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Behavioral Science Principles + CX = Retail Loyalists

Like many people I begin the day by checking my email, a task which normally includes sifting through no less than 30 emails from retailers vying for my attention. And while some see this as an opportunity to mass-delete, I am excited to begin a new conversation with brands who want to have me as a customer (like most conversations, some are more engaging than others, but that’s a topic for another day).

People have hobbies and I consider shopping to be one of mine. Sometimes that includes making a purchase, other times I’m simply browsing. I actually enjoy the experience and appreciate the effort and thought behind every floorplan, display window and home-page. Like many consumers, I make a fair amount of my purchases online. Yet, when given the choice, I prefer to escape to an actual store (gasp!) where I can see colors and touch fabrics in person. I understand the hours of thought that went into picking precisely which button to use, or what the exact shade of red should be.

Two decades in various retail roles (from specialty and department store management, to buying, to private label product development) have hard-wired my brain so I cannot help but appreciate these details as I browse each aisle. It makes me absolutely giddy. This happens regardless of the type of store I’m visiting, from specialty apparel to home improvement – but in full disclosure, it hasn’t always been this way. In my past life I reached a point where I could not separate shopping from work. I boycotted the Black Friday madness and no direct-mail offer was rich enough to lure me into a store. But true love never dies, and after my long hiatus, shopping and I have picked up right where we left off.

I am a merchant at heart; always will be. It’s as woven into my sense of self as much as any fabric ever could be. And while not every person’s life story is as closely tied to the world of retail as my own, every person is a consumer of something – it’s one thing we all have in common. We choose what brands to interact with on a regular basis, some because we want to and some simply out of necessity. That’s why retailers today need to understand how people make decisions… what’s happening rationally in their heads and emotionally in their hearts that triggers the choices they make. This is my passion today, and over the next few weeks I’m going to merge my past and my present by serving up research-based behavioral science principles that retailers should consider as they work to strengthen their bonds with customers and save themselves, quite literally, from deletion.

I start with my favorite principle – the Peak-End Rule.

How people remember an experience is not a mental summation of the overall experience. Instead, our memories are overly biased by both peak or emotionally-intense moments as well as how the experience ended. In their groundbreaking 1993 study on the peak-end rule, Barbara Fredrickson and Daniel Kahneman exposed people to two aversive experiences: in the short trial, participants in the experiment immersed one hand in water at 14 °C for 60 seconds; in the long trial, they immersed the other hand at 14 °C for 60 seconds, then kept the hand in the water 30 seconds longer as the temperature of the water was gradually raised to 15 °C – still painful, but distinctly less so for most subjects. Subjects were later given a choice of which trial to repeat. Surprisingly, a significant majority chose to repeat the long trial, apparently preferring more pain over less. In reality, it was the subjects’ memory recall that the long trial ended better that swayed their decision.

Since not everyone has a tank of 14 °C water lying around to experience this themselves, simply think about the last time that you traveled by air. If you arrived at the airport on time, cruised through security, got the seat you wanted, your flight left on time and was smooth, yet when you landed, the plane sat on the runway for 30 minutes, or worse, your luggage was lost – how would you rate the overall experience? While many things about this trip went well, it is the way the trip ended that you remember most and are likely to share with others when asked “How was your trip”?

This leads me to ask: What are the peak moments during a shopping experience that successful retailers are creating for their customers today? Not everyone is happy about parting with their hard-earned money and most of us don’t enjoy waiting in line to do so. How could the end of the shopping experience (think check-out and delivery) be changed to become more positive and memorable? Please share your thoughts below and share this with others with a similar passion. And, be sure to check back soon for the next principle I will tackle: Goal Gradient Hypothesis. Until then, happy shopping!

Four Reasons Why AI Will Change Loyalty Forever

At Maritz, we are making a commitment to AI. This is not a “here today, gone tomorrow” trend. It’s going to become an invaluable tool which transforms industries. Loyalty is one of those industries. In fact, loyalty presents some unique opportunities, which makes it ripe for AI functionality.

