After the Purchase: Optimizing Customer Retention Through Gamification

After the Purchase: Optimizing Customer Retention Through Gamification

TechValidate’s research found that “30% of companies using gamification improved registration conversion rates by upwards of 50%.” But how can we use it to retain more customers?

Why Gamify Customer Retention?

Gamification is the “application of game-thinking in non-game contexts.” We borrow the mechanics of traditional games and apply them to uncommon concepts, like customer retention.

Acquiring new customers is expensive. So, reducing customer churn can greatly impact your company’s financial health. A study in the Harvard Business Review noted that increasing customer retention by 5% can generate a 25%-95% increase in profit.

The main objective of retention is to continue ongoing relationships with customers. Brand loyalty is considered difficult to measure. So, experts generally use customer engagement as an effective indicator of loyalty.

An engaged consumer is more likely to stay loyal and buy more products and services. By introducing games, businesses motivate shoppers to indulge their competitive instincts to drive engagement.

In return, your company should notice an increase in lifetime value (LTV). When executed correctly, the LTV of loyal customers should be 15-40% higher than the LTV of your average customer:

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Calculating lifetime value offers insight into the overall worth of loyal customers. Moreover, it sheds light on whether your gamification techniques are too costly.

Reward Structures

Your marketing strategy must cater to a diverse group of participants. Understand your audience to create campaigns that will appeal to your shoppers. Tailor your gamification techniques to deliver targeted messages based on your consumers’ behaviors.

Several reward structures exist. Here are three different types to consider:

1. Points

A points system is a common loyalty program. Customers earn points based on their behaviors, which translates into rewards. This method works well for businesses that promote frequent, short-term purchases.

At Smoothie King, you can earn rewards for every smoothie and retail purchase:

smoothie king rewards
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Studies show that “higher point values may be directly correlated to increased customer spending.” However, what really matters is the ease of the redemption process and the rewards available.

Companies tend to complicate the points system by establishing tricky rules to redeem customer prizes or modifying the conditions completely.

Earlier this year, both Delta Airlines and United Airlines changed from a miles-flown to a dollars-spent rewards system. Now, passengers have to spend more money to earn a free flight through points.

delta gamification
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Make the process hassle-free for your customers. No hidden fees or rules.

2. Achievement

This approach requires participants to attain certain levels of achievement. After participants complete a set of actions or tasks, they can unlock benefits.

Some businesses couple this technique with a tiers system. That way, every level attained offers customers more rewards for more engagement. A hybrid structure like this is sufficient for higher price-point businesses, like airlines and hospitality companies.

With an achievement system, companies can recognize when, where, and how customers interact with their brand. Then, they can update the loyalty program to align with particular consumer interactions.

Virtual training academy Treehouse teaches beginners coding, app development, and business skills. To keep students from cancelling their monthly subscriptions, they motivate users to earn badges and points as they work through the course material.

A tracker displays the student’s progress as he or she works towards specific goals. Students then can show off their achievements and impress potential employers.

Treehouse badge gamification
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3. Competition

People like a healthy competition. Let customers compete against one another and feature a leaderboard with scores updated daily.

Autodesk, a 3D design, engineering and entertainment software company, implemented this strategy to increase usage during the trial period of their 3DS Max product. They discovered that trial users were more likely to convert to customers if they used the software at least three times during the trial.

Due to the software’s complexity, Autodesk turned to gamification to create captivating tutorials.. As participants collected points in virtual “missions,” they would advance on the leaderboard. Top users received a prize for their efforts.

autodesk gamification
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The results made an impact. The contest increased trial engagement by 54% and conversion rates by 15%. In addition, there was a 29% increase in revenue per trial, meaning that shoppers were purchasing more expensive products or several software licenses.

When Gamification Fails

Not every gamification strategy works effectively. If not executed properly, it can harm your brand, instead of help you.

Merely adding game mechanics to your products won’t automatically make them better. Well-designed games highlight product benefits and add value to the customer experience.

