By Ashok Sethi
The Holy Grail
Customer loyalty has been the holy grail of marketing. Holding on to current customers is considered critical for business success. Loyalty advocates claim that it costs at least five times more to acquire a new customer than to retain an existing one. While this estimation has come under critical scrutiny in the digital environment, where an internet celebrity like Li Jiaqi can sell secure over 50,000 new customers in under an hour, marketers continue to place much store in building strong customer loyalty.
However, while marketers desire to secure consumer loyalty continues to be strong, customers’ behavior continues on the path of become more impulsive and fickler. As a result, loyalty programs and efforts often fall short of their goals.
The Losing Battle for the Conscious Mind
The key focus of building consumer loyalty continues to be through demonstrating the goodness of the product or experience through reiteration of rational and emotional benefits. It is assumed that loyalty will be a result of achieving a certain mindset in the consumer. A mindset which is convinced of the greatness of the product and an emotional bond which binds the consumer and the brand. This clearly reflects the influence of cognitive psychology in marketing, where actions are believed to be a result of positive attitudes and disposition.
As does much of marketing, loyalty thinking often neglects the importance of context and automaticity of behavior. In other words. loyalty thinking mostly dismisses the idea of a consumer’s repeated usage of the brand as a result of a habit, rather than any emotional commitment to the brand. As a result, loyalty marketing often misses one vital component of generating customer stickiness – trying to convert brand choice into a habit.
There is an evolved “science of habit”, the foundation of which was laid by the behaviorists, but which got over-ridden by the cognitive revolution, which tried to explain all behavior through reason or emotion. However, as technology for understanding the functioning of the brain advanced, the scientists were able to study through fMRI (functional magnetic resonance imaging) and other brain mapping techniques, what happens in the brain as people go through various actions. One big revelation of these experiments was that while brain activity (particularly in regions involved in decision-making and executive control) is pronounced at the initial stages of a repeated behavior, the activity quietens once a certain degree of repetition has been achieved.
Our brain does not just make conscious decisions, it often responds automatically though habit.
The Rationale of Creating Habits
Habits are good both for the marketers and the consumers. Once the marketer succeeds in seeding the habit, they no longer have the onerous and perpetual task of persuasion and superiority demonstration – they just need to ensure that the environment which triggers and sustains the habit is maintained. Similar consumers do not need to go through the cognitive strain of evaluating options or focusing on the task – they can let their system 1 take over and accomplish the task with cognitive ease.
So, what does it take to convert casual relationships between a consumer and a brand into a habit?
Habit science suggests that habits are sustained through the twin forces of triggers/prompts and rewards/gratifications. Consumers will buy the brand through habit, if there is a trigger or prompt to do so. The trigger can be internal or external. External triggers can be as simple as the consumer finding himself or herself in the same context or situation. Reaching your desk and opening the laptop, could be enough to trigger a need for an espresso.
Creating a regular habit of visiting the gym is one of the most challenging tasks, and gyms are strewn with the detritus of broken consumer resolutions for regular exercise. The Chinese fitness company Supermonkey has invented a new set of social triggers, by converting the whole process into a visible, mobile app-based activity, which is integrated into WeChat, generating visible, social and persuasive prompts.
Rewards serve as reinforcers of the habits, and encode the ideas in our basal ganglia, that this action was worth doing and that we should do it again. While rewards can come in all forms and shapes, the critical thing about rewards is that they have to be immediate so that the dopamine flow on the receipt of the reward can be linked to the behavior. If rewards are distant, the connection will be poor. Points based loyalty programs need to provide some kind of immediate gratification to the customers, and not just email them at the completion of 100,000 points.
The Variability Kick
The second critical aspect of rewards is that they work best when they are variable. Variability means that sometimes the rewards may be unexpected or better than what the consumer anticipates. This activates the dopamine circuits more than when the gratification is just as expected. Even if it means that sometimes the expected reward does not materialize, the dopamine circuit will be maintained – unless the customer is disappointed repeatedly. The variability brings an element of the excitement of gambling in the game, which provides the addictive stickiness.
The restaurant chain, Pret A Manger, is well known for surprising the customers with free samples of innovative products like peach latte or mint mocha. The random unexpected gift, however small it may be, seldom fails to delight the customers. Pop Mart is a Chinese toy company, which attempts innovation is every aspect of their business from design to delivery. The company has become well-known for their Blind Boxes, which contain a toy in a collectible series, but the customer only finds out which toy, when they open the box. Multiple toy boxes also include an element of surprise or a rarer item.
When marketers think of rewards, they tend to think of gifts, points or something physical or tangible. However, the rewards can be quite subtle – e.g., a sense of relief (for instance by looking at your Outlook or WhatsApp and knowing that all is well) or a sense of accomplishment (e.g., I found a bargain!).
This additional perspective of looking at loyalty as creating a habit loop may not involve significant additional resources, but can substantially enhance the effectiveness of the loyalty programs or marketing.
Ashok Sethi