How to Increase Online Customer Loyalty By 82%

by Derek Halpern | Follow Him on Twitter Here

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You know the facts. Increasing customer loyalty…

  • yields big profits over the long haul
  • creates raving fans that promote your products for free
  • is cheaper than finding new customers

But the question remains. How can you increase customer loyalty online?

How Artificial Advancement Increases Customer Loyalty

Not long ago, in a major metropolitan area, two consumer researchers named Joseph Nunes and Xavier Drèz conducted a customer loyalty experiment at a local car wash.

On two consecutive Saturdays, they gave out a total of 300 customer loyalty cards. Half of those required 8 purchases to earn a free car wash. The other half required 10, but instead of requiring the full 10, the car wash gave 2 car wash head-start as a free bonus.

This means, in both scenarios, customers still needed to make 8 additional purchases before they could redeem a free car wash. The only difference was varying degrees of completeness. On one hand, customers were 0% complete, and on the other, they were 20% complete.

Now the question is, would this “artificial” progress increase customer loyalty?

During the next 9 months, 28 out of 150 people without a head-start earned a free car wash, but 51 out of 150 people with the head-start earned a free car wash. That’s an increase of 82%!

Artificial progress worked. This is big news for customer loyalty. If you give your customers a head-start on completing a loyalty program, they’re much more likely to continue to use your products and services.

Can Endowed Progress Increase Customer Loyalty Online?

Yes, but before we get into details, how do you define customer loyalty?

If you’re a blogger, customer loyalty is represented by how many people buy more than one of your information products. For example, if someone buys 4 of 4 of your products, I would consider that 100% customer loyalty.

However, if you’re a consultant or designer, customer loyalty is represented by how many people continuously use your services for their needs. For example, if I always use the same designer every time I need a blog design, that’s 100% loyalty.

Now let’s get down to business. How can endowed progress help increase customer loyalty online? Follow these three steps and you should have it working for your business in no time.

Step 1: Create A Goal

To take advantage of endowed progress, you need a goal for people to work towards. It could be a free hour of consulting, free ebook download, or a free ebook design. It doesn’t matter. You just need a valuable carrot at the end of the stick.

Step 2: Decide What Your Customers Must Do

What behavior do you want to reward? You could reward customers for each purchase they make. Or, maybe you could reward them for sending you referrals? Since you saw how you can reward purchases, here’s an example of how you can reward referrals:

Imagine you’re running a membership website. You recently released your affiliate program and you want your members to  promote it. You come up with a contest to increase membership. Every person who refers 10 customers gets a free pass to a conference.

This is your chance to use endowed progress. Instead of asking them to refer 10 people, you can ask them to refer 12 people, but you’ll give them a 2 person head-start because it’s a brand-new promotion.

Step 3: Pitch the Head-Start as a Bonus

You can’t skip this step. Giving people a head-start without telling them why they got it will adversely affect the results. So how can you present it?

Personally, I think the best way is by offering it as a limited-time bonus. I like this route because you can use it when you just launch a new product or service. It will create hype and get people moving now instead of later.

Who Uses Endowed Progress to Increase Customer Loyalty?

Less than everyone. And that’s a problem.

One of my favorite quotes comes from Dan Pink’s Ted Speech. He said, “there’s a mismatch between what science knows and what business does.”

Well, endowed progress is one of those mismatches. Science proved that it increases customer loyalty, yet most businesses fail to use it.

How do you think you could implement endowed progress in your business? Leave a comment. Or, do you know of someone who uses it online? Share that too!

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{ 48 comments… read them below or add one }

John

What about what Dan Pink says in Drive? He says that giving rewards could demotivate people once they achieve it. How would you avoid that?

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Catherine Caine

Well, 8 sales is still a decent rate of return. Even if they used the card (or its online equivalent) and walked away that’s still a whole lot of lifetime customer value.

Or you could move them up to the bigger VIP-only card!

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Derek

Well, I think what John is saying is, in Dan Pink’s new book Drive, they talk about how monetary rewards don’t work when dealing with creativity.

The thing is, this endowed progress doesn’t necessarily have to be a monetary reward. If you’re running a special bonus, people will try and complete it to earn it… but they won’t expect it.

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Leon Noone

G’day Derek,
Last tear I moved my 30 year old business from offline to online. For the last fifteen of those 30 years we operated only using a direct mail/telemarketing approach. It was totally built around what you call “endowed progress.” We offered a free 42 page Special Report as the inducement. It worked extraordinarily well. We’ll continue endowed progress online.

As a committed believer, may I add a couple of comments.

The inducement should have high perceived value to prospects and customers. Only their perception matters…….not yours.

If possible, it should be related to your expertise. You should only offer something that enables the customer to say ” I believe you” because they trust you judgement in that area.

Try to offer something that your competitors can’t offer. That’s a polite way of saying that you should avoid offering discounts. Discounts are common. And they create an expectation that customers can always haggle and get a cheaper price from you.

