There may be benefits to adding uncertainty to rewards programs

Discussion
Oct 05, 2018
Tom Ryan

While conventional wisdom suggests consumers would be turned off by uncertain gains or rewards as part of a loyalty program, a study from the University of Chicago Booth School of Business finds uncertainty can play an important role in motivating repeat behaviors.

In the study, “The Fun and Function of Uncertainty: Uncertain Incentives Reinforce Repetition Decisions,” four experiments found uncertain rewards consistently motivated consumers more than certain rewards in both lab and field settings.

In one experiment, students at a running club in Hong Kong were told they could earn points by running, jogging or speed walking on a 400-meter outdoor track during a 15-day event. Half were told they would earn five rewards points after each lap and the other half randomly received either three or five points. The ones who received the random points logged more laps, even though the uncertain point condition held the potential of a worse financial outcome.

Beyond any loyalty rewards implications, the researchers pointed to other ways uncertainty appeals to consumers:

  • Meal-kit delivery services such as Blue Apron send their subscribers a box of unknown groceries every week.  
  • Apple music pushes a list of new music to their subscribers.  
  • Birchbox mails out boxes of skincare and makeup samples.  
  • BarkBox gives pet owners a box full of surprise dog treats and toys based on that month’s theme. 

“These services all share one important feature,” said Christopher Hsee, a professor at the Booth School and one of the study’s authors, in a statement. “They keep the box mysterious and let their customers have fun opening the packages and discovering the products. The uncertainty keeps the customers coming back.” 

Adding uncertainty could also help other repeat behaviors, such as encouraging shoppers to bring reusable bags. The study stated, “Our research reveals that human reactions to uncertainty are more complex and nuanced than commonly thought.”

Keep them guessing, keep them gaming  University of Chicago Booth School of Business 

DISCUSSION QUESTIONS: What lessons should retailers take away from University of Chicago Booth School of Business’ study showing the benefits of uncertain awards or offers? Can you think of any other examples in which uncertainty pays off better than certainty in retailing?

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Braintrust
"Discovery, chance, mystery, surprise and delight are all essentially emotion-based concepts, and that's why they appeal to shoppers/consumers in the loyalty space. "

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17 Comments on "There may be benefits to adding uncertainty to rewards programs"


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Min-Jee Hwang
BrainTrust

The uncertain rewards definitely play into the same psychological draw that gambling provides. We all want to win, and you can only win when you there’s the risk of losing. This type of uncertainty provides that same thrill of winning when you get the rewards you wanted, and motivates you to come back for more when you miss out. This is definitely a tactic that retailers can incorporate when relevant. It’s also the same tactic that McDonald’s, Dunkin’, and other QSRs use with their lottery-style reward games.

Charles Dimov
BrainTrust

Interesting idea. Retailers need to take this with a grain of salt. Test their own customers with a small project to see what results they get from their specific shoppers. If it is an unexpected award or reward, then I think the uncertainty or a gambling aspect can heighten the experience, making it more memorable. Memorability is a great quality associated with a retail brand.

David Weinand
BrainTrust

I don’t know that the example really points to the fact that in retail, uncertain loyalty rewards will win. The discovery aspect is definitely real and the subscription service examples are a good reference point (also it is behind the success of TJX). Gamification in loyalty programs has been a proven winner but I think the certainty of the rewards has more appeal than the inverse.

Anne Howe
BrainTrust

Discovery, chance, mystery, surprise and delight are all essentially emotion-based concepts, and that’s why they appeal to shoppers/consumers in the loyalty space. Many promotional campaigns use these tactics as well because they work! There’s definitely room for more of this within retail!

Ian Percy
BrainTrust

Nothing new here at all. I did my graduate work and research in psychology back in the late seventies storing data on punch cards that I very quickly learned to number. Younger colleagues on the BrainTrust may well wonder “What’s he talking about?”

Even back then as we honed our research skills by training white rats, we learned that intermittent and non-predictable rewards significantly increased the desired behavior. And this outcome was known decades before that. When “rewards” are consistent and regulated they quickly become expectations and entitlement. The idea of “motivation” ceases to be part of the formula.

As someone one said: “If you want a new idea, look in an old book.” It appears the U of C did exactly that.

Lee Kent
BrainTrust

The lesson retailers should take away is, know your customer and give them what they want or will enjoy. I doubt the Hong Kong runners club would fly very well and if you send a surprise box that has nothing in it that the customer likes, that may not inspire them very much. On the other hand I have a VIP pass at a restaurant because I like their food. Each month they offer something to the VIPs like a three-course dinner with wine pairings at a very low/reasonable price. This is a winning program. For my 2 cents.

