As a loyal fan of Starbucks’ app and its rewards program, I’ve seen exactly how incentives and dynamic pricing work – because at Starbucks, they work on me.
The rewards program is aimed at bringing customers back -- not just back at some point, but back soon, within a specific time period – maybe in the next few days, or one afternoon this week.
For me, it’s completely irrational. I know it’s not logical. Yet I can’t help myself. I might stop at Starbucks a few extra times a week knowing I’ll earn a free drink soon, when I rack up 125 “stars.” (Rewards customers generally earn a star for each $1 spent; they can redeem 125 stars for any food or beverage item.)
There’s a pretty basic psychological principle that Starbucks is tapping into here: the Endowed Progress Effect. We use it at Dibs, and we see the same magical results with customers.
The principle says that customers aren’t just motivated by price or discounts. In truth, the savings I enjoy from this rewards program are relatively minimal – maybe 5 or 10 percent. Yet I love watching those little stars add up, as I inch toward my next “free” latte. Occasionally, Starbucks Rewards offers special challenges, where you earn double or trip stars during certain hours or on designated days, and yup, I’m more likely to buy during those times.
Embarrassing example: I had to make three mobile order purchases within three days to earn triple stars. I bought my usual morning latte on Friday, but accidentally skipped pre-ordering on Saturday. So what did I do to ensure I still got my triple stars? I purchased a latte on a Sunday (usually my no-caffeine detox day) and a protein box. But here’s the kicker—I ordered the two items on two separate mobile orders to be picked up at the same time, so that the app would count them as three separate orders within the three days.
I know. What sort of Jedi mind trick is at work here? The Endowed Progress Effect really works, and it’s worth learning about if you’re selling or marketing anything to consumers – especially repeat or ongoing purchases, like classes at a fitness studio. It’s a principle you can use for your business’s benefit.
Here's the short version of the Endowed Progress Effect: Provide some sort of artificial advancement toward a goal, and your customers will be motivated to complete the goal. To use the Starbucks example, if you get 50 stars just by signing up, well – you’re halfway there! Why not buy a few more lattes in the next week to get that freebie?
The Endowed Progress Effect makes people think they have a head start toward completing a goal. As a result, they become more persistent and more willing to spend to reach the goal. For example, by converting a task requiring eight steps into a task requiring 10 steps but with two steps already complete, the task is reframed as one that has been undertaken and incomplete rather than not yet begun. This increases the likelihood not only of task completion, but also decreases the time it takes us to complete.
In other words, because I was so intent on earning the required number of additional stars to earn that “free prize” I went to some trouble and spent an extra ten bucks on a day that I normally wouldn’t visit Starbucks. Irrational, maybe, but it’s human nature.
What does this mean for you as a business owner?
Tapping into the Endowed Progress Effect doesn’t require fancy, automated loyalty software like Starbucks has (although it clearly doesn’t hurt). Give people a 10-hole punch card with 2 holes already punched.
Airline frequent fliers are notorious for doing crazy things just to simply keep their elite status. Example: I had a friend here in NYC who flew to and from Dallas in the same day, just to maintain her Executive Platinum on American Airlines.
For fitness studios, we’ve seen customers implement flash credits, or generate their own point or credit system that allows customers to “buy their way” to a discount or even a free class. We’ve found a nominal $2-$3 off someone’s next purchase (particularly one that expires within a limited time) has the most significant effect in terms of convincing a customer to return and to increase his or her overall spend at the studio.
Figure out the carrot your customers need to get on track for loyalty. Give customers a head start and add an expiration date.
Just as Starbucks had me ordering those additional lattes, you’ll have customers coming back more often!