Monday, October 1, 2007

The illusion of the "Headstart"

I was recently forwarded a report on consumer behaviour and loyalty schemes that I thought was quite interesting. The report was entitled “The endowment progress effect: how artificial advancement increases effort” and was conducted by two consumer researchers named Joseph Nunes and Xavier Dreze. Their research focused in on a carwash outlet in America and a loyalty scheme they were trying to implement in order to increase the volume and frequency of repeat custom.

The outlet in question offered a loyalty card that had 8 spots that was stamped after each purchase of a car wash, once all eight spots were stamped the company gave you a free car wash. As part of the research they also introduced a card which had 10 spots on it, the first two of which were pre-stamped so as to give customers the illusion of a “head start”.
The two schemes were essentially identical and offered customers exactly the same reward for the same amount of repeat custom; once you bought 8 car washes you would receive one for free.

Upon analysing the results Nunes and Dreze found that the card with 8 spots resulted in a 19% completion rate, whereas the card that had 10 spots boasted a superior completion rate of 34%, on top of that those using the 10 spot loyalty card had a shorter length of time between visits, returning with on average 2.9 fewer days between washes than their 8 spot equivalents.

The two researchers concluded that by reframing the offer as being “already started but not yet completed”, in this case 20% completed as opposed to the 0% completed offered by the 8 spot card, this increased motivation for the customer to return.
I think it is interesting to see how few retailers do this especially with products that are easily substituted.

2 comments:

jedimasterbooboo said...

The consumer doesn't know the bump from 8 to ten...but what the card with two initial punches does is give them credit for being loyal in the past, and shortens the climb to the top of the mountain. For me, I like companies to realize I've been there in the past...A terrible thing is when companies give cards with like 16 spaces or something...I think, yeah,...bite me. My wallet is already full of junk.

barra said...

hey ed, u still owe me that car wash.