#122: Loyalty Science Lab Insights

PAULA: Welcome to Let’s Talk Loyalty, an industry podcast for loyalty marketing professionals.

PAULA: I’m your host, Paula Thomas, and if you work in loyalty marketing, join me every week to learn the latest ideas from loyalty specialists around the world.

YUPING: Thank you.

PAULA: Hello and welcome to today’s episode of Let’s Talk Loyalty, where I had the opportunity to talk to the founder and director of The Loyalty Science Lab, a fascinating research facility based out of Old Dominion University in Norfolk, Virginia.

PAULA: Dr.

PAULA: Yuping Liu-Thompkins studies the psychological effect of loyalty programs and really is focused on intersecting between the world of academic loyalty research and practical loyalty applications.

PAULA: So there are some extraordinary insights that Yuping is concluding and learning and sharing with the world of loyalty professionals.

PAULA: So without further ado, I’m really excited to welcome Yuping Liu-Thompkins to Let’s Talk Loyalty.

PAULA: Wonderful, so Yuping, I am dying to hear with all of your work with The Loyalty Science Lab.

PAULA: Please tell me first and foremost what is your favorite loyalty statistic?

YUPING: Paula, thank you for the question.

YUPING: I’m very happy to be here.

YUPING: I would say out of the many loyalty statistics out there, for me is probably coming from Bound Loyalties 2019 loyalty report.

YUPING: It’s based on consumer survey and ratings of different loyalty programs.

YUPING: And one of the fascinating statistics from the report is that when personalization is done well in a company in a loyalty program, there is a 6.4 times lift in member satisfaction with the program.

YUPING: I thought it was really fascinating because for the longest time, we know that the value in loyalty program is in the data that it creates, in the opportunity for personalization it creates.

YUPING: And this kind of proves that point of that that you need to utilize your loyalty program data.

PAULA: Absolutely, yeah.

PAULA: And you’re absolutely right, Yuping.

PAULA: It’s certainly not the first time that personalization has been mentioned on this show.

PAULA: In fact, I think there’s no show passes by without us mentioning it.

PAULA: But I definitely think it means very different things to different people.

PAULA: And I think you have an extraordinary perspective given that you’re doing so much work on the academic side, helping to educate and illuminate those of us who, I suppose, are practicing loyalty day in, day out.

PAULA: So to you, Yuping, what would you say can be done with personalization?

PAULA: Where’s the biggest opportunity?

YUPING: Well, I think there’s a…

YUPING: I don’t know if I would say there’s one biggest opportunity, but there are many things that can be utilized based on where consumers are in the loyalty program and use that information to customize the communication with customers.

YUPING: I’m not even talking about something more complicated like underlines in the basket and so forth.

YUPING: A lot of personalization can actually be started by just looking at some of the basic information of where consumers are in the loyalty program.

YUPING: And so things such as which tier you are on that changes the way you look at things or how far you are from a reward that changes the way you’re gonna react to the program, how you’re gonna behave, or how far you are from the next tier.

YUPING: So there’s a lot of the fundamental information I think every loyalty program captures that can be easily turned around and be used to customize how you communicate with your customers.

YUPING: And there’s a lot of psychology behind that too.

PAULA: Absolutely.

PAULA: And clearly it’s the psychological effects of loyalty programs that you specialize in.

PAULA: So it’ll be fascinating to get into all of that detail, Yuping, and for listeners, I would say first of all, we recently connected properly, I would say, having connected previously, but over your most recent research, which I absolutely loved.

PAULA: And I’ve been highlighting left, right, and center on this amazing article, which really is a very accessible article about what happens when people get closer to a reward.

PAULA: So we’ll definitely get into talking about all of that.

PAULA: But even just before I do that, I wanted to acknowledge two people who are responsible for getting us here today, actually.

PAULA: And one is Mike Capizzi, our mutual friend in the Loyalty Academy.

PAULA: So it was Mike who was commenting on your work on LinkedIn that really reminded me all of the amazing work you’re doing in the Loyalty Science Lab.

PAULA: And then also Professor Peter Fader from the Wharton School at the University of Pennsylvania, because I know you do a lot of work with him as well.

YUPING: Yeah, wonderful.

YUPING: And we actually had interviewed him through the work with Loyalty Science Lab before.

