How psychological benefits affect successful customer loyalty programs

I often say customers are people first, and people are largely driven by the same core human needs. Psychology has proven that our decisions are influenced by innate desires to maximize positive emotions, express our identities and achieve our goals. So if your loyalty program can meet these needs, it will get better results. At ITA Group, we see the strongest loyalty strategies start with a simple question: What does the customer need this program to help them do, feel or believe about themselves? 

On a business level, brands that help customers fulfill their needs get customers’ attention, gain wallet share and sustain customer loyalty.

In this four-part series, I’ll go through the three types of psychological benefits successful loyalty programs provide: functional, emotional and identity.

Because these benefits foster strong emotional connections between customers and your brand, it’s important to get them right. I’ll provide specific guidance and critical, concrete recommendations on what to do (and what not to do) when launching or relaunching a loyalty program that maximizes psychological impact. 

Finding the connection between psychology and brand perception among loyalty program members 

Psychology drives how customers perceive value and ease, the two factors that lead to overall loyalty program satisfaction. In our study, ITA Group found loyalty programs with high perceived value create more brand advocates. These brand advocates are six times more likely to visit and spend with a brand than other customers.

In a separate study conducted by CMB, customers were as much as 30x more likely to try a brand if they expected it to deliver strong functional, emotional and identity benefits. That’s a huge number when you’re trying to build up your customer base!

Getting the right mix of psychological benefits in your loyalty program encourages customers to build emotional connections, increasing the likelihood they become brand advocates. But the right mix will be different depending on your industry. In fact, the right mix will likely vary within your brand’s customer groups.

We recommend evaluating psychological benefits by audience type or segment, not program average. A benefit that creates value for one customer group may feel irrelevant to another. The stronger approach is to identify what each segment needs most, then design rewards, communications and program moments that reinforce those motivations over time. Bonus points if you find ways to let the customers self-report what matters most to them.

Related: Discover how industry-leading loyalty program software creates positive, personalized experiences.

Understanding the psychological benefits of loyalty programs 

Since value is so important to overall loyalty program perception, the key question is: How do you create value?

The answer is to create a compelling set of functional, emotional and identity benefits within your program.

At their core, the three primary psychological benefits can be described as follows.

• Functional benefits: How does the program enrich my life?
• Emotional benefits: How does the program make me feel about the brand?
• Identity benefits: How does the program make me feel about myself? 

Related: Learn how value and ease define the best customer loyalty programs.

These benefits should not carry equal weight in every program. ITA Group typically looks at where the relationship is strongest today and where it needs more support. If customers understand the value but rarely engage, emotional benefits may need more attention. If engagement is high but advocacy is low, identity benefits may be the bigger opportunity. If advocacy is there, but redemption is low, look at the functional benefits.

Functional benefits

Your loyalty program’s functional benefits help customers achieve their goals. For example, a customer might enroll in a retail loyalty program to keep up with the latest trends, so an invitation to an exclusive product launch will make them feel supported in their objectives.

Functional benefits include:

• Accomplishing goals
• Delivering on the brand’s promise
• Saving time or providing convenience
• Saving money or offering good overall value 

When brands get this right, it’s the fastest way to create positive perceptions of value and ease.   

Emotional benefits

A good loyalty program’s emotional benefits maximize the good feelings (and minimize any bad ones) your customers have about the brand. And, because those benefits happen every time they use the program, the good feelings keep adding up. 

Opportunities to reinforce emotional benefits include:

• Redeeming awards
• Receiving relevant personalized messages
• Getting custom, relevant offers
• Recovering from any customer relationship stumbles
• Delivering on the frontline experience

By curating positive experiences through the loyalty program, brands create lasting emotional ties between themselves and their customers. After all, who doesn’t want to do more business with a brand that makes them feel special?

Identity benefits

Identity benefits tap into the human need to be seen and understood. Brands scoring high on identity benefits treat their clients like unique individuals while connecting them to a broader community of like-minded customers.

These benefits work on two levels: personal and social.

• Personal identity: How much does the brand fuel my personal pride through the loyalty program? This might look like a program that focuses on delivering experiences that make customers feel smarter, cooler or better about themselves whenever they use the program.
• Social identity: Do I personally identify with the kind of person who likes/uses this brand and loyalty program? This is reflective of how a program builds a community around it. It makes customers feel that there are lots of people like them who frequent the brand.

Identity benefits are compelling because brands that excel at them scored high in our loyalty survey. While customers often downplay the importance of these benefits, they had a clear impact on the top programs in our study. 

Harnessing the power of psychological benefits to create successful loyalty programs  

The most effective loyalty programs use functional, emotional and identity benefits with intention, giving customers multiple ways to engage throughout their lifecycle with the program. Start by identifying what members value, where friction exists and what would make the relationship feel more meaningful. Then use those insights to shape program structure, reward strategy, communications and measurement. That is how psychological benefits move from an interesting concept to a practical loyalty strategy.

I’d like to give a shout-out to CMB for their immense contributions to our customer loyalty research.

Understanding psychological benefits is only the first step. The next challenge is determining whether your loyalty program is delivering the right mix of functional, emotional and identity benefits for your members. Watch our conversation with “Let’s Talk Loyalty” to hear how you can build deeper, more meaningful customer relationships. 

Note: This article is part one of a four-part series on the psychological benefits of customer loyalty programs. Now that you’ve learned what the three key benefits are, discover more details about each of them.

• Functional benefits
• Emotional benefits
• Identity benefits