Sunil Saha is a founder of Perkville, a service which allows businesses to offer card-less customer loyalty and reward programs. Sunil has previously held leadership roles at LinkedIn, Yahoo! Small Business and Neoforma. Perkville is free for anyone to join while businesses pay for monthly subscriptions to offer their consumer’s rewards.
Here are 5 questions with Sunil and his answers:
1) In the book DRiVE by Daniel Pink, the author warns about the potential risks of using extrinsic rewards to influence behavior. With that in mind, what should business owners consider before creating a loyalty program that offers extrinsic motivators?
So number one, it’s important to not extinguish that intrinsic motivation, intrinsic motivation is so important. A good example from the book in Sweden they tested the desire to donate blood, and they assumed that if you reward people monetarily for donating blood they’re going to give even more. However, paradoxically they found the reverse happened because they negated the intrinsic value of people feeling good about giving blood. So when I think about that for customer loyalty, I’ll use fitness for an example, I don’t think you’d ever want to reward something that has intrinsic value. You want to focus rewards on things that are repetitive, with low intrinsic value to the customer. So for example, checking into the gym, very repetitive, doesn’t take very much creativity or thought, but it does actually drive health benefit, and it also drives loyalty to a business, so you want to reward that. However, one might want to avoid using rewards as the main mechanism for a weight loss program. You’re going to lose all creativity, all flexibility, and all consumer autonomy from the process of reaching that goal. I don’t think you’d want to reward that piece of it, just take the parts that are repetitive – where autonomy is not really important – but that still drive your business and improve loyalty, and focus the rewards on those aspects. You do not want to extinguish creativity by directing somebody towards a very specific goal. Furthermore, whenever you take away consumer autonomy you risk eliminating some of their intrinsic reward system. So any compromises in these two very important areas should be well-thought out. For instance, if you are a retailer you may want to allow the customer to still choose the outfit that they think they’re going to look great in. Have that experience. But the process of actually spending money, which is obviously very routine, repetitive… there’s really not that much creativity in that action. That’s what you want to reward.
2) In your opinion, how important are game mechanics to reward programs? There are varying levels of sophistication when it comes to gamification. Do you believe there is a correlation between reward program gaming elements and an increase in successful business outcomes?
Game mechanics are an important component of customer loyalty programs. I think there’s a lot of variation on what’s going to work depending on the type of business. I’ll give you one example, for smaller businesses ranking customer loyalty with some sort of leader board in the same vein as Foursquare works. For instance, in a coffee shop environment, if you are low on the list you likely will not go away feeling bad. In a fitness environment I think it’s very different, where you have to be very careful, because a leader board in a fitness environment could potentially make somebody mindful that they are not doing enough (at the risk of perceived value) or create discontent by creating a goal they can never achieve …because of personal bandwidth or whatever the case may be. So I think game mechanics are important, but you have to really vary them depending on the type of business you’re working with. My bias is that one of the strongest game mechanics for customer loyalty is taking advantage of the hoarding mentality that many of us have. We like to collect. I think that’s why you see point based systems used so widely across many different verticals. Credit cards use it, airlines use it, and hotels use it. Almost any kind of loyalty program uses some sort of “hoarding” system, they take advantage of that human element. In my opinion badges have not proven to be terribly effective and I haven’t seen any strong data showing that they really drive significant customer loyalty. There are all sorts of other game mechanics, challenges, contests, levels, which I think are very powerful and will make somebody feel special. You can argue that you add intrinsic value to a loyalty program through these means because when you give somebody that special feeling that they’ve achieved a new level, and reinforce it with special perks to make them feel good about themselves there are potential aspects of this that will extend beyond being simple extrinsic mechanisms. However, it’s hard for me to say that these game mechanics are what’s going to succeed across the board. I think you have to look at it case by case, business by business.
3) When a business sets up a loyalty program is there a formulaic foundation, general rules of thumb, and/or benchmarks that can be generally assumed regarding return on investment and increased retention? Are there any non-proprietary formulas and/or models that are useful when considering if a loyalty program is right for your business?
There are so many variables in this equation, every business is so different, and a key part of this is the business itself. A customer loyalty program is not going to turn around a bad business, so I think it’s very difficult to say that if you plug-in a specific customer loyalty you should expect a benchmarked ROI. The key variables are the business itself, how the program is implemented, you might have a lot of opportunity sitting in a reward program, but if you don’t actually implement it well, and promote it well, you’re not going to get the results that you want. Visibility I think is key, engagement is very important. It is difficult right now to just kind of have a plug and play system. That is one of the things I’m excited about for the future, because now that we have platforms like Perkville, we’re gathering anonymous data from the thousand businesses on our platform today – note: we will never share data across businesses – but we can start to see what the best practices are. We can start to see what works in various verticals, and what doesn’t work. Currently, we can provide strong tailored recommendations for success, but I think we’re still a little ways away from a ‘plug in x output y’ type formula. However, using the fitness industry for example we can say something like forty actions of the customer should spit out some sort of reward. If you’re less than that, then you’re probably spending too much on your loyalty program (relative to the return), if you’re more than that customers start to feel like it’s too hard to reach the reward you could potentially reduce your return as well. So we’re learning now what is working by industry. Another example is retail, typically we see five percent redemptions, so say if somebody spends one hundred dollars they can get five dollars in value back. In this vertical ten percent you’re spending too much, less than five percent too little, and from there we can begin to optimize to maximize investment.