PAULA: Brilliant, brilliant, great.

PAULA: So let’s just talk through, as you’ve said, personalization is not one simple thing, but I’m going to say what to me probably came out as the most shocking, but actually most obvious conclusion that really came through in this particular one was, it seems to be that the standardized monthly statement is not the most effective way to communicate to our members.

PAULA: So I’d love you to talk us through exactly how you concluded that and what your advice and recommendations are.

YUPING: Yeah, sure.

YUPING: So when it comes to, you know, we consider from a psychological perspective, when you give people the feedback or the statement where they are in the loyalty program, you’re essentially offering them some kind of progress feedback.

PAULA: Yeah.

YUPING: Right.

YUPING: So where you are, how you have been doing, and how far you need to go in order to, you know, get something wonderful.

YUPING: And so in our research, basically what we’re showing that, and this is also based on a pretty big literature on how people go after goals, right?

YUPING: So if you think about rewards or the next tier goal as a goal that you are going towards, as you move towards that goal, there is actually going to be change in mentality and how you approach that situation.

YUPING: So for example, we actually done a field test with a retailer in Europe.

YUPING: And one of the things that we have tested was basically looking at whether we give you feedback based on information about forwarding looking information.

YUPING: So in other words, we tell you how far you still have to go.

YUPING: And then in another condition, we basically mailed people information that tells them how far they have come.

YUPING: So since the start of the year, where you are, how many points you have made.

YUPING: So kind of like one is kind of forward looking, the other one is backward looking.

YUPING: And we recognize that through the campaign, we see distinct responses from consumers based on whether they are getting the backward information or forward information.

YUPING: So as one example, the backward information is more helpful as people have accumulated more tiers in their program.

YUPING: So in other words, that backward looking kind of information was more helpful for people who were in the higher tier already versus the people who are in the lower tier in the program, they responded better to kind of like the more forward kind of looking information.

YUPING: So that’s just one example of how that psychology of how you customize that information really kind of creates a difference in how motivated people might be in getting to the next point or getting to the next milestone in a loyalty program.

PAULA: So it seems to be from having read lots of your articles today and obviously we’ll be making sure that listeners have access to all of them.

PAULA: But I know what you illustrated actually really nicely is this area, which is the smallest area, I think you’ve called it, the small area hypothesis.

PAULA: So for example, looking forward to where is the finish line, like how close am I to getting my reward is extremely exciting for members who are in that position.

PAULA: But as distinct from that, people are just getting started, looking back and telling them they’ve made great progress is very reassuring.

YUPING: So the small area hypothesis was actually from a paper that was published in Journal of Consumer Research, one of the top tier consumer psychology journals.

YUPING: And so the basic idea over there is that as a human tendency, as we move from one point to another.

YUPING: So if you think about a starting point to a destination, you know, the way we like to focus our attention and what helps us the most is basically the smaller area of whatever, wherever you do see in the journey.

YUPING: So if you look back to the starting point, you see a smaller area compared with, you know, what’s in front of you, then you want to focus on that.

YUPING: And versus for people who are really getting close to the finish line, your attention is probably all the way to that finishing line where, you know, how far you are.

YUPING: And that creates more of a motivating effect for you as a customer.

YUPING: So it definitely makes a difference.

YUPING: So which basically kind of makes the middle point to be a somewhat of a switching point of your attention, right?

YUPING: So if you think about customizing that communication in the loyalty program, really is, you know, when you think about this is a very simple thing that I think you can create that for the customer very easily, is whether are you still in the first half of, you know, moving towards your goal?

YUPING: Are we in the second half of moving towards your goal?

YUPING: And obviously the communication in between those two would be different.

PAULA: Absolutely.

PAULA: Yeah.

PAULA: And then, as I said, I saw this conclusion that, you know, there are so many of us that are literally sending monthly statements, you know, making sure to keep our members as up-to-date, all very well intentioned.

PAULA: But by applying this, I suppose, overlay of, as you said, the mentality of, you know, where is that customer?

PAULA: How are they feeling?

PAULA: You know, are they just getting started and kind of going, oh my God, I’ll never get there?

PAULA: Or do they actually go, oh my God, this is getting exciting.

PAULA: There’s something happening.

YUPING: Yeah, definitely.