Just this week, we partnered with our client, HSBC, on a press release which talks about an AI model we recently piloted with their customers. We trained an AI to predict reward preferences for each cardholder, and then sent a promotional email to each cardholder based on that preference distribution. The results were incredible. Of the cardholders who made a redemption, 70% redeemed in the category that the AI promoted to them. That result tells me that the customers were delighted by this campaign. They received the perfect message which scratched an itch they weren’t even sure they had yet.

We predict it’s such a big part of this transformation, that we are partnering with the Incentive Research Foundation (IRF) in a study focusing on the impact and potential of artificial intelligence and machine learning on the rewards and recognition industry. IRF president Melissa Van Dyke says, “For over half a decade IRF has been discussing how big data and personalization are the next big frontier for the incentive and recognition industry.  We have also repeatedly discovered that many programs owners do not know the power of the data their incentives and loyalty programs offer them.  Artificial Intelligence and predictive analytics are the tools industry can now use to take these trends and turn them into actionable information that makes their programs more motivating.”

This is just the tip of the iceberg. There are countless applications for AI in the industry, and we are excited to be on this journey along with our incredible clients. Here are a few reasons why AI is so important to the future of loyalty:

  • The width and depth of loyalty data. Customer Loyalty has better data than just about any industry. Each touch point with a customer is a chance for you to collect data – every email, every visit, every purchase, every reward. This creates a data story for each customer, but the book is thousands of columns wide and millions of rows deep. A human simply can’t read it well. Only with our modern machine learning methodologies can we take that incredible scope of data and make use out if.
  • The need for personalization. The very fundamental aspect of loyalty programs is that your best customers want their experience with the brand to feel different than the average customer. There are monetary benefits, sure, but the non-monetary benefits can be just as important, if not more. Calling the customer by name, knowing their preferences, knowing their history with the brand are things that make that loyal customer feel that one-to-one connection. With AI, personalization becomes more feasible at scale than ever before.
  • Keeping points fraudsters at bay. The prevalence of fraud, to attack the customer’s account and his or her point balance is a threat that is unlikely to go away. AI will be a valuable ally in the prevention of fraud. Many current fraud prevention systems are based on rules – if this specific thing happens, raise a red flag. This is mostly effective, but all rule-based systems are a little bit like a levee. As soon as the fraudster finds the rule, they can break it wide open and exploit the system again and again. AI fraud prevention systems work a little differently. They adapt and learn, so that the holes in the levee are patched and can never be exploited in that way ever again.
  • The future interface: chat. One very tangible example of AI’s rise is the voice assistants – Google’s Assistant, Amazon’s Alexa, and Apple’s Siri. Customers are becoming incredibly comfortable chatting with an AI system daily. This trend will be felt in loyalty too. As this technology gains maturity, the interactions with AI chat systems will get better and be able to accomplish more for that customer. I predict that, in the near future, customers will prefer interacting with a brand over chat, even if a human is an option, because that chat bot will be able to service the customer faster and easier.

The IRF study will be released later this year, but even now it’s a safe bet to predict AI will have enormous impact. Melissa believes AI will have 10 times the impact the discussion around millennials has had. “For many years it was easier to craft programs based on generations because it summarized the data in a way that seemed actionable.  But our research continuously finds there is an intersectionality that makes a loyalty program’s focus on generations suboptimal. AI offers the incentive and reward space the opportunity to harvest data in ways significantly more impactful on motivation than generational considerations,” according to the head of the IRF.

I’d love to hear how you’re using AI to make a difference and encourage you to share your thoughts in the comments below.

 

Two Reasons HENRYs are the Most Important Subset of Millennials

Before we get into the reasons why HENRYs are the most important subset of millennials, you might be asking yourself what millennial HENRYs are and why you should care.

It’s safe to say most people are familiar with the millennial generation, as they have been a hot topic for the past 10 years. The intensity of interest in them is growing as their purchasing power increases, soon to surpass that of the Baby Boomers. Tons of articles are published every day about how to engage with millennials, or how to incorporate them into your marketing strategy. Many companies have identified a need to connect with the millennial generation. A handful have defined an actual strategy around targeting and engaging them (seen a Diet Coke ad lately?).

