Why Non-Cash Rewards Are Best For Brands
If brands—whether they’re brick and mortar merchants or online e-commerce vendors—want to increase customer satisfaction, they ought to offer non-monetary rewards, recent research suggests. But why?
It stands to reason that if two consumers receive rewards with the same dollar value, whether in cash or as a gift, they ought to show the same level of satisfaction. However, studies find this is often not the case, with users that received non monetary rewards experiencing consistently higher satisfaction levels than those who did not.
According to a study conducted by the Kellogg School of Management at Northwestern University, this behavior is due in part to what researchers dub “value sensitivity”, or the participant's’ ability to make an educated guess as to the value of their reward: “...present research demonstrates that countability (how easily a product or service can be counted using simple whole numbers) feeds into value sensitivity and thus moderates the impact of inequity on satisfaction” (Northwestern University).
To put this hypothesis to the test, researchers conducted nine various experiments in which they gifted participants with either cash or slices of cake. While participants that were rewarded with slices of cake felt satisfied with their reward, users that received cash in lieu of the cake found themselves far more dissatisfied. It’s a result we’ve also validated in our white paper on the impact of reward based promotions vs. discount based promotions: with over 1,000 consumers surveyed worldwide, one of the study’s most compelling findings was the fact that reward-based promotions consistently outperform discount-based promotions in both brand equity and purchase intention.
But just exactly how is this possible? In order to more fully understand these results, a basic understanding of human behavior—particularly as it applies to the psychology of pleasure—is necessary. What’s key to understanding the psychology of pleasure is the fact that the nucleus accumbens, the brain’s reward circuit, activates not just when a reward is received, but activates in anticipation of the reward instead, a phenomenon we explore in our “Why Do Consumers Love Rewards?” piece.
This piece of information is vital to the Kellogg researchers’ hypothesis on value sensitivity. When a consumer is able to assign a specific cash value to a reward, the brain’s ability to anticipate the reward becomes diminished. This then allows for the participants with slices of cake to be more satisfied than their cash-carrying counterparts as it shifts their cognitive focus away from strict value comparison to consumptive experiences (in this case, enjoying the cake) instead (Northwestern University).
What does this then mean for marketers looking to reward their customers? It means that typical rewards which are easily counted, such as frequent flyer miles, are viewed as less meaningful than customizable gifts like music or movies, with more personal gifts “tend[ing] to break through the connotation of cash value” (L’Atelier BNP Paribas). Marketers looking to strengthen brand loyalty should then seek out to give out rewards that look more like “real rewards”, or items that are customized to the wants and needs of the recipient, rather than distribute blanket rewards whose values can be easily assigned.
And with a whole range of new, digital rewards available on the market, customers no longer even have to experience such high waiting thresholds in order to redeem their gifts. Brands can utilize the power of the value sensitivity principle by tailoring their rewards to match specific customer preferences. Whether it’s a free magazine subscription accessible via email or a code redeemable for an mp3 download found on a bottle of Coke, studies have found that consumers especially delight in receiving gifts that are not only thoughtful but are instantly accessible, too.
By delighting consumers with rewards that are not only more personalizable but are more instantly available, marketers can prove that it’s ultimately the experience—the reciprocity, the generosity, the gesture—which truly creates a uniquely memorable, lasting relationship between brand and consumer. When brands reward consumers with gifts that are customized to their interests instead of fixed value items, they succeed in shifting consumers’ focus away from value comparison to enjoying their experiences instead. These personalized experiences become emotional ones for the consumer, who begins to develop a stronger sense of loyalty towards the brand, making it far more likely for casual consumers to become lifelong buyers.