The following excerpt is from an article found on www.nytimes.com. This article was written by John Grossmann.
Nearly as long as there have been coffee shops and carwashes, all manner of businesses have handed out buy-10-get-one-free punch cards and hoped to reap the rewards of this simplest of loyalty marketing campaigns. But a new day is dawning.
How Mobile Applications Can Improve Your Customer Loyalty Programs
Smartphones and loyalty apps have begun offering small businesses enhanced program features and automated administration capabilities once affordable only to large companies like airlines and hotel chains. These capabilities also offer the equivalent of a real-world psychology lab for easily evaluating the effects of offerings and incentives on customer loyalty.
“All organisms, in different ways, are drawn to goals,” said Oleg Urminsky, who teaches marketing research at the University of Chicago Booth School of Business. “The closer we are to achieving our goals, the more motivated we are to keep doing something. As mice on a runway get closer to a food pellet, they run faster.” Similarly, he said, “as people get closer to having a completed card, the time between visits gets smaller.”
Studies have also shown the psychological benefit of preloading a frequent buyer card with a couple of punches to make the dangled reward appear closer. A carwash that started one set of customers with a buy-eight-get-one-free card and a second set of customers with a 10-wash card already punched twice, found a few months later that nearly twice as many people (34 percent) given the illusion of a head start toward the same goal had redeemed the card as people (19 percent) who had to earn their first punch. Two researchers, Joseph Nunes and Xavier Drèze, have called this the endowed progress effect.
Though useful, punch cards have shortcomings. For one thing, they’re no good if left behind on the refrigerator or misplaced. Do some cashiers triple-punch the cards of friends? Sure. Moreover, the motivating effects tend to fade, said Dylan Bolden, a partner at the Boston Consulting Group and co-author of a study last year called “Leveraging the Loyalty Margin: Rewards Programs That Work.”