The intensity comes from a reasonable place — a desire to tap into a segment of the American population with both a high disposable income and a lifetime value to a brand that could span decades. But there’s a problem — targeting a loosely defined group of 80 million people doesn’t exactly classify as a marketing strategy. The truth is — from top to bottom — millennials are the most diverse generation of economic significance in the US today. So we need to stop treating them all the same.

Within the diverse mix of college co-eds and minivan driving parents the secret to effectively leveraging this generation of consumers can be found by targeting one specific group known as the HENRYs. If you want to develop a successful marketing strategy, or develop a strong loyalty strategy, millennials are not your target. Millennial HENRYs are your target.

HENRY stands for High Earner Not Rich Yet. A HENRY is defined as: a household under 55 years old with an annual income between $100K and $250K, but that has not amassed investable assets of $1M. And while demographics for the term HENRY technically span 3 generations, the Millennial HENRYs are where brands need to focus for two core reasons:

1. They have a significantly higher budget for discretionary spending than Gen X or Baby Boomer HENRYs.

2. Young HENRYs are the most likely to become the brand’s most valuable customers both in terms of money spent & influence given over their lifetimes

So, how do you engage with this segment of consumers? What are their spending habits like? Download our white paper: Millennials are Not Your Target to learn more and gain strategies for engaging with this group.

How Influencer Marketing Builds Customer Loyalty

I love Instagram.

Out of all the time I spend on social media, I spend the most on Instagram, scrolling through pictures of food, outfits, and places I want to travel to.

One of the accounts I follow religiously on Instagram is the account @SomethingNavy. The account is run by Arielle Charnas, a fashion blogger. She has over 10 years of experience in the industry, and works with tons of brands, including: First Aid Beauty, Secret, & designers like Rebecca Minkoff. This summer, she announced a collaboration with the brand Treasure & Bond, and the clothing collection was sold through Nordstrom. The clothing line was set to launch the last week of September.

Charnas is an example of a new industry dedicated to “Influencer Marketing.” Simply defined, Influencer Marketing focuses on using key leaders to drive your brand’s message to a larger market. Rather than marketing directly to a large group of consumers, you instead pay influencers to get the word out for you through their followers. Instagram is the best platform for bloggers like Charnas to spread their influence.

Influence Drives Purchase

I spent the weeks leading up to Charnas’s September launch talking with my friends who are also loyal followers. We exchanged pictures of the different pieces of clothing, discussing which items we planned on buying. We even set up a group chat solely dedicated to talking about the collection. The day the collection was set to launch, alarms were set, and we were ready to shop. When 8:00 am CST hit, there was a problem: Nordstrom was experiencing issues on their back end, and they had to wait to individually load the pieces one by one. But my friends and I didn’t close out of the Nordstrom website. We stayed on our computers until the items we wanted became available because of our dedication to the brand Charnas presents on her Instagram.

Despite this technical glitch, the clothing line was sold out. Several customer service issues could not stop consumers from shopping this brand. I was able to get the items I wanted. When the clothing line was initially announced, Nordstrom stressed that there would not be a restock. After the line was sold out, Nordstrom announced they would be restocking the collection in December. And within the week, my friends and I had received our pieces.

Influencing Cult Loyalty

Influencer Marketing presents a great opportunity for achieving Cult Loyalty. My friends and I exhibited cult loyalist behavior in this buying scenario. For a refresher, Cult Loyalty refers to being loyal because the brand reflects personal identities and values. By placing an influencer in front of a product, it adds that personal touch and allows a deeper relationship than a relationship with a consumer brand. Arielle Charnas is not only a fashion blogger, she’s a businesswoman, wife, mother, and friend. She doesn’t use her platform just for posting outfits – she also posts videos spending time with her daughter, and dedicates time to answering questions posed by her dedicated followers. My friends and I were driven to purchase her clothing because we identify with the image she presents on her social media platforms. In terms of reasons for referring someone to a brand, Maritz market research data shows that Cult Loyalists are the consumers most motivated by having friends/family join in the brand experience with them (43%).