Without clear expectations, gamification can mislead and frustrate customers, or even invite them to use your product incorrectly.

Leverage gamification as a tactic to achieve long-term benefits. Here’s two examples of how gamification backfires:

1. Subway

Before 2005, Subway gave customers a free meal after they would collect stamps on a paper-made card. Unfortunately, the fast food restaurant learned the hard way that eating habits can’t be tracked in such a manner. An influx of counterfeiters began copying these highly sought-after loyalty stickers.

Disconnected from the customers’ behaviors, the food chain made another wrong turn. Subway transitioned into a food-scoring system that yields 1 point per dollar spent. It decided that a footlong sandwich was worth 75 stamps. Why would a $75 investment be worthy of a $5 footlong?

subway gamification fail
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2. Any Supermarket Card

Yes, seriously. Supermarket customer-loyalty cards offer little value.

Colloquy Talk found that grocery store products with a Kroger loyalty card are priced higher than products at their competitor Target without a card.

Consumer Reports also notes that customers “can save big on this week’s specials, but it’s easy to blow all of your savings buying other higher-priced items while you’re in the store.”

To gain a competitive advantage, offer valuable benefits to your customers. Translation: Give the customer what they desire or need. If not, you may risk losing revenue over lackluster customer retention practices.

supermarket cards fail
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The Rise of Digital Loyalty Programs

A digital approach gives way to personalization, faster turnaround, and streamlined administration for businesses.

With digital rewards, customers can receive their rewards instantly. No more stockpiling coupons and sending them via snail mail.

Digital rewards service providers offer online merchandise in various brands, value denominations, and local currencies. Companies also can manage inventory in real-time.

Here are great examples to replicate.

1. Starbucks

Starbucks creates a unique experience for their caffeine drinkers. The American coffee company has integrated payments and mobile technology into the program to make transactions more enjoyable.

Reward members can place drink orders and make payments with their Starbucks mobile app. The franchise also segments customers to send targeted messages aimed at engaging lapsed members.

Starbucks likes to incentivize consumer behavior. They want customers to engage with their brand through multiple in-store visits. In the image below, the store gives morning purchasers a discount on a Grande iced drink if they visit again in the afternoon.

starbucks gamify
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Just recently, Starbucks announced a new partnership with Lyft, the ride-hailing start-up. The deal centers around the My Starbucks Rewards loyalty program.

Under the agreement, “customers can earn points toward coffee and food every time they use Lyft.” Passengers also can tip their drivers with Starbucks points within the Lyft app.

2. Kuru Footwear

Kuru Footwear entices its customers to share products through social media channels. Every time a customer shares via Facebook, Twitter, Pinterest, or Google+, the individual is awarded 25 points.

Here’s an example of the direct call-to-action:

login gamify
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This type of sharing increases brand exposure that carries more trust than a typical online advertisement. The recommendation comes from a friend, not a corporation.

The eCommerce shoe store also views their loyalty program as a way to build rapport with their future customer base. Kuru encourages current customers to leave reviews after purchasing.

Kuru shoppers receive reward points when they leave honest opinions about the products and shopping experience. The company benefits twofold: candid feedback regarding inventory and social proof to spread to prospects.

review reward
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Does (Reward) Size Matter?

Rewards requiring long-time periods don’t drive customer interaction. Similar to the Subway example, the “Buy 9, Get 1 Free” takes a while to redeem.

Engage shoppers with small, quick rewards. Let them redeem prizes on the second or third store visit. Try: “Receive a free small fry after your second visit.”

Move beyond discounting your services in loyalty programs. Forrester analyst Emily Collins says, “Loyalty as we know it today, ruled by points and discounts, is insufficient.”

For some brands, discounting lowers the perception of the service’s value, and you’re inadvertently teaching shoppers that your services are not worth full price.

Instead of discounting, add bonuses to a customer’s purchase. For example, “Buy 1, Get 1 Free.”

buy one get one
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The rewards issued should underline your overall brand strategy. Starbucks, for instance, is able to lure people into its stores on a regular basis.

