The Psychology Behind Customer Reward Programs
Weve all seen them the customer reward programs which seem to be everywhere these days. You need to have a massive wallet or keychain to carry around the wads of cards or key tabs that are needed in order to go shopping these days. Of course it could be worse in most cases, these cards are free. In other countries, you are actually expected to pay for the privilege of telling stores exactly what you buy and when. But whats the purpose behind these customer reward programs anyway? Why do stores seem to be in love with them? Heres what you need to know:
Know Your Customer
Ultimately, marketing is all about knowing your customer and knowing what he or she is likely to want to buy. Thats why Facebook ads tend to be so expensive Facebook is able to mine your personal information to find out more about the products you like to own and thus present ads which are more likely to be custom tailored for you. Similarly, customer reward programs are designed around the premise of getting you to tell the store exactly what you like to buy so that they can better target you in the future.
Customized Advertising
One of the ways that this information is used is to send out customized advertising to you. The idea is that you get coupons for products which you are more likely to buy based on your previous buying patterns. This ultimately increases the bottom line of the retailer who offers them to you and allows them to reap the rewards from this spending.
You Spend More
Ever notice how many stores now offer deals like 5 for $5? There is a reason for that theyve figured out that even though they still charge just $1 for each item, if they advertise the product as being sold in batches of fives, they are going to make more sales. You experience something similar when you use your customer reward program based on what youve bought in the past, they send you coupons for products which you havent tried but which you might try, based on your purchases. This ultimately increases the bottom line, because it gets you to spend more money than you might otherwise have spent.
The Special Treatment Rewards
Some customer reward programs actually focus on offering you more than just coupons or discounts on certain products. They actually offer you special treatment in exchange for being a loyal customer. In this case, the goal isnt so much data mining as pure loyalty the idea is to get you to do most or all of your shopping with a particular company. These kinds of programs are mostly offered by airlines, hotels, car rental agencies and credit card issuers, however other kinds of companies have been getting into the act as well. PayPal for example has introduced a rewards program for customers who spend more than $5,000 with the service in any given year. They offer expedited customer service and certain additional perks for these customers in order to keep them going.
The Reason for Loyalty Bonuses
The reason is quite simple of course it gets you to not only make your purchases with one particular credit card or from one particular airline, but also often gets you to spend more than you otherwise might have spent. If you know that youre only 5,000 miles away from earning premier status on your favorite airline customer loyalty program and that you can get it by booking an extra weekend getaway, youre that much more likely to decide to do it so that you can get the free services next time you really do need to travel.
Are They Effective?
For many people customer rewards programs are indeed effective in getting them to spend more money and or buy from specific stores and or companies. However, there are limits. When virtually everyone offers these programs, the need to differentiate yourself from the competition becomes all the more acute and as such, we expect that youll continue to see various rewards programs tweaking their offerings to try to steal business from competitors.
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