Richard Shotton: Uncertain rewards are the answer to enhancing loyalty schemes

Contrary to common belief, consumers are more likely to take action if the incentive is of uncertain value, offering a way to make loyalty schemes both cheaper and more effective.

uncertain rewardsBF Skinner was, according to the Review of General Psychology, the most influential psychologist of the 20th century. His ideas have shaped modern society, from the design of social media to slot machines.

However, one area where his ideas could be applied more is marketing. Perhaps his most relevant experiment to the profession involves his 1930 invention, the Skinner box; a simple contraption – just a wooden container with a lever inside, which dispensed pellets of food when the lever was pressed.

Skinner used the box to monitor all sorts of animals, from pigeons to rats. At first, the animals he dropped in the box were oblivious to the lever. However, sooner or later, they’d bump into the lever and be surprised with a tasty treat.

READ MORE: Sainsbury’s buys Nectar for £60m in move to take loyalty ‘to the next level’

This process of bump followed by reward would happen a few times until, eventually, the animals learned the function of the lever. From then on, as soon as they entered the box they’d head straight to the lever and begin pressing it repeatedly.

The psychologist used the principle that rewards could shape behaviour to train animals to complete increasingly sophisticated tasks. His students even taught a rabbit to pick up a dollar and deposit it through a slot in return for a treat.

Uncertain rewards are more powerful incentives

Skinner dedicated his career to understanding what type of incentive most powerfully shaped behaviour. One of his findings was that uncertain rewards were more influential than certain ones. When animals were only sometimes rewarded with food, the associated behaviour became more embedded than when they consistently received food.

It’s a surprising finding but one that we now know applies to humans as well as rats and pigeons.

Not only are uncertain rewards better at changing behaviour but they also cost less.

In 2014 Luxi Shen, Christopher Hsee and Ayelet Fishbach recruited 87 students to take part in a challenge. Could they drink three pints of water through a straw in less than two minutes?

If they succeeded there was a prize. The students were randomly allocated to one of two groups: one was incentivised with a $2 reward (the certain condition), the other a 50:50 chance of winning either $1 or $2 (the uncertain condition).

In line with Skinner’s findings, students were more likely to complete the task in the uncertain condition. When the reward was unpredictable 70% of them completed the task, compared to a mere 43% in the certain scenario.

This finding should appeal to marketers. Not only were the uncertain rewards better at changing behaviour but they also cost less. The certain reward cost researchers $2 a time, whereas the uncertain rewards cost only $1.50 on average.

This finding is not a one-off. The psychologists repeated the experiment in various scenarios – from auctions to rating ads. In each case, the uncertain reward was more motivating.

Applying the findings to your customers

The findings are relevant as they run counter to how most brands reward customers. Their mistake is your opportunity. Think of Tesco or Caffe Nero. Their loyalty cards offer certainty: spend £1 and we’ll give you a Clubcard point, or buy nine coffees and the next one is on us.

READ MORE: John Lewis: Human interactions are still the primary driver of loyalty

The work of Shen suggests that’s not the best approach. You should inject uncertainty into your rewards.

For example, not one point per pound but every 100th customer gets their shopping free. Not a complimentary coffee every ninth visit but a random surprise: maybe nothing, maybe a free pastry.

These are small tweaks that make the reward scheme more enjoyable. If you harness these findings, you can make your reward scheme more influential and cheaper – a rewarding mix.

Richard Shotton is deputy head of evidence at Manning Gottlieb OMD and author of The Choice Factory. He tweets at @rshotton.

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Comments
  • Tadas R. 19 Feb 2018 at 6:49 pm

    That’s an excellent point. I’m still startled why we don’t have a chain of shops that instead of daily predictable discounts they would give a chance to win something. Imagine going to Tesco and after doing self-checkout wait for a small surprise. One day you pay just half price of clementines (which are always discounted anyway), another day you win a lottery ticket, which you claim at a reception desk, next time you total bill is cut in half, next time you don’t win anything. But that would create an experience worth sharing with family or friends. Instead of asking what have bought for me, your family would ask what have you won today.

    With this approach, the supermarket won’t require brands to do regular discounts, which bleed brand equity. I would say a win-win-win. Customers, suppliers, and the retail win. Profitability would be even higher than doing regular discounts.

  • Jonathan Woodfield 20 Feb 2018 at 10:46 am

    I imagine the Gambling Commission would have something to say in replacing Loyalty Cards with Gambling Cards

  • Mark Pilipczuk 21 Feb 2018 at 12:55 am

    I tested uncertain vs. certain rewards as part of a loyalty program back in 1994 or so, to see which types of rewards resulted in greater customer longevity. Unlike the test cited in 2014, I started with groups of over 1,000 customers in both the test and control conditions. If I recall correctly, uncertain rewards beat certain rewards. However, neither condition was ROI-positive as compared to a no-reward condition. Thanks for helping me recall that!

  • Jason Cross 21 Feb 2018 at 3:54 pm

    Not sure the maths follows through as you’ve described it above?

    Assuming an equal number of customers (say 100 to keep things simple), 43% redemption at $2 = a cost to the business (marketing budget) of $86 whilst 70% redemption at an average of $1.5 = $105 cost

    Uncertain rewards have cost me more, not less?

    • Tadas R. 21 Feb 2018 at 6:52 pm

      The whole point was that researchers saved on average £0.5 per trial and at the same time motivated more students to attend. Having worse redemption rate was not the point. Researchers could have introduced £0.01 non-variable prize and motivate only one person. That would be the highest ROI, but a total failure of the project.

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