Attracting new customers is critical to growing a business, but it can also get expensive. The cost of acquiring a customer can be 5 to 25 times more than the cost to retain one. This is why rising startups and top brands focus heavily on customer retention and loyalty programs. However, there are various models of loyalty programs, and customer needs and desires vary from business to business.
How can your company connect and build lifelong relationships with customers? Should you give rewards like airlines give miles to frequent fliers or hotels give points to guests? Would it be more meaningful to offer a free product with every purchase or call them personally to check in every few months?
Loyalty programs don't cultivate lifelong customers solely because they offer freebies and perks, so what makes customers love certain brands? Scientific studies suggests that the key to loyalty may be in unpredictability.
1. The Power of Unpredictability
In one study conducted by Stephen B. Kendall at the University of Western Ontario, researchers placed pigeons in a cage and connected their food dispenser to a metal bar. As the birds hit the bar, they would be rewarded with food. Eventually, the pigeons caught on and would hit the bar each time they wanted to eat. However, when the food was dispensed randomly instead of every time the bar was hit, the pigeons would peck more and more frequently.
Because the release of food or "rewards" was unpredictable, the pigeons engaged with the bar more. Customers might shop at a store more often or users might be more active and engaged with an app when the rewards are spaced out and unexpected.
2. Unexpected Rewards
Now, humans are a bit more complex than pigeons. However, in a study led by Gregory Burns, researchers found that the human brain responds differently to rewards depending on if they are predictable or random. Participants' brains were scanned while researchers conducted two experiments. One measured their responses to rewards given on a consistent, fixed interval, the other on a unpredictable, random interval.
In the predictable experiment, participants received alternating squirts of water and fruit juice every ten seconds through straws that were placed in their mouths. In the unpredictable scenario, the participants received squirts at random intervals. In the scenario where the the reward of fruit juice was predictable, the area of the brain associated to pleasure responded less and less after each squirt. In the unpredictable scenario, the brain area maintained a high response rate with each reward regardless of the total number of rewards.
Imagine a scenario where someone gave a significant other flowers every day for years. Eventually, the gift would lose its novelty and surprise. It would be viewed as predictable and expected. On the other hand, if flowers are given on random occasions and in differing sizes, the novelty will maintain.
The success of customer loyalty programs relies on more than just perks. Keep your customers interested with delightful surprises. If you give customers rewards and on an unexpected basis, it could increase engagement and satisfaction while fostering loyalty for the long-term.