By following along with the @SomethingNavy instagram account, my friends and I could follow Arielle’s clothing line from the early stages, all the way up to execution & release. Nordstrom, Treasure & Bond, and @SomethingNavy were all able to engage in Influencer Marketing to ensure the success of the clothing launch. If this were any other brand, consumers would have disengaged with the launch as soon as problems arose. But because of the personal experience with the brand, consumers and followers stayed online until they could get the clothing they wanted.

How could your brand apply this same idea, generally, to drive loyalty?

The idea of Influencer Marketing isn’t only reserved for fashion and beauty. By selecting an influencer who reflects the brand’s values, any brand can leverage Influencer Marketing to drive customer loyalty.

Are they any products you buy based on influencers you follow on social media? Leave a comment below.

The Debate on Customer Loyalty and the Future of Points

The Great Customer Loyalty Points Debate

If you have pondered the future (and potential extinction) of points-based customer loyalty programs, it’s worth taking note of a debate that briefly raged at a Loyalty Academy Conference hosted by The Wise Marketer.

Loyalty Academy, a newer entry to the loyalty space, is an annual confab of loyalty practitioners from 16 countries gathering to share best practices and discuss the future of customer retention and engagement. This year’s event also proved to be the perfect forum for an Oxford-style debate that posed a question on many loyalty marketers’ minds:

Are points-based loyalty programs still necessary to build customer loyalty and foster profitable behavior change?

This is far from an academic question. Many brands today that are considering a new program are not automatically assuming they need a proprietary loyalty currency. And some with legacy programs are evaluating the place points will play in the future. In February Coca Cola put this question in the spotlight when it announced a decision to sunset the point-based aspect of their long-running “My Coke Rewards” program to focus instead on more experience-based offerings.

The Debate Begins

The Loyalty Academy discussion on points pitted Nicole Harris of Maritz (pro) against Phil Rubin of rDialogue (con), each of whom had agreed to represent a particular viewpoint for the purpose of the debate. Rubin opened with the argument that traditional points-based loyalty programs no longer fully meet the needs of the customers they were created to entice. He also noted that their value as the primary tool of loyalty marketers has diminished as the market has shifted focus more toward optimizing emotional connection and customer experience.

Harris came at her pro-points argument from a strong human sciences perspective. She cited how a program currency can enable a brand to leverage both medium maximization theory and goal gradient hypothesis to engage customers. She went on to note that points programs also allow you to engage the social brain, as consumers will often publicly discuss how many points or miles they have earned in your program, even though they’d never discuss how much money they have in the bank.

From the perspective of the Multi-Loyalty Framework, Rubin essentially argued that Mercenary Loyalty is less effective than it once was, and that brands need to be more social and programs need to be more engaging – thus moving towards True and Cult Loyalty. This is a hard case to refute – brands cannot rely any longer on mercenary loyalty alone.

After the Dust Settled

So what conclusions can we draw from this debate? While Rubin made a salient point about points, it is also true that points remain an incredibly useful tool to direct and influence humans to behave in a specific way. In any human endeavor, including marketing programs, the brain needs some system to hook into and to commit to. Points are great for that — they give consumers a framework for understanding expectations, a game to master and to beat, and a means to track progress toward goals. Are points the only way to do this? No, certainly not. But, in the loyalty space at least, they are the most proven approach of this kind to drive behavior.

While a hand vote at the end of the debate gave a decisive win in favor of the pro-points argument, a savvy loyalty marketer would tell you that both points and experiences are essential in any loyalty program offering. Rick Ferguson, CEO of The Wise Marketer, summed up the debate saying: “(Harris) and Rubin agreed that essentially both sides were right. Points programs are still a valuable tool, but (the) argument that points alone are no longer sufficient to win true brand loyalty resonated with the audience.”