A customer loyalty program is a marketing strategy that rewards loyal customers that regularly engage with a brand. Companies and brands integrate loyalty reward programs in different ways, using punch cards, cashback or frequency rewards, miles, etc.
The first aim of all customer loyalty programs is to enhance their relationship with customers and turn guests into loyal clients, as it is cheaper to keep existing customers rather than acquiring new ones. To attract new customers by applying customer loyalty is the second objective of a brand. Word-of-mouth advertising from satisfied users can promote various perks that a loyalty program is already offering.
Gathering data to create a customer database is the third purpose when developing a program since understanding users and their behavior becomes a powerful tool for various marketing activities and increases engagement. Along with this, many companies use the gathered information to measure the effectiveness of their marketing campaign.
There are 4 general types of loyalty programs, and these types can be mixed in the particular implementations:
- Type 1: Rewards customers with a discount upon completing a purchase. This option is simple and it is not oriented. Each customer has the same chance of receiving a discount regardless of the purchase history. This is cheap and easy to implement, but at a large scale, it may have several downsides, for example, failing to encourage repeat purchase because they reward card ownership rather than loyal behavior, or not providing useful information to analyze shopping behavior or lifestyle information to offer unique deals to loyal customers.
- Type 2: Free item after having purchased a fixed number of units. For instance, a member may receive free coffee after they buy 5 at full price. Though it is easy to implement, usually in exchange for cards or stamps, it has some flaws: the company does not get any information in return and competitors may put this strategy into practice too.
- Type 3: Rewards for loyalty based on customer shopping history. That requires a comprehensive database. Some databases have integrated various levels or tiers to increase motivation and encourage customers to purchase who will eventually get better levels and rewards. Type 3 is more complex and expensive than types 1 and 2, but it has proven to be way more effective and, unlike the others, Type 3 allows administrators to obtain and use information regarding customers and their habits.
- Type 4: Is similar to type 3, but it provides targeted offers, not prizes, based on customers' purchase history. The problem here is to customize products that really entice the audience. Consequently, data analysis in this Type is more sophisticated than purchase history tracking, which frequently needs complex databases and data mining techniques.
And what about gamification?
The concept Gamification started being popularized in the last 5 or 10 years approximately. The idea of gamification is to create a process capable of enhancing a service with affordances for full game experiences in order to support the user’s overall value creation.
It is known that people have a tendency to play games. Daily tasks that people generally dislike, such as dieting or exercising, may become entertaining activities just by being gamified. Gamification changes people’s behavior.
The popularity of gamification development and its integration into various areas keeps growing as well as the popularity of mobile apps, social media and video games.
If we want to develop a loyalty program using gamification we have to understand and reuse the key components of the game: Dynamics, Mechanics and Components.
Dynamics refers to the aspects of the gamified system or the theme which the game revolves around and its emotions, narrative, constraints, etc. The second is Mechanics which is the tools we are going to use in order to implement Dynamics, such as challenges, tournaments, or competitions. Mechanics involves basic processes driving the action forward that stirs the players’ behavior in a certain direction. And the last tier is Components, which is what the player sees. This category includes elements such as achievements, avatars, or badges.
In contrast to games, the primary goal of adding gamification to an app or software is not only to entertain but also to have an impact on users’ behavior. To do so, we have to understand what the drivers of users’ motivation are and learn how to use them. We can focus on more than one when we design our app:
- Epic Meaning and Calling: This driver is applied when the users feel they are achieving something great and meaningful, or that they are chosen to do so. That could be the case of contributing to a real altruistic or social cause and being recognized as part of that.
- Development and accomplishment: The core here is the challenge and the focus on making progress, developing skills and achieving mastery. This is one of the easiest to design, and it focuses on rewarding a user with a badge or trophy once a task is completed.
- Creativity: The motivation and engagement here is related to the empowerment of creativity, as it allows the user to be entertained by repeatedly trying different combinations and discovering new things. A great example of this is Lego, which provides the user with a set of blocks and they have the opportunity to build whatever they imagine over and over again without limits.
- Ownership and Possession: This driver is related to making users feel in control. This is not rocket science: when a person feels ownership over a specific process, project, or object, they tend to make what they own grow in the best way possible. To set an example, video games allow players to customize their avatar or their character, hence they develop a sense of belonging.
- Social Influence and Relatedness: Incorporating social elements such as companionship, mentorship, and social acceptance is a driver of motivation. Seeing a friend or relative succeeding in a particular field or acquiring wealth tends to persuade people of doing exactly the same.
- Scarcity and Impatience: People tend to desire something even more if it is scarce, rare, exclusive, or immediately unattainable. Allowing users to collect a prize every certain number of hours plays with this driver.
- Unpredictability and Curiosity: By keeping the users unaware of the next action, challenge, or event, companies can grow engagement. Gambling is a great example of this driver, as the user cannot predict the future. It is proven that offering a range of prizes for an action, for example, from 10 dollars to 300 dollars, generate more engagement than offering a well-known fixed price of 150 dollars.
- Loss and Avoidance: It is related to the motivation to prevent something negative from happening. An example of this is to alert users that everything they have worked for could be lost if they quit, or that they will miss an opportunity.
In order to successfully integrate gamification into software, we have to analize what drivers are the best for our target users and focus on them. We can choose more than approach or use different ones for different types of users based on their behavior.