Evan Snively
BrainTrust
I’ve found that the most engaging reward programs utilize a mix of of explicit and implicit rule structures. There needs to be an understandable and core value proposition that customers can rely on, but that gets boring so adding elements of uncertainty should be utilized to keep things novel. A not-so-great example of adding uncertainty to a rewards program, in my opinion, is Panera — whose program is nearly 100 percent implicit. Sometimes you have rewards, sometimes you don’t — but because the consumer does not have a set of rules they can master, the lack of control makes the “game” less engaging. A popular example of leveraging the psychology of uncertainty is how Kohl’s (and many others) heavily utilize scratch off discounts at 15 percent, 20 percent, and 30 percent. When a customer unveils a 30 percent off offer they feel as if they “have won” and they actually feel guilty not utilizing their prize. The same emotional response would not be evoked had they simply received a 30 percent coupon as the “standard”… Read more »
Ian Percy
BrainTrust

Evan, you’ve hit on a point that is not likely to be raised very often in this discussion. That is: What behavior do you want to see? Too often retailers have a non-defined expectation like “to buy more stuff from our store.” Clearly we need deeper thinking than that. Appreciate your excellent contribution.

Jeff Sward
Guest

The treasure hunt mentality has worked phenomenally for T.J.Maxx all these years. It’s not just the fun of the uncertainty, it’s the probability that the customer will find something they like at a great price. The uncertainty plus probability combination keeps things interesting — fun.

Ralph Jacobson
BrainTrust

People play the lottery for similar reasons. I think experimentation here is great.

Ray Riley
BrainTrust

Uncertainty is a primary principle of the off-price “value hunting” element that boosts Nordstrom Rack, Saks off Fifth, TJX etc. You don’t know what you’ll find, there’s a scarcity factor, and every few days there appears to be limited designer styles at great discounts available. For many, it’s a lot better than attending the full-price outlet with the certainty of five to 10 sizes of each style on a rack.

Shep Hyken
BrainTrust

A loyalty program doesn’t always have to be about redeeming points. Sometimes it’s about the company showing the customer some love and respect. A fun way to do that is with surprises. Fun goes to emotion and emotion is what loyalty is about.

David Naumann
BrainTrust

I am not sure retailers should correlate the findings from the running club in Hong Kong with what would motivate consumers to spend more. Many consumers, including myself, are not motivated by loyalty programs that are unclear or uncertain on the rewards structure. For example, one retail loyalty program I am a member of doesn’t publish the reward structure and I asked a store associate once, “I have never received a reward, what do I need to spend to get a reward?” The associate said “I don’t know, but you might get a reward sometime.” This made me frustrated and it didn’t make me want to shop there.

On the flip side, when I know I am close to reaching a threshold in a loyalty program, I will consciously spend more to receive the reward. While uncertainty works well for subscription-based product programs, which has the thrill of the surprise, I am not convinced it is effective for retail loyalty programs.

Cate Trotter
BrainTrust

This is an interesting one. Psychologically you can understand how it makes sense but you would need to be careful to make sure that customers feel that they have a fair chance of getting a reward. If it seems too unbalanced or the same people keep getting lucky too often then customers may be turned off thinking they will never benefit. I like the “random acts of kindness” benefits approach that places like Pret and Lush do. Staff are empowered to gift free drinks or free products to customers if they want to — maybe someone is having a bad day or is celebrating or has spent a lot of money. It has that randomness but the general shopping experience for all customers is the same. And the knowledge in the back of your mind that one day you might get a little extra may help keep you going to those retailers over others.

Jennifer McDermott
BrainTrust

I see this less as gambling and more as examples of the “surprise and delight” moments marketers have been creating for customers for years. Being promised something brings feelings of entitlement whereas these unexpected value-adds generate the warm and fuzzy feelings that strengthen loyalty. Often low cost, but definitely high impact.

Sterling Hawkins
BrainTrust

It’s why people play the lottery and it’s why the whole idea of “surprise and delight” works so well in retail. Most people have a natural predisposition to engage with what they expect. When there’s something that breaks that natural cycle of monotony it’s notable and even exciting because it’s new and different. Building habits with certainty is great; keeping active engagement present with uncertainty keeps it alive.

Ananda Chakravarty
BrainTrust

Uncertainty makes sense only when paired with value. Customers expect that they will be getting something they want or a benefit of some sort. If not, or if the benefit is unappealing, it will backfire quickly and interest will vanish. Can’t forget the line from Forrest Gump when thinking about this question: “Life is like a box of chocolates, you never know what you’re gonna get.” The key is that you still know you’re getting some kind of sweet chocolate candy.

Another place uncertainty might pay off in retailing is in store format. This can impact any retailer with fashion or rapidly changing trends as a factor. Walking through an Ikea store is neat, but what makes it even neater is the variety of furniture configurations you would never have thought of to experience while traversing the store. Same with introducing new lines of apparel or shoes. Novelty has a place.

wpDiscuz
Braintrust
"Discovery, chance, mystery, surprise and delight are all essentially emotion-based concepts, and that's why they appeal to shoppers/consumers in the loyalty space. "

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