YUPING: As we get closer, you know, this is so-called the point pressure effect as well, where the base foundation for that research, believe it or not, is actually based on rats, how rats behave.

PAULA: Oh, really?

YUPING: So the research coming from the 1960s and basically observing rats moving towards a piece of cheese and recognizing that they started to run faster as they get closer to the cheese, obviously, probably because they smelled the cheese or just felt more motivated by it.

YUPING: And there was some academic research done in this area basically looking at, you know, does this replicate essentially in a human kind of behavior?

YUPING: And so it finds that it does that too as we move towards a something that we’re going after.

YUPING: When we get closer to it, we get more excited, we get more motivated, and we’re just gonna be doing whatever we can, right, in order to get to what we wanted to get.

PAULA: Absolutely.

PAULA: We close the deal, get the reward, you know, you’ve come this far, you’re definitely, you’re not gonna let it go at that stage.

PAULA: And I like that term, the points pressure effect, Yuping, and you particularly quoted again in this article, which is on medium.com.

PAULA: So for everyone listening, these are highly accessible articles.

PAULA: What I loved actually is that you’re really doing it, you know, for example, with a coffee program, and also this car wash, and I do an awful lot of writing and reading and researching actually in the convenience and gas actually sector as well, Yuping.

PAULA: So I’m just going to actually read out a couple of quotes that I highlighted today, because I thought it was absolutely fascinating.

PAULA: So the first one on the coffee side was from Columbia University, and it was a simple like a buy 10 get one.

PAULA: And what I highlighted was when a card first started, the average time between purchases was about 3.3 days.

PAULA: But that actually went down the more stamps that were earned on the card.

PAULA: By the end, the customers only waited 2.6 days between purchases, which you measured as a 20% purchase acceleration.

PAULA: Super exciting.

YUPING: Yeah, that’s really more than visible change in behavior that you can see in what they saw here.

YUPING: And this is actually observed behavior in an actual coffee shop.

YUPING: It wasn’t even something that’s contrived in the lab setting.

YUPING: And you may or may not see that in the real world.

YUPING: This is actually real world behavior of how much difference it makes.

PAULA: Oh my God.

PAULA: You must be constantly fascinated, Yuping.

PAULA: I can imagine going into work every day wondering what strange human people are going to start doing.

PAULA: Super exciting.

PAULA: I can see why you chose to research in this field.

PAULA: Can I talk about the other one as well, Yuping?

PAULA: Maybe you’ll even talk through it or I can.

PAULA: But the Car Wash Loyalty Program and the difference between where customers were given, you know, just buy 10 and get one free.

PAULA: And in one case, they were given two washes already stamped on the card.

PAULA: But in the other case, they just had to buy eight and get one free.

PAULA: So the conditions were similar, but the results were dramatically different with those two situations.

YUPING: Yeah, so this is one of the things that relates to managing a loyalty program.

YUPING: So in this case, I think the experiment was designed a very smart way.

YUPING: So basically in both cases, people needs to do eight car washes in order to get a free car wash, right?

YUPING: So it’s a very simple program.

YUPING: You know, buy this many, get this many free.

YUPING: But the difference is that in one situation, the company actually tells you that you buy 10, get one free, right?

YUPING: And so it sounds like it’s actually a harder program.

YUPING: However, they give you two already for free.

YUPING: So in other words, when you start with that 10-stamp card, you started with two stamps already.

YUPING: You just need to get eight more.

YUPING: Versus in the other situation where people can just, you know, you get an eight-stamp card, and you need to earn all of the eight stamps.

YUPING: And they have found what we call this in the 10-card situation, give you two cards for free, essentially called endowed progress.

YUPING: So you didn’t really make a real progress, but I’m giving you some kind of false sense of progress at the beginning.

PAULA: Ooh, I like that.

YUPING: And so even though, yeah, it’s a great term.

YUPING: I think it’s a great way to describe what’s actually happening here.

YUPING: Okay.

YUPING: And so what they found in that experiment was even though when you think about the ones that are, given the information about you need 10 stamps in order to get one card wash, a lot of people, when you first think of that, you would think of that as demanding more from the customers, right?

YUPING: So on the surface, people might think that actually demands more, but because you gave them two already, and they are closer to the end point than, you know, somebody was starting fresh from like a new