Reward systems: How rewards make your customers happy
A reward, often referred to as a gratuity or "incentive", provides the necessary differentiation from the general public for your customer loyalty program.
It offers unexpected added value and helps you to stand out from the competition and be remembered as "special". Used correctly, it can deepen customer relationships and promote customer loyalty.
Reward systems at a glance
The following article offers insights into various reward systems, why they play a role, their differences and benefits. Be sure to read on now, because perhaps a small reward awaits you at the end and will give you pleasure and a feeling of happiness.
Motivation: Why have a reward system at all?
Humans react strongly to rewards and praise. Even at an early age, we complete tasks that our parents ask us to do, only to receive the promised reward afterwards.
Even later on, our brain is trained to use this incentive to motivate and drive us forward in our actions. The messenger substance dopamine is responsible for this, which is released via neurotransmitters and creates a positive expectation and arouses desire and pleasure. This means that people prefer to do what they can expect to be rewarded for. With dopamine in the blood, it is much easier to say "yes". A reward system is designed to exploit precisely this effect.
Ideally, this knowledge about the psyche and the associated behavior of people can be used in a variety of ways. For example, to bind customers to a company. Promised compensation makes us happy and once we find out what triggers this feeling, we want to repeat it again and again - in a way, it creates an addiction to the activation of dopamine, which is released in our system and in our brain structures. This in turn leads to satisfied expectations and thus to satisfaction.
If you want to translate this phenomenon in a business context, you often come across the term neuromarketing. This field is concerned with influencing the purchasing decisions of potential customers. The idea is that customers have dopamine in their blood and thus arouse the desire to make a purchase.
In connection with this, let's take a closer look at what types of reward systems there are and how they are practiced.
Different types of reward systems
Collection programs
This reward system is based on a simple principle. You collect credit points depending on the value of your purchase. These can then be redeemed for further purchases or exchanged for rewards. This not only increases the average value of customers' purchases, but also reduces their willingness to switch to the competition. The bakery brotsüchtig, for example, uses such a points system, where customers collect points, stars or similar with every purchase and can then exchange them for rewards (e.g. pastries, chocolate, café).
Paid programs
This is a request from the customer to pay a monthly or annual fee to join your company as a VIP customer. It is important that it is clear that the value of the program is worth more than the cost. This type of program is a way to offer existing customers and regular customers added value and retain them. Just as Spotify or Amazon Prime, for example, offer a premium membership for a fee, and members receive special added value.
Charity programs
Exclusive membership benefits are offered that are in line with the brand values. This creates, communicates and strengthens shared values. This also strengthens customer loyalty to the company. One example from practice is the company "The Body Shop", which enables its customers to donate their rewards to an animal welfare organization.
Level programs
This program allows members to level up based on customer loyalty. You can build your tier program based on points, the frequency with which people buy, or other key engagement metrics. You should ensure that the exclusivity and value of benefits increase for each tier to encourage members to move up. The beauty company e.l.f. uses this type of rewards program and motivates its members to reach a higher level, and thus a special social status among its members.
Partner programs
Partner programs provide flexibility in rewards by working with other companies to offer customers more opportunities. Help members achieve their goals and position yourself as an important part of this. An example of a partner program is Nike: The company works with Headspace and Apple Music to offer its customers relevant added value.
Community programs
Create a platform that triggers a sense of community and builds a brand community. This enables members to interact with the company itself and with others in the community. Sephora, for example, is worth mentioning here: in addition to a points system and a level program, the company also offers its members exclusive access to a community. Through these newly awakened opportunities for communication within the community, Sephora was able to gain access to many customer insights and use them for product development and optimization.
Differences in reward systems
Timing: immediate vs. delayed
There are different types of rewards: immediate and delayed. With immediate rewards, the customer receives his or her reward immediately after the purchase, whereas with delayed reward programs, the customer must first make a series of purchases before receiving the promised reward.
Objective: direct vs. indirect
While immediate and delayed rewards are based on time, the distinction between direct and indirect rewards is object-related. With the former, the bonus is based on the product or service originally purchased (e.g.: airline reward system = air miles as an incentive), whereas with indirect rewards there is no connection between the bonus and the company (e.g.: when using a credit card, you receive rewards from the credit card company in the household or technology category).
Tangible vs. intangible
Tangible describes a tangible reward with a material value, such as vouchers or gifts. Intangible, on the other hand, describes rewards without material value, such as the receipt of exclusive information.
It's the details of a reward system that matter!
A reward system and therefore also rewards play an extremely important role in the corporate context, because if they are used correctly, customer relationships can be deepened and customer loyalty strengthened. Depending on the type of company, a suitable reward system can be found to emotionally bind your customers to your company.
Last but not least, you might be wondering what reward I mentioned at the beginning is waiting for you? I hope you didn't skip to the end of the text, but actually read it. But now to your reward expectation: Your reward is now a 5-minute break, which you can and should take. Simply switch off the system for a moment, give your body and brain a short break and let the happiness hormones in your neural network run free.
