Loyalty programmes that reward shoppers for using their brand have become commonplace over the last decade. Indeed, statistics by McKinsey suggest that between 2008 and 2012 memberships increased by 10% per year, averaging a whopping 23 loyalty programme memberships per household.
However, despite their abundance, many loyalty programmes are under-performing, and in a McKinsey study of 55 companies, the consultant concluded that in general loyalty programmes did not appear to drive stronger revenue growth.
So it is perhaps unsurprising that with one of the chief benefits of gamification being its ability to drive engagement from those playing the ‘game’, gamification has been creeping into the world of loyalty programmes in a bid to improve returns.
“Loyalty marketing is all about fostering engagement with customers,” explains LoyaltyOne Consulting managing partner Dennis Armbruster. “That’s why gamification is among the hottest trends in loyalty. It can be a compelling tool for early engagement and can act as a strong non-transactional engagement approach. To be sure, creating engagement with game design can be simple or complex, but the unparalleled rewards are apt to include increased customer activity, retention and advocacy.”
Indeed, a growing number of brands are adding gamification elements to their loyalty programmes – although they are not always done well. Two standout programmes that Armbruster highlights are Playstudios’ myVegas and American Airlines’ AAdvantage Passport Challenge.
Gamification in action
Marketed specifically to the mobile and social gamer, the myVEGAS rewards program allows players to earn points through a free mobile app, or by playing online casino games through Facebook. These points can be redeemed via real-world rewards such as hotel rooms, show tickets and meals. Using the myVEGAS platform, corporate partners of the program are able to strategically engage with their target consumers and turn them into loyal customers and advocates.
“myVegas has been a winner all around,” says Armbruster. “The offering attracts 1.3 million daily active users, who average 1.5 hours of playing time a day. The learnings from this endeavour are both valuable and not easily attained: Keep your offers relevant to your target audience and make your gamification strategy and functionality accessible.”
American Airlines developed its AAdvantage Passport Challenge programme following its merge with US Airways, when it was seeking a new way to engage and excite new customers. Leveraging a custom Facebook application, AAdvantage harnessed the power of social sharing and created a virtual ‘passport’ to increase awareness and offer members the chance to earn bonus points. Using a variety of touchpoints - from answering trivia questions, to a personalised dashboard tracking the travel of members and their friends, to selecting a specific flight path - AAdvantage offered a variety of ways for customers to engage with the programme and earn rewards.
The virtual passport worked.
Armbruster notes: “Participants earned more than 70% more stamps than expected, and the ROI produced by the programme was over 500%. American Airlines understood that people travel for all sorts of reasons, but traveling is inherently social. It’s human nature to want people to know where we're going and why. By tapping into that emotion, and enabling redemption though a variety of activities, AAdvantage hit the sweet spot when it comes to gamification.”
Nonetheless, gamifying loyalty programmes requires an understanding of the discipline and the customer if it is to succeed.
Some useful research into the secrets to successful loyalty programmes was recently uncovered by professors Joseph Nunes and Xavier Dreze. Their academic study, entitled “The Endowed Progress Effect”, analysed how artificial advancement affects customer effort when it comes to loyalty programmes.
The professors handed out 300 loyalty cards to customers at a car wash, explaining that each visit would result in a stamp on the card, with the incentive being that once all the slots had been stamped they could redeem a free car wash.
But two different kinds of cards were handed out: one group had cards that had eight slots needing to be stamped, and one group had 10 slots needing stamps, but with two already stamped. While both therefore needed the same number of stamps (eight), the results found that the second group had nearly double the rate of loyalty card completion – 34% vs 19%. What had happened?
The professors concluded that as the second group had a two-slot head start, they felt they didn’t have to start from scratch, which gave them greater motivation to complete the card. Nunes and Dreze established that artificial progress impacted motivation as it gave consumers the feeling that they had already negotiated one of the biggest mental barriers: getting started.
So what does this research tell us about how loyalty programmes can be successfully gamified to improve response?