Remember that you’re establishing a long term relationship. It’s better to gift a valuable whatever to establish or reinforce your professional relationship than to use some tricky or cheapie tactic that may diminish your credibility.

May I conclude by saying that it’s good to see time-honoured and effective mail order techniques being promoted on the web.

Best Wishes

Leon Noone

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Derek

Hey Leon, I couldn’t agree with you more. Thanks for stopping by. And yes, mail order stuff is what works :-D

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Maren Kate

I think “creating a goal” is especially important! Love this post :) super good and to the point!

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Derek

Can’t go wrong there, eh?

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Darren Scott Monroe

Like I said via email great post Derek actually will be pointing to this post soon.

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Andy Fogarty

Wow!

The whole bit about the customer loyalty program was kind of a slap in the face for me.

I generally consider myself as being pretty much ahead of the curve when it comes to this sort of thing, but apparently I’ve been missing an extremely powerful yet easy to apply super ninja move.

I guess I’ll be knocking that out tomorrow.
Thanks for the slap.

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Derek

Your welcome :-D

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Joey

Awesome post. psychology never fails!…. well mostly.

I’ve always felt that the more you give, the more you get… But what a great way to maximize your investment!

Thanks for the insight.

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Derek Halpern

You’re welcome Joey. How do you plan on implementing it?

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Ruby

Hi Derek:

I’m just a little confused about the distinction between “artificial progress” and “endowed progress”. They sound very similar, but maybe I’m missing something here.

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Derek Halpern

It’s the same. When you endow people with progress, it can be artificial. For example, if I say you need to buy 10 shakes for a free shake, and I give you the shake card with 2 shakes already “bought.” I endowed you with 2, while artificially progressing you 2.

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christian howes

Derek- i’m going to try this with my membership program. there are currently 100 subscribers ($24.95 per month). I’ll suggest that I’m running a promotion- anyone who gets me 5 new trial members gets a free 30 minute lesson (consult) with me ($60 value). But subscribers get a “headstart” credit for 2, so they just need to bring me 3 trial members, this week only, before the price of the membership goes up next week.
I’m going to run by the email draft to you and see what you think- does this sound like a proper implementation of your strategy? we’ll see how it does. Derek- thanks, you’re the man!

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Derek Halpern

Just got your email. Will take a look. And I think this could work for you.

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Anthony

Very interesting stuff…thanks Derek. Hmmm….now to implement.

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Derek Halpern

I’m curious as to what you come up with.

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Tom Ewer

I love survey results (like yours at the start of the post) that completely change your perspective on consumer interaction. Human psychology is fascinating! Now I need to think about how I might apply this…

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Derek Halpern

Look at it like a 10 step method… and saying that you completed the first two steps for people already.

Even with products, for example. Hey everyone, here’s the product setup. I already did step 1 and 2 for you (built into the product), now you gotta do the rest).

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Mike Sigers

Nice find, Derek.

I’m gonna test this in two ways:

1) As a Bonus by paying the first 3 payments when they join a 12 payment program

2) And by paying the last 3 of their 12 payments when they join a 12 payment program

It will be interesting to see if paying their first 3 or last 3 is more of an enticement.

Which do you guess will be more effective?

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Derek Halpern

I think you can do this with payments, like you’re doing… and you can also do it with product setups.

For example, when you sell software, people may buy it and never install it because its too complicated. However, if you create a 10-step method, and say 2 of them are done already (the fact that they have an account and password for example), they may be more likely to install the product and then keep it instead of returning it.

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Mike Sigers

I like that!

I think I can work that into several things…ala “… it’s a 10 Step & 7 Day process, but we’ve done 2 of the 10 Steps for you so now you’re only 6 days from finishing.”

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Jenny Shih

I love your first idea, Mike. That would totally hook me, saying it’s a 12 month payment but I’ll make the first 3 payments.

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vlstakhov

Would be interesting to know how many initial subscribers will renew their subscription for a next term and which option would keep more of them.

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Martyn

This is the best piece of content you’ve ever written Derek. This is probably the best thing I’ve read in a month.

And that’s counting the fact that I’m reading “book yourself solid”, heh.

So I ask this question. How are YOU going to use this technique? I’m looking forward to seeing what happens. :)

P.S. Brave job publishing this on a Sunday. You’re an innovator, that’s for sure.

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Derek Halpern
Ken Faw

Derek, while your post triggered me to respond, the comments from your readers have helped me think about some new offers I can design as well. So I will thank you, but also thank them here where I have the space. (John, Leon, Christian, Mike… thanks!)

Specifically, I was concerned at first that this topic would be seen by my markets as discounting, and that over time it would trigger them to seek lower and lower pricing. Thinking of the incentives as something I can provide that others cannot, and setting time limits on this special promotion.. or making it for “members only” allows me several levers to preserve the value of my offers.