Tap into your shoppers’ emotional loyalty. Evaluate which relationships are important for your business and design a rewards program that cultivates those customers, says Michael Hemsey, president of Kobie Marketing.

4 Strategies for Better Conversions

Gamification integrated into your customer loyalty program means nothing if it isn’t optimized to produce the maximum results.

As we covered, not all companies create a winning loyalty program, either because they lack customer insight or it’s too cumbersome to maintain.

If you want to see higher amounts of revenue from existing clients and reduced customer falloff, focus on persuading consumers to become brand loyal.

Let the following strategies guide you.

1. Easy Sign-Up Process

Customers appreciate a short sign-up process. No long forms or lengthy questions. Enroll shoppers into your loyalty program by requesting basic information, like name and email address.

Use an infographic to show them how quick and easy they can join. For extra credit, tell them how many minutes it takes to fill out the form. Here’s a banner from Rewards:

hotels rewards
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Eliminate any barriers for a customer to join. Gilt gives shoppers a choice to sign up for their free memberships via email or Facebook. This social login feature lets users share, buy, and interact on social sites with your brand.

gilt social login
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2. Give Simple Rules

Loyalty programs need easy-to-understand rules. Do not include a long list of rules and restrictions. If rules are too confusing, customers will quickly lose interest in the rewards program.

By starting with straightforward rules, your company can adjust to the consumer. Changes will occur due to customer feedback, unintended loopholes, and new business features. So, keep it simple; then, evolve as the program grows.

Take note from Jamba Juice below:

jamba juice gamification

3. Personalize Offers

According to a research report by CrowdTwist, shoppers who experienced targeted offers in loyalty programs prefer personalized coupons (67%), customized offers or promotions (62%), and product recommendations (58%).

Personalized products equates to a positive brand. It inspires customers to purchase more and creates a path toward brand advocacy.

Based on prior shopping history, Sephora creates personalized product recommendations for Beauty Insider members.

Sephora personalization rewards
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But what about prospects? Sephora solved this problem with their Beauty Profile. A new shopper inputs hair type, skin type, and other information, and Sephora generates recommendations specific to the individual’s needs.

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Deliver customized offers that match the consumer’s habits and needs. Use data integration and demographic analysis to meet these expectations.

4. Reward for Non-Purchase Activities

Slow reward accumulation is one of the leading reasons why shoppers abandon loyalty programs. So, make it easy for customers to earn points.

Customers can show brand loyalty without buying products. Reward shoppers for their non-purchase activities. Let people earn points when they refer a friend or sign up for your mailing list.

For instance, Office Depot rewards customers for joining the program and recycling their ink and toner cartridges. The office supply retailer also gives participants a special gift on their birthdays.

office depot gamification
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If your team creates and executes a strategy derived from the customers’ behaviors and expectations, gamification can boost retention.

Choosing the right reward structure can safeguard your business from undesirable gamification failures. Digital rewards also can help your business avoid fraud and provide instant gratification to the customer experience. Stay away from discounting your products, instead offer personalized deals.

Leverage gamification as a tool to increase customer retention, not as a gimmick for short-term gain.

Feature image source.

Join the Conversation Add Your Comment

  1. I guess applying the Leverage of gamification as a tactic to achieve long-term benefits is worth trying if a business is sure of increasing customer retention.

    The concept may be alien to most businesses thus spreading more information about its benefits to businessmen would help increase traction.

    Well, I guess this post can give one a head start on what to do when it comes to leveraging on gamification. The stats and examples of industries that have applied it as shared in this post are revealing to people like me.

    I left the above comment in as well

    1. Alex Birkett

      Thanks for commenting, Sunday. I’m glad you liked the article!

  2. Good morning,

    Great ideas for marketing strategy and for enterpreneur-cutomer joyful relationship. September 8, 2015, Tuesday 12:29p.m.

    Thank you for sharing your great ideas.

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After the Purchase: Optimizing Customer Retention Through Gamification