If You Want Real Customer Loyalty, Look to the ‘Reward Effect’

It’s a no-brainer that rewards create loyalty, so why do some companies struggle to turn the loyalty programs they offer their customers into tangible results, such as increased customer satisfaction and loyalty? Could it be that we’re not really giving our customers what they want or, if we are, we’re simply making it too hard for them to get it? This is where the “Reward Effect” comes in, and it can make all the difference between an effective and ineffective customer loyalty strategy.

As customers, being rewarded with something that benefits us leaves us wanting more, and will become a driving factor for our motivation to seek even more rewarding stimuli, whether it’s from a certain establishment, shop, or brand. This principle is a fundamental part of all loyalty programs: by giving us a reward, companies count on us coming back for more, all of which increases the likelihood of our continued loyalty. 

So far so good! However, the Reward Effect is not as simple as it seems. Customers, for example, do not want to find limitations when it comes to collecting a reward, nor do they want to feel obliged to spend money at a certain business, or even during a certain window of time. According to Deloitte, timing rewards to immediately follow desired consumer behaviours may be more likely to bring success in encouraging repeat behaviour, compared with fixed-interval systems, like having the reward occur at a set date or tied to a certain product.

By offering customers instant rewards, with no hoops to jump through, companies guarantee the maximum benefit for their clients and the most positive customer experience. That is the essence of the Reward Effect and how it builds real customer loyalty. 

Cashback —depositing money directly into a customer’s account with each purchase — is fast becoming the easiest way that companies can unlock the full potential of the Reward effect. This is because customers feel the impact of their brand loyalty directly, in a form that is both positive and instant, and companies feel the effect of customers who are motivated to spend and stay loyal. The true Reward Effect can therefore be both commercial and psychological, while simultaneously benefiting companies and customers alike.

Often, however, there is what we call a “marketing gap” between what some brands are offering and what customers really want. Research suggests that while 66% of brands believe a loyalty program is for consumers to show loyalty to brands, 73% of consumers believe a loyalty program is for brands to show loyalty. In other words, consumers want to feel valued by the brand and business they are getting involved with, while businesses scramble to increase consumer loyalty by providing incentives that appeal to their ever-changing preferences.

But how to do this? Think about how much money companies spend each year — currently estimated at US$5.57 billion in 2022 alone — on trying to work out what exactly their customers want as rewards for their loyalty. Imagine if all that money could be saved by simply letting the customers decide for themselves. This is precisely what cashback offers. Customer A doesn’t have to choose between a cruise and a bike when they really want a bottle of wine, and Customer B doesn’t have to think about which brand of coffee will get them points on their loyalty card. Instead, they can both simply spend their cashback on whatever product or service they want, closing the marketing gap and maximizing the Reward Effect.

The Reward Effect doesn’t only generate customer loyalty through rewarding their purchases, it also allows companies to better understand these customers.

For example, through the use of data generated by each transaction, businesses are able to determine consumer purchasing habits and behaviour. The information collected can then be used to send consumers relevant offers from those businesses that might be of interest to them, highlighting the rewards and cashback received by using a particular bank card. This generates exposure for the business by, on the one hand, giving greater visibility to the reward and on the other, attracting more customers than the competition.

According to a survey by Rosetta Consulting, brand-engaged customers shop 90% more frequently, spend up to 60% more per transaction and have an annual value of up to five  times more than other customers. Retailers that opt for rewards have an increase in revenue of 36%, compared to 28% for those who opt for discounts only.

So, next time you’re shopping somewhere, ask yourself which feels most like a true reward: money off a select number of products you may not want, an offer of a product that you weren’t thinking about buying at that moment, points on your loyalty card that you’re not sure how to use, or real cash deposited instantly into your account. That’s the power of the Reward Effect.

About REWORTH

REWORTH is the platform that offers solutions based on data analysis to attract and retain more customers, through cashback rewards. REWORTH is capable of generating more exposure for a company, attracting more clients, and encouraging recurring purchases and loyalty. In addition, it uses the analysis of consumption data for potential clients and current clients and offers business-relevant insights for growth. The programs that REWORTH offers do not require the payment of commissions, in addition to the fact that they do not force the user to download applications, make unnecessary registrations, or have to have a special card in addition to their credit or debit card; this generates greater satisfaction during the purchase experience, and increases loyalty.