Discounting is a race to the bottom and does not cultivate the brand love needed to create long-lasting customer loyalty.
In 1954, American psychologist James Olds and Canadian neuroscientist Peter Milner conducted an experiment to explore the psychological basis of rewards. They found that it’s not actually the rewards that motivate action, but rather it’s the anticipation of a reward, or the stress of desire that catalyzes action.
Since then, as a result of predictability in most loyalty programs, brands have trained customers to wait for big sales. This discount-centric approach not only incentivizes the wrong behavior — and cannibalizes revenues — but also misses the bigger opportunity: deepening customer relationships.
“The trap for c-stores is that many chains have loyalty programs that are not loyalty, but rather frequency rewards,” noted John Lofstock, editor-in-chief of CStore Decisions, in a recent article. “A true loyalty program recognizes individual purchase patterns and behaviors, and targets opportunities to improve value to the customer.”
Rational Loyalty: Transactions First
This transaction-based form of loyalty is categorized as “rational loyalty,” where consumers make purchases due to logical considerations. With this type of loyalty, customers value the program benefits that play into extrinsic motivators — or external incentives — like rewards and discounts. An example would be the classic punch card with a “buy nine cups of coffee, get one free” type of offer.
Of course, it’s no surprise that shoppers list monetary-based benefits as the ones that they care about most, but it’s also important to note that customers care almost as much about benefits that make them feel special and recognized. These more intrinsic motivators are what lead to the other category of loyalty — emotional loyalty.
Emotional Loyalty: A Deeper Connection
Emotional loyalty taps into the science of behavioral economics, moving beyond a transactional relationship to connect on deeper motivational factors.
Brands earn customers’ emotional loyalty by making individuals feel seen, valued and understood. This form of loyalty creates a bond between the brand and the customer that results in customer advocacy or “brand love.” It lives beyond a transaction and is cultivated through authentic, thoughtful moments. When a brand is able to accomplish these moments, it really ‘wows’ the customer — and it’s that sentiment that is amplified in stories that are shared with their friends, family, and in some cases, the world through platforms like social media.
The Grants Pass, Ore.-based drive-through coffee chain Dutch Bros. Coffee brings emotional loyalty to life by focusing on “interactions over transactions.” As the 500-plus-location coffee shop digitized its rewards program and consumer relationship, it found the key to success was keeping its friendly “broista” culture as a focus.
In partnership with Hathway, Dutch Bros. amplified the instant human connection by having the customer’s name front and center on the app. The app also allows customers to show off their personality by featuring their favorite digital “stickers.” Broistas can then give customers additional digital stickers and celebrate customer milestones, creating moments that customers share with others, enhancing the human connection and building brand love.
Powering Emotional Loyalty Through Data
To inform these strategies with actionable data, brands are delivering more customer satisfaction and sentiment surveys than ever before through scores like the Customer Loyalty Index. Algorithms are being used to turn responses into quantifiable data that help brands see the total value they’re delivering to customers both in-store and online. More progressive brands are adding more emotional components to their program by acknowledging members, not just for purchases, but also for their engagement with the brand.
Focusing on emotional loyalty versus rational loyalty puts convenience retailers in a better position to avoid creating discount-based rewards programs that cannibalize revenue from purchases customers would have otherwise made at full price. Discounting is a race to the bottom and does not cultivate the brand love needed to create long-lasting customer loyalty.
Download the free e-book “How the Digital Experience Drives Customer Loyalty” to learn more about how you can adapt your current program to drive higher engagement, heightened personalization, and craft a customized experience for your customers at bit.ly/CStoreLoyalty.
Kevin Rice is the executive vice president at Hathway+Bounteous, a digital growth partner for the restaurant and c-store industries that helps brands like Dash In, Domino’s and Raising Cane’s drive incremental revenue through digital experiences. Hathway joined Bounteous in November 2021.
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The Evolution of Loyalty: Rational vs. Emotional - Convenience Store Decisions
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