Ditch loyalty, build for habits

A while ago I wrote about a(nother) botched loyalty scheme by one of Australia’s leading retailers. Guess what? They’ve just relaunched their re-launched program and it is only marginally better.

Here’s where I stand on loyalty programs.

Customers are rarely loyal to businesses.

Businesses are rarely loyal to customers.

Everyone has their price and we’re setting ourselves up for failure if we think we can buy ‘loyalty’. Somewhere along the line a commercial transaction has been confused with a social one, blurring the lines about the true nature of the relationship. “They don’t value my loyalty” becomes a justification for leaving.

The key word here is loyalty. Rather than build a program around ‘loyalty’, which is an affective state, businesses are better to build a program around ‘habituation’, which is a behavioural state. Where loyalty chases the heart (how people feel about you), habituation tackles the hands (what they actually do with you). It’s nice if they like you, but who cares as long as they continue to do business with you?

The shark’s teeth approach to retention

Shark’s teeth are slanted backwards. Why? It’s easy for their prey to enter their mouth but it’s hard for their prey to leave.

That’s what companies like Apple and Google have done: created low barriers to entry – you can start your Apple products right out of the box and get your Gmail account for free – but significant barriers to exit. Behaviourally we are talking about Sunk Cost and the Endowment Effect – once customers have contributed to the relationship it is harder to walk away.

Apple and Google’s eco-systems create dependency. Customers become corralled like sheep in their pen, making it harder for them to leave than stay.

The more time they spend in the ecosystem, the more familiar it becomes. The more they repeat an action in this stable context, the more likely it is that habits develop by forging neuro-pathways in the brain that become uncomfortable to displace.

While customers may not be emotionally loyal to Apple they do become habituated. Customers may not care about Google, but their reliance is incrementally increased.

So here’s my plea. Think of your business as having shark’s teeth. Stop thinking about retention from a loyalty perspective, and start designing from a habits perspective. Worry less about winning their hearts and worry more about winning their habits.

Bri Williams runs People Patterns, a consultancy specialising in the application of behavioural economics to everyday business issues.