How can you determine if a loyalty program is right for your business? So I believe there are three key things:
1) How important are repeat customers for your business? Most businesses are going to want repeat business, but say you are a plastic surgeon or luxury car dealership the transactional volume probably wouldn’t make sense. However, most businesses will have enough transactional volume where it should at least be considered.
2) What is the likelihood that your customer considers the competition on a regular basis? For example, if you’re an airline, if you’re in retail, if you’re a health club you need to inspire loyalty. If you have a monopoly on your business then it might be harder to justify the investment.
3) Is your business somewhat commoditized? For example, if you’re a credit card, if you are a rental car service, there’s some differentiation there but these are largely homogeneous offerings where loyalty can help with retention.
If you answer yes to all three of these questions I think you need a loyalty program. If you answered yes to two of three, I believe it’s something for you to consider. So it’s one framework you can use.
4) What on the horizon excites you about innovation in the customer loyalty and reward programs space? For instance, one could assume that the convergence of Big Data, geolocation protocols, and augmented reality might increase the ability to personalize loyalty campaigns for the end use in fascinating ways.
Let me answer this a little differently then what you’ve asked directly. I’ve got four things that really excite me. Number one, I think engagement is really going to skyrocket, because now with mobile phones, and everything connected on the backend, the level of effort to engage in a loyalty program is dramatically decreasing. I mean, look at what we’re doing, the customer literally has to do nothing different to participate. We’re going to have much more natural engagement, better engagement than we’ve had in the past, and I think that’s one of the biggest variables for the success of a loyalty program, how engaged are your users. Two, I think people are getting busier, and busier, so it’s harder to get them to do extra work, and now things can be automated. If you want to reward checking-in this which will soon be frictionless through your phone, you will not have to do anything different as a consumer. I think that’s also very exciting. Three, I think the personalization capabilities are going to be very exciting as well. So the days of sending mass blasts to all your customers are very quickly going to be over. I think one of the most important factors in the success of a reward program is the personalization of the communiqué. For example, in our case, we don’t send any mass email blasts, any email that a customer gets is specific to them. Whether it’s how many points they have, how close they are to the reward, that their friend has joined the gym, and they are rewarded for that activity, it’s all for them, and I mean that’s really important if you want to keep engagement. Last concept, I think keeping it fresh is another key element. You want to keep customers excited, you want to always offer them something new and exciting within the rewards program.
So for me the sort of things I think are very exciting are engagement, frictionless mechanics, personalization, fresh communication, and I think at the end maybe here I might add data, where we are now having this platform that can aggregate data across thousands and thousands of businesses, eventually hundreds of thousands of businesses, and optimize the experience automatically for the participating businesses, where you take the human error out of it, you can AB test, and do all sorts of incredible things that were just not possible before. Large companies have been spending lots of money on these programs, small businesses haven’t been able to. It wouldn’t surprise me if in ten years small businesses have more effective programs than larger companies, because they’re leveraging our aggregated platform.
5) Back to the concept of eliciting behavior change, what do you believe are the most important elements to get right to accomplish this goal (either through loyalty program design or more broadly through general strategy)?
You don’t want to diminish intrinsic value or you’re going to have unintended consequences as a result, but I think if you can – in a frictionless way – incentivize the boring, repetitive pieces of the tasks that need to be done to eventually reach your end goal, then that is what’s going to drive your success. Take what we have done, as an example, checking into the gym is a near frictionless task for most members and it’s also very repetitive, but we know if we can reward people for that, and get them into the gym, then let them have creativity for what they do in the gym (run on the treadmill, lift weights, etc.) do not remove that autonomy from their experience, because now they’re at least more likely to get there and to enjoy the fruits of that creative experience at the gym …I mean that’s how you can drive it. Focus on making the boring parts more exciting and rewarding… these are the variants to success. Also, show them their progress. That’s one of the things we do, users don’t have to open an app to check how they’re doing. Instead they can just get a very short email that tells them, or it could be a push notification on their phone. We offer various frictionless ways (of the user’s choosing) to show them they’re making progress towards their goal. Lastly, be careful not to foster short term thinking. When thinking about your rewards program make sure it’s going to be valuable to your customers, not just for the new customer but that the program is still going to be interesting for the loyal customer down the road. Otherwise its usefulness is going to lose value very quickly at the risk of your investment.