The psychology behind customer loyalty programs and influencing consumer behavior

Customer loyalty is the lifeblood of successful businesses. Loyal customers spend more, return repeatedly, and become your best brand ambassadors. But what makes customers stick around? Beyond product quality and excellent service, clever psychology significantly influences consumer behavior and encourages repeat visits.  

The cost of acquiring new customers highlights the importance of loyalty. Studies suggest it can cost a staggering four to five times more to acquire a new customer than to retain an existing one. Other studies even suggest the ratio is closer to seven times more expensive! These numbers underscore the immense value of fostering long-term customer relationships. That’s why well-structured customer loyalty programs are powerful in any business toolkit.

What are customer loyalty programs?

A customer loyalty program is a structured system for rewarding customers for continued patronage. The ultimate goal is simple: increase customer retention and boost profits. Imagine two new cafes side-by-side. Both are tastefully designed, appeal to you, and sell great coffee at the same price. One offers a “buy 9, get your 10th coffee free” stamp card; the other doesn’t. Which one are you more likely to visit? The answer is quite obvious for most people, especially with rising inflation. 

The psychology behind customer loyalty programs

Customer loyalty programs cleverly tap into deep-rooted psychological principles to make themselves irresistible. At their core, neuroscience suggests that loyalty programs exploit our innate desire for rewards, leveraging the powerful effect of dopamine—a neurotransmitter linked to pleasure and satisfaction. When customers receive rewards, their brains release dopamine, creating a sense of joy and encouragement to repeat the behavior that led to this positive outcome. This mechanism taps into the brain’s reward system, subtly nudging customers towards more frequent and loyal purchasing behaviors. Let’s break down a few key factors influencing consumer behavior:

1. The power of habit

Customer loyalty programs thrive on consistency. By rewarding purchase after purchase, they help turn shopping at your business into a habit. Additional rewards for actions like social media engagement or referrals can further cement those positive behaviors. Customers who share positive experiences on social media or bring in a friend are encouraged to continue such consumer behavior.

Sephora’s Beauty Insider Rewards program is a fantastic example of habit formation. With this program, customers earn one point for every dollar spent, and the points accumulate with increasingly enticing benefits. These points can be redeemed for deluxe product samples, exclusive gifts, and even full-sized items. This way, Sephora builds a rewards-focused habit, as customers focus on racking up points to redeem rewards. Plus, the accumulation of visual points encourages repeat purchases. The company also consistently holds limited-time offers and seasonal point multiplier events, which increases motivation to earn rewards. Consistent rewards and visible progress toward the next tier also encourage regular interaction with the brand, reinforcing a solid, consistent shopping habit among members. 

2. Motivation to earn rewards

Gamification turns any customer loyalty program into an engaging experience.  Seeing progress towards the next reward – a free item, a discount, or an exclusive benefit – taps into our intrinsic motivation, making the process fun and exciting. A progress bar that visually fills up, or points that add up with each purchase, creates a thrilling sense of anticipation.  This anticipation can be incredibly effective – scientific studies suggest that the mere anticipation of a reward triggers dopamine release in the brain, similar to the feeling of actual achievement.

Just look at Starbucks Rewards. The coffee company has a visually appealing app that shows customers their progress towards free drinks or special offers. The visual interface makes customers feel like they are in a playful competition with themselves, which can significantly boost customer loyalty and retention.

3. Sense of belonging

Humans crave community, and loyalty programs tap into that fundamental desire. By creating membership tiers or exclusive clubs, they offer a feeling of belonging that goes beyond transactions. This strengthens the emotional connection between the customer and your brand. Think of how special it feels to be a “Gold Member” or a “VIP”—it comes with a sense of status and exclusivity that simple discounts cannot convey. Therefore, crafting this sense of community within a customer loyalty program is a must-have to reinforce positive consumer behavior.

Airline frequent flyer programs perfectly demonstrate this principle. Customers who rack up miles and achieve higher tiers unlock exclusive perks like priority boarding, lounge access, and complimentary upgrades. These privileges foster a sense of belonging to an elite club, strengthening loyalty and motivating customers to choose that airline repeatedly.

4. Principle of loss aversion

The principle of loss aversion taps into a deep-rooted human instinct: we are far more motivated to avoid losses than to achieve equivalent gains. Loyalty programs cleverly leverage this by creating potential “losses” customers want to avoid. Expiring points, limited-time offers, and exclusive benefits that could disappear with inactivity create a subtle sense of urgency, often called FOMO (fear of missing out).

“Free” two-day shipping, exclusive deals, and access to Prime Video content are how Amazon Prime creates that sense of FOMO with its customer loyalty program. The annual subscription fee establishes a sense of sunk cost – members feel they must use the service enough to justify the expense, creating a fear of missing out if the membership is cancelled. This encourages customers to use Amazon to maximize their perceived benefits consistently.

Sweeten every purchase with Qashier Treats

Qashier understands the value of loyal customers. That’s why we’ve created Qashier Treats, a powerful new customer loyalty rewards feature to keep your customers returning. Our system is built on psychological factors influencing consumer behavior, offering:

• Straightforward points system: Customers earn points automatically with every purchase, later converted to PHP for clear value.
• Instant reward: Customers immediately see how Treats points reduce the cost of their next purchase – a powerful motivator!

With inflation driving up costs, businesses can no longer rely on price alone to compete.  Slashing your profits or passing the entire cost burden onto shoppers is risky, and you might drive away even your most loyal customers. Innovative customer loyalty programs like Qashier Treats offer a practical alternative, allowing you to reward loyal customers and strengthen relationships without sacrificing your bottom line.

Conclusion

Loyalty programs are more than discounts. They nurture positive consumer behavior and long-term brand engagement when designed with human psychology. Qashier Treats puts a powerful, easy-to-use customer loyalty program at your fingertips, helping you build a thriving, loyal customer base.

More about Qashier

Qashier offers multiple digital solutions, including QR code table ordering, table management (F&B), employee management, customer relationship management (loyalty programs), inventory management, data analytics, and track payments, in an all-in-one device.

Qashier promises a seamless setup within 10 minutes, without the need for technical expertise. It boasts a user-friendly interface that is simple for anyone to learn and use. If you require assistance, you’ll find 7 days-a-week responsive technical support from your local team.

Try the Qashier app for free on your own Android device! Speak to us to see if Qashier’s Smart POS can meet your business needs. Schedule a meeting with us here, or contact us at +63 917 QASHIER (7274437) (Whatsapp and Viber) or email at [email protected].