study showed that, “Participants exhibited a stronger response (attraction) to highly salient non-cash rewards than to cash at the unconscious level.”

      Because cash becomes an entitlement to customers, you have to spend an ever-increasing amount to motivate customers. According to a recent Loyaltyworks article, “The Aberdeen Group estimates that cash rewards cost about $0.12 per incremental dollar vs. $0.04 per incremental dollar for non-cash incentive rewards.”

    • Avoid dishing out the same reward each time.

      There will never be one single loyalty incentive that motivates everyone. And people will work harder for longer if there are a variety of rewards to earn. Per Psychology Today, “Mentally separating these [rewards] into bins or categories increased participants’ time commitment to the transcription by playing into their desire to minimize the risk of “missing out.”

    • Deliver the reward the right way.

      Sometimes the way a reward is presented matters as much as the reward itself, maybe more. As mentioned in the IRF article, IRF 2016 Trends in Incentive Travel, Rewards, and Recognition, “The perfect reward poorly presented would have half the impact.”

  4. There’s a consistent system to the loyalty program.

    A successful customer loyalty program is one that is systematic, meaning:

    • The program’s goals align with your overall organizational goals.
    • The rules are well communicated from the start.
    • Participants receive regular communications about their reward balance, reward delivery status, program alerts and updates, etc.
    • Program reports and analytics are readily available so you can determine the program’s progress and ROI.

Follow these guidelines and you’ll be on your way to a successful loyalty incentives program!