Again, thank you for this insight.
–k

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Derek Halpern

It doesn’t always have to deal with product sales. As I mentioned above…

“when you sell software, people may buy it and never install it because its too complicated. However, if you create a 10-step method, and say 2 of them are done already (the fact that they have an account and password for example), they may be more likely to install the product and then keep it instead of returning it.”

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Brandon Yanofsky

Makes sense Derek.

I’m definitely going to give this a try with my next product launch an have a customer loyalty program.

Where do you find all these business experiments?

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Derek Halpern

I read more books than probably anyone you know, heh. I also read a lot of academic research.

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Brandon Yanofsky

I’ve been reading those books you recommended to me a long time ago.

But to remember so much. You have superhuman abilities.

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Derek Halpern

I have a very good memory for things that I like.

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Igor

Interesting article Derek. Thank you for sharing!

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Dina

Brilliant article Derek! Im encouraged to try this to generate sales& referrals, however, I wonder how to track it. What method do you use to ensure some actually gives the referral before the goal is met?

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Derek Halpern

That sounds like you’d need the technology.

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Harrison Li

This is brilliant! have you ever read the greatest salesman in the world?

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Mr. G

Derek… Please give me a break man! If you continue writing good, useful stuff and that will also make me think… My head will blow!

Come back in a month, please! I still have to put into practice the stuff in the last 5 posts here and at the DIY blog.

;)

Good stuff as usual!

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Debra Edom

How would this work as a consultant? I offer complete website marketing plans at a high price. They are my high end product and what I’d like to sell more of.

Would I offer a free plan to others who recommend so many people? Or should I create a lower priced product and offer that?

Great article.

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Stu McLaren

Great article Derek – something VERY applicable for membership site owners.

Here’s how I’d tie it in…

- When someone joins your site you always want them to do something right away (upload their pic, update their profile, watch getting started videos etc.). Doing so increases retention because it makes the membership more “personal” and gets people consuming content faster.

- Create 10 steps and have 2 already completed (pull pic from Gravatar, etc.).

- Make the steps #3-7 REALLY easy (leave first comment, introduce yourself in the forum etc.). Helps build momentum and excitement.

- Make the reward upon completion access to a “bonus level” or “special report” (aka, extra goodness).

All of this is pretty easy and straight forward to implement. But the thing that I took away from this is to make it “visual” (show a progress bar) and help jump start the progress (which will create more momentum).

Awesome stuff Derek!

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Nick Palkowski

Stu, I think this idea is awesome. Have you seen any results from this? I was just thinking about how to apply it to membership site referrals but this is a great angle too.

Derek, this is great content. I am loving your stuff!

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Sergio Felix

Hey Derek,

I don’t know if this is going to work or not…

I’m creating a directory for offline businesses (specific niche involved) but since those places aren’t really business approachable, I was thinking of creating a sales page with an upfront promotion for the first month completely free.

Then mentioning that if they take advantage of that promotion in less than one week, they will get an introductory monthly price and a discount for their own website if they get interested in that.

Like I said in the beginning, I’m clueless if this is going to work but the goal is to make them to say YES (no matter what) to the first offer otherwise I won’t ever manage to get them to work with us.

With those kind of businesses, you regularly have just one shot.

Sergio

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Sean Mysel

Kind of late to this party but I do the same for my golf business…to the point where I only take referrals for in person lessons.

I created a “core” base of customers that would get the best price and would give them a free lesson if they purchased a Par 5 (five lessons). I’ve kept all my core customers and have grown my referral base from those customers where I’m booked two weeks in advance. In fact I’ve received referrals from referrals.

Thanks Derek!

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Jeremy

Derek,
I really like and appreciate your example about rewarding referrals. What system/software would you use to be able to track exactly who and how many people an affiliate actually referred?

thanks!

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Aradia G. of Aradia's Hand

I really like the idea of rewards for x amount of purchases (or money spent as I see a lot). I know I get excited and I always guard my punch/sticker cards because I REALLY want the offering. Sometimes I’ll just spend more just to get the “freebie” faster.

I think a sticker / X amount spent would work best and then amp it up by having it something like 200.00 total to meet and giving people a 30-50 head start could really work.

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Mike

My mind is about to blow up! Our salon is successful, but we have been thinking of ways to increase referrals, product sales, etc. So glad to have found Social Triggers through Twitter. I have ideas racing through my head! Have there been other salon owners implementing these techniques?

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Jillian Amari

You are so insightful and a it has been a great break in my day getting to read your blogs. I work for a small small company taking a run at a new direct to consumer project. During my research I stumbled upon your webpage and have learned so many tips and tricks I plan to present in hopes it helps! Thank you for making me laugh. After watching your videos I can hear your voice when I read your blogs its quite entertaining and super unicorn magical ;)

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Maggie

I’m a paper crafter and I’ve passed on your blog to over 300 of my fellow crafters. Over 70% of them are stay at home mom’s who can benefit from you, but me… I feel I should’ve majored in psychology instead of getting an MBA.. LoL.

I find myself taking notes while watching your videos. Once I apply your techniques I’ll be sure to post a testimonial. =)

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