The Power (And Profitability) Of Rewards


Psychologists have long known that extrinsic motivation—behavior driven by the anticipation of being rewarded by others for engaging in specific actions—can have a dramatic impact on the choices we make every day. Whether we’re staying late at work (to garner praise or gain a promotion) or choosing a certain airline (to get points towards free travel), the well-worn principles of Pavlov still apply: we’re more likely to do any given thing if we know the action will earn a reward.

Why? It’s in our DNA. Getting something for free, or even for less than we perceive it to be worth, triggers the dopamine receptors in our brain. Marketers have known this for hundreds (yes, hundreds!) of years. In the late 1700s, American retailers began to experiment with giving customers copper tokens that could be redeemed on future visits. From there, the idea of “customer loyalty programs” evolved into currency like stamps and box tops; this ultimately morphed into the idea of points—the loyalty standard of the digital age.

Rewards are Good for Business.

But regardless of what we call them, customer rewards continue to be an essential part of the modern marketer’s arsenal. Knowing that it costs 5–10x more to get a new customer than to keep an old one, rewards are a relatively inexpensive way to keep those turnstiles turning. Here are just a few compelling statistics:

  • Just a 5% drop in customer attrition can increase profits by 95%
  • 80% of consumers say rewards programs influence their purchases
  • Rewards customers generate 88% higher profit than new customers
  • Rewards customers engage an average of 3x more and spend 4x more

And, as if those numbers weren’t motivating enough, the past decade has seen two important developments that have taken loyalty marketing to the next level: the ubiquity of the smartphone, and the advent of brand-agnostic “coalition” programs where consumers can earn and redeem rewards from and for a variety of brands, all within the same program.

Not only are customers accessible virtually every minute of every day, but retailers also have additional opportunities to capture audiences that are outside their established loyalty program base. It only makes sense for rewards programs to evolve—and when consumers start being rewarded for behaviors they’re already too happy to do, everybody wins. That’s relevance…and it’s the future of loyalty marketing.

Relevance Transforms Relationships.

As the sciences of marketing and psychology have matured over the decades, the lines between the two disciplines have become increasingly blurry—in ways that benefit both companies and consumers. Just a few years ago, marketing expert Bryan Pearson drew undeniable parallels between Maslow’s Hierarchy of Needs and what Pearson calls the “3 Rs” of loyalty marketing”: Rewards, Recognition and Relevance.”

 Pearson’s revelation was this: it’s the “Relevance” tier that has the ability to truly transform the relationship between brands and consumers. Says Pearson: “When working to deliver a relevant experience, we are actually aiming to fulfill the underlying needs—maybe even unrecognized needs—of the customer. It is this sense of shared purpose between a company and its customer that transforms the way the consumer sees the brand.”

Another critical evolution in marketing is the ability to mine massive amounts of data to create insights about customers quickly to truly understand their preferences and desires.  Most consumers are members of at least a dozen loyalty programs, and it is difficult for them to know the details of all of them.  CarePoynt advisor, and loyalty expert David Norton says, “a really exciting aspect of CarePoynt is that we will be able to customize content, offers and redemption suggestions for our members so that they can maximize the value to them with minimal effort.”

But Are Relevant Rewards also Good for Health?

Carepoynt thinks so….and early returns say the assumptions are right. Developed in response to the costly, chaotic and disjointed American healthcare ecosystem, Carepoynt is the world’s first health and wellness focused rewards program. Unlike most rewards programs that incentivize the purchase of a certain product, brand or service, Carepoynt gives members hundreds of extremely relevant reward options for making a wide variety of healthy choices—from getting an annual physical to joining a gym or even just doing the weekly Target run.

Yes, Target is a partner—along with hundreds of other local and national partners, from health-focused national brands like Fitbit, Nike, Whole Foods, Blue Apron, CVS, HealthTap and GNC to like-minded local businesses that include everything from dentists to spas to yoga studios to chiropractors and more. Members can earn and redeem the official Carepoynt currency, CarePoynts, for health-related products and services.  Carepoynt can also be leveraged for employee wellness or insurer-based programs to foster smarter care planning and better results for patients, providers and payers.

From the outside looking in, Carepoynt seems to be a “win-win-win” situation—members win by earning rewards while getting healthy, doctors win with increased patient compliance and lower treatment costs, and companies win with healthier employees who miss work less often and ultimately help lower insurance costs. If this is the new age of loyalty, rewards really do lead to results!

Tim Stanley