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Loyalty Programs Are Driven by Psychology. Here’s Why.

Updated: Sep 9, 2022

“Go get a packet of bread and you can buy whatever you like with the remaining ₹2.”

I remember this beautiful memory from my teenage days. Every time my mom wanted a bread packet, she’d hand me ₹20 and ask to get one from the shopping complex.

The first time she reached out, I was hesitant but since I always wanted a reason to ride my bicycle, I agreed.

When I came back, I handed both the packet and remaining ₹2 change over to my mom and said, “I’m not going from next time. It’s such a task!”.

A few days later, mom came back to me with the same request but a new strategy. This time, she said I could keep the ₹2 change to myself and that felt rewarding.

At that moment, my mom gave me a sense of encouragement.

Thereafter, I started to feel excited about buying bread as I’d get to keep the ₹2, buy a candy or save it up to be able to buy something valuable for myself.

This is a nostalgic moment I was taken to when I started exploring how psychology drives loyalty programs.

I thought, “Oh wow! My mom and I’m sure most parents knew how to tap into getting something done repeatedly by offering a reward.”

As I went on to dive deeper into how loyalty programs are driven by psychology, I was further fascinated to see that there are 5 psychological principles behind loyalty programs' effectiveness.

Fascinated because as someone who’d worked on the marketing of a mental health startup before, I had a personal inclination towards finding the psychology behind everything.

So I kid you not but I got genuinely invested into finding out how psychology drives customer loyalty and here's what I learned:

1. Positive Reinforcement

You must have heard of giving dogs a treat after good behaviour. This is nothing but positive reinforcement - you reward a behaviour with a positive outcome or praise.

The positive reinforcement principle says that we are more likely to repeat behaviours that have been rewarded in the past.

This same principle applies to loyalty programs - when customers are rewarded for their loyalty, they feel good about the company and want to continue being a part of it.

Starbucks - the world's largest coffeehouse chain used a similar approach to build their loyalty program. As of 2022's second quarter, active membership of Starbucks' loyalty program jumped to 26.7 million.

The more its loyalty program members spend, the more stars they get. This increases the likelihood of the members spending in order to earn stars and redeem rewards.

Members also get birthday rewards that are redeemable fo