Lucky Loyalty Effect

In brief

1. The Lucky Loyalty Effect is a powerful tool to motivate loyal spenders into engaging with your promotions.
2. It’s driven by consumers’ spending. As we spend more, we feel we are more deserving of something in return, even when the chance of winning is entirely random.
3. When offered a random reward or promotion, such consumers feel more likely to win, are willing to take more risks and are more likely to engage.
4. This research has big implications for marketing strategy, showing that certain promotions will be more effective and likely to persuade for those customers who’ve invested more.
5. Targeting promotions towards those who think themselves more likely to win will result in higher promotional engagement.

Spending makes us feel luckier

As an important Decision-Maker, you travel a lot and are fairly loyal to a particular hotel chain, opting to book rooms with them if possible. As a result, you’re fairly high up in the loyalty programme they run and you get room upgrades every so often.

It’s the off-season and the hotel chain are running a promotional campaign: for each 100th booking made on their website, one booking - chosen at random - will be entirely free.

Aware of this campaign, you, oh privileged and loyal customer, make your booking on their website and lo and behold, your confirmation comes back with something special - you’ve somehow bagged the free booking! What luck!

Don’t forget that the chance of winning this promotion was entirely random and had absolutely nothing to do with your level of spend. Despite this, you believe you had a greater chance of winning due to your loyalty to the hotel chain over other customers.

And new research now backs this up. We believe that we’re luckier to win a promotion, the more we spend with that brand.

But why? Well, consumers know that if loyal, they’ll get treated better than “normal” customers (Kivetz, 2003), with hierarchies based on prior spending separating and enhancing levels of satisfaction (Dreze and Nunes, 2009).

It’s due to deservedness

And so it all comes down to entitlement, with research showing that the more consistent consumers are with their actions (spending with that hotel chain, for instance), the higher the level of deservingness they feel (Feather, McKee, and Bekker, 2011). So if already used to being rewarded for past effort, consumers create an unrealistic expectation that future efforts will be rewarded too.

So, because of their spending, loyal consumers’ greater sense of deservedness means that they feel more likely to receive rewards than other customers, regardless of how that reward recipient was worked out! It really doesn’t matter if it’s random, which is crazy!

Study 1 - Demonstrating the Lucky Loyalty Effect

197 students were asked to imagine they were checking in to a two-night stay in a 500-room hotel. They were split into two groups, one of existing customer with high effort and “new customer with low effort.”

All were then asked to read an exciting announcement that there’s a special gift basket of cheese, crackers, fruit wine and other gourmet foods up for grabs. Importantly, they were also told that all guests are automatically entered into the random draw for this prize.

They were then asked how likely - from 1 to 7 - they were to win the gift basket than other guests. The results found that high effort consumers with elite loyalty status thought themselves more likely to win than other guests (2.91 out of 7), much more so than those who’d not spent anything (2.39).

These results show the effect itself: that loyal customers feel more likely to win random rewards over customers who aren’t that loyal.

However, this first study mixed together spending and status into one (as is normal in the real world). A second study aimed to pick these two apart and see which was really responsible for the Lucky Loyalty Effect.

Study Two - Is the effect driven by spending or status?

222 people were told about a clothing retailer, with which they were informed they all held a credit card. They were told that the company sends out special discount cards every six months, between 5-30% off any purchase, in 5% increments. They were also reminded there are far more 5% discounts available than 30%, and that the discount card they’d receive would be entirely random.

They were split into 4 groups, separated by elite status (yes / no) and prior spending (yes / no).

They were then asked to rate - from 1 to 7 - how much they agree with the following statement:

“I am likely to receive a higher level of discount than other customers who have a credit card with this store.”

The results came back showing that those who spent in the past six months thought themselves more likely to win (3.34) over those who didn’t spend (2.6).

A separate series of four questions were asked, which allowed for a Deservingness Index to be created. Those who’d spent money felt far more deserving (4.3 / 7) than those who’d not invested anything (3.01).

Interestingly, the results show that prior spending is the important factor here. Status alone doesn’t produce the Lucky Loyalty Effect, but spending alone does.

So there you go. If we spend with a brand, we feel like we deserve to win entirely-random rewards more than others who’d spent less.

This makes higher spending customers more likely to engage with promotional games, given their higher expected probability of winning.

Kohl’s Dream Receipts

Out in the field, Kohl’s has had a significant degree of success with its recent random reward promotional campaign called Dream Receipts. Here, one random customer in each store each day has their shopping paid for them by the store.

And though it was a successful campaign, these sorts of promotional games haven’t been researched very much. However, the Lucky Loyalty Effect sheds light onto the potential of combining promotional strategy together with your loyalty programme to powerful effect.

Gem Boundaries

Importantly, there are a couple areas where the Lucky Loyalty Effect has boundaries. The first, covered in Study 4, is that the effect only holds for events that are related with the brand, and therefore the consumer’s efforts. Any events outside of the brand don’t apply. Make sure then that the promotion is directly tied to your brand, and not a partnership with another company, for instance.

The second, in Study 5, is that consumers have a tendency to believe their greater luck is only when they’re comparing themselves against the general consumer, and not other similarly-loyal folks. Bear that in mind when designing and writing the copy for your promotional campaigns. So, instead of mentioning that “only top tier customers have been entered into the promotion”, inform the recipient that “all customers have a chance to win”.

Other brain gems

Lastly, Lucky Loyalty has a strong relationship to the Motivating-Uncertainty Effect we covered last year, which says that future variable rewards can motivate us to complete a goal more than certain, pre-known ones.

Takeaways for Decision-Makers

1. The Lucky Loyalty Effect is a powerful tool to motivate loyal spenders into engaging with your promotions.
2. Remember, it’s prior spending and not status alone that influences a feeling of luck for your loyal customers. The fundamental reason for this is that as we spend more, we feel we deserve more in return.
3. This biases a spending consumer’s judgement in random reward situations, making confident of success than other customers.
4. Such loyal consumers who have made significant spending effort will be more likely to take part in promotions similar to those demonstrated in this brain gem.
5. Therefore, there’s a lot of value in binding together your Promotional Strategy with your Loyalty Programme, to maximise uptake of segmented campaigns, especially segments which are currently active with the brand.
6. Other research shows that those who’ve invested both the most and the least within your loyalty program prefer riskier, larger rewards (Kivetz 2003). This adds further weight to the effectiveness of these types of promotion.