- Set a clear goal. Unless there is a finish line in sight for customers, with a goal that is aligned with their desires, customers will lose interest. Ciotti believes that utilising your own product/service as the reward is the best path.
- Decide what customers should do to progress. This is where many businesses come unstuck, and you need to be very careful when choosing the behaviour you want to reward. While purchasing more items (i.e. more car washes) is logical and applicable for many industries, Ciotti warns that some online companies have created misaligned motivations with their customers when trying to encourage product use.
- Pitch the advancement as a bonus. Dreze and Nunes’ study revealed that artificial advancement would only work if there was a clear reason why people were receiving the extra boost forward – if points were seemingly being handed out for no reason, it would fail. The reasons for advancement can be simple, such as a bonus for new user sign up, but it is important to communicate to the customer why you’re giving them the bonus points.
While these are important steps in light of the research by Dreze and Nunes, there are other important rules of thumb that firms should bear in mind when gamifying their loyalty programmes.
“Gamification needs to be integrated into your overall marketing / loyalty strategy,” advises Armbruster. “More does not equal better, and gamification should not be considered a shiny object that will solve all challenges. It should seamlessly integrate the other elements of the brand’s overall customer engagement strategy, drive increased levels of engagement with your customers and capture new and meaningful data sets that can inform your strategic and tactical initiatives.
“Remember that gamification plays a role in a larger loyalty strategy. Its primary purpose as a tactic is to engage best customers and encourage a change in their behaviour. Though it should complement a brand’s marketing strategy, it should be a distinct and rewarding experience that it is differentiated from a more common operational touch point such as shopping or website browsing. The competitive element in gamification is essential and social integration is a must.
“Lastly, the barriers to entry for gamification should be fairly easy and points and activities should be accessible to your audience on a variety of levels, from causal engagement to higher level activities.”
Elsewhere, Zach Grossman, marketing strategist at Perka summarises the following tips to gamify a loyalty programme:
- Don’t forget the social-communal factor. Many successful games are viral and social, encouraging frequent engagement and play, and spreading the word about the programme. For this reason, integrating social media into the loyalty programme is a good idea.
- Remember the recognition factor. Recognition is a big motivator in successful games, so remember to show customers how they are progressing towards earning a reward. That means structuring your program levels so that goals feel within reach
- Keep time in mind. Get new members “over the hump”, by making it easy and instantly rewarding to take that first step in participating in your programme.
- Getting the right balance of challenge. Loyalty games need to be challenging but not too hard. For this reason it’s important to regularly remind customers how close they are to achieving a reward.
- The fun factor. Games need to be fun. Test outlandish rewards or limited-time offers that appeal to your customers’ taste. Remember, winning a freebie gives customers enjoyment beyond the value of the free item.
Armbruster has some final words of advice for those keen to capitalise on gamification for loyalty programmes.
“With gamification, significant gains in engagement and revenue growth are possible, but not always sustainable. Consequently, it’s prudent to set reasonable expectations for the management team,” he notes.
“Staying with the issue of focus, it’s important to maintain a focus of 12 months or more. Don’t expect a programme to set the world afire from the first day. There’s more to be gained by slowly revealing the complexity of a program and leaving the customer looking for more. Don’t reveal too much too soon, as players can become bored with the game.
“In keeping with the less is more theme when it comes to prizes, it’s advisable to start slowly and build up to the mega-reward that delivers on the surprise and delight promise. Understand that not all your customers will find game mechanics interesting or engaging so focus your efforts on key customer segments and look for ways to borrow equity from existing game platforms and brands.
“Finally, keep it simple and focus on a minimal number metrics. Engagement is the key however it may or may not result in direct purchase activity. Longitudinal studies will likely be necessary to fully understand the impact your gamification efforts are having on long-term business factors and customer loyalty.”
About Neil Davey
Neil Davey is the managing editor of MyCustomer. An experienced business journalist and editor, Neil has worked on a variety of newspapers, magazines and websites over the past 15 years, including Internet Works, CXO magazine and Business Management. He joined Sift Media in 2007.