chapter 9 Blog
The First Stamp Is Free
Chapter 8 in Loyalty 3.0 is a plan. Chapter 9 is where the plan ends and the action begins. In Paharia’s (2013) article on creating a program, there are three stages. These are to design, build, and optimize. Of these three stages, the design stage receives the most attention and this is appropriate. If the design is off then anything that is built on it cannot save it. As a barber operating out of a college town and running CHOPD, I read this chapter with one question. How do I convert a client that receives one haircut from me into a client that books every two weeks?
Paharia starts the article off strong. Loyalty 3.0 is not a game design issue. It is an interaction design issue. Game designers create a game to entertain. A loyalty program is created to influence action. This is important.
The first step to creating a program is to learn about the user. This is referred to as getting “out of the building.” The founder at Intuit used to wait at a Staples to observe a customer purchase Quicken. After the customer purchased Quicken the founder would follow them home and watch them install the software. The founder would not assist in this. Rather he would only observe and learn.
The good news is that this does not require a large user study. There is research conducted by Jakob Nielsen that indicates that approximately five users will expose most of the issues. After this point users will start repeating themselves.
I don’t need to follow them home. My customers get in my chair for thirty minutes. This is the best opportunity to conduct user research that I could ask for. If I ask five customers why they booked with me, why they almost did not, and what would entice them to come back I will learn more from them than any app could provide. After this I can create personas. For example, there is the broke freshman who wants to get a clean fade for under thirty dollars. There is the athlete who needs haircuts before a game and does not want to have to wait for a text response.
This knowledge was given to me long before Silicon Valley. “Be sure you know the condition of your flocks, give careful attention to your herds” (New International Version Bible, 1978/2011, Proverbs 27:23). A shepherd must know his sheep in order to care for them. A business must know their customers in order to serve them.
Convert Behaviors to Actions and Actions to Points
The next step is to define what action you want taken by users. Paharia recommends using the behaviors generated in the plan stage and converting them to an action that can be tracked. After this each action can be evaluated against a baseline. The lowest valued action is assigned a “1” and all other actions are scored in relationship to this action.
For CHOPD the baseline is relatively simple. Booking a haircut is a one. Booking the next haircut before leaving the salon is worth more because it secures a return visit. A referral that books a haircut is the most valuable because it brings in a customer that would not have otherwise been marketed to. Once the value of each action is known, rewards can be applied.
Why the First Stamp is Free
The third step is creating the experience. Paharia provides ten tips for this. The one that sticks out to me is the endowed-progress effect. He uses two customers for a car wash. Riley has an eight stamp loyalty card. Jake has a ten stamp loyalty card with two stamps already on it. Both customers need eight car washes in order to receive a free car wash. Jake completes his card faster. Paharia (2013) explains why, “Jake’s card has re-framed his task as one that has been undertaken and incomplete instead of one that hasn’t yet begun, and that’s enough to increase Jake’s commitment level to the task” (p. XX).
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This is not just a business based tip. Nunes and Drèze (2006) actually conducted the car wash study. They found that customers who received an artificial head start were more likely to complete the card and complete it faster. Paharia uses this in conjunction with the goal-gradient effect. The closer to a goal a user gets the more effort they put forth.
Paul uses the same concept in his own life. “I press on toward the goal to win the prize for which God has called me heavenward in Christ Jesus” (New International Version Bible, 1978/2011, Philippians 3:14). The difference is that Paul’s prize is eternal and a loyalty card is not. However, the human nature is the same. When a user is getting close to a goal we put forth more effort.
CHOPD currently does not have a loyalty card. This is about to change. All new customers receive a loyalty card for their first haircut that already has two stamps on it. Paharia also talks about time arcs in loyalty programs. Programs should start and end in order to avoid an endless program. My customers follow the semester calendar. Therefore the program runs for a semester and then resets. In August and January all customers receive a fresh start.
Pay Attention to What is Being Awarded
Paharia also touches on misaligned incentives. If you reward participation in a forum then you will receive junk in a forum. If you reward short calls you will have customers rushed off the phone. Users will find a way to exploit any incentive.
I can already see what is going on in my program. If I give a free haircut for every referral I will receive a text with the name of a friend who does not end up in my salon. The solution to this problem is to reward actions and not activities. A referral only counts when the friend actually shows up in my salon and pays. To prevent abuse I can also cap the amount of free haircuts a person can get in one month so that no one can get the whole hockey team in one month and receive free haircuts.
Conclusion
The rest of the article talks about building and optimizing the program. Collect data from day one and create a baseline. Observe where users drop off in the program. For me this means knowing which users do not book a second haircut and why. Paharia ends his discussion on the design stage with a line that I found interesting. Paharia does not mention fun in this article because Loyalty 3.0 is about motivation and not fun. A loyalty card is not fun but a clean fade and a head start towards a free haircut is motivation.
Know your users. Reward what matters. Give them a head start.
The first stamp is free. The rest of the haircut needs to earn it.
References
New International Version Bible. (2011). Biblica. https://www.biblegateway.com/versions/New-International-Version-NIV-Bible/ (Original work published 1978)
Nunes, J. C., & Drèze, X. (2006). The endowed progress effect: How artificial advancement increases effort. Journal of Consumer Research, 32(4), 504–512. https://doi.org/10.1086/500480
Paharia, R. (2013). Loyalty 3.0: How to revolutionize customer and employee engagement with big data and gamification. McGraw-Hill Education.
