One thing we’re interested in at the Tulsa Initiative is how to get people to change their behaviors, borrowing heavily from ideas in psychology and behavioral economics (see Nudge or the work of two of our colleagues on the Tulsa Children’s Project, Michael Barr and Sendhil Mullainathan). So I like to keep my eyes on what others are doing to fool, cajole, or “nudge” people into behaving in a preferred way.
Capital Ideas, a marketing publication from the University of Chicago’s Graduate School of Business and, apparently, something I subscribe to, has an article in the November issue on why marketers should use customer rewards programs to trick persuade their loyal customers to spend more.
The first experiment looked at coffee purchases by customers who participated in a coffee rewards program at a café located within the campus of a large university. Customers were offered a card that would let them earn one free coffee after buying ten coffees. To keep track of the timing of purchases, a participant’s card was stamped after each purchase.
As participants in the rewards program accumulated more stamps on their cards, the authors observed that the average length of time before the next coffee purchase decreased. Members bought that next coffee sooner the closer they were to getting a free one. In fact, the average time between purchases accelerated by about 20 percent from the first to the last stamp on the card. In other words, members purchased two more coffees in the time it took to complete the card than they would have if they hadn’t accelerated their purchases. (emphasis mine)
The author, Oleg Urminsky, recommends that marketers structure rewards programs that create “the illusion of progress” so that customers will shell out more cash more quickly increase their frequency of participation. For instance, customers who were given a 12 stamp card with 2 “free” stamps already given completed the program 3 days faster than customers with a regular 10 stamp card (12.7 vs 15.6 days).
For people like me, who usually forget that I have a rewards card in my wallet until I’ve walked out the door, Urminsky adds that the customer should get “regular updates about where they are in the program.” Sage advice indeed.
The obvious implication for service delivery is that programs should contain a rewards program that incentizives the desired behavior. But it seems to me that this effect, which is unsexily titled the “goal-gradient hypothesis”, could be leveraged outside of rewards programs per se. For example, if we were to design a matched savings program with the goal of purchasing a $4,000 car (clearly this is strictly hypothetical…), this research suggests that matching at the front end could be more effective than matching at the same rate throughout. That is, a 100% match up to the first $500 would move the participant toward the savings goal quickly and help the participant overcome any initial resistance to savings (e.g. the goal seems too distant). The match rate could then be reduced as the participant increases their own savings behavior as they near their goal.
What am I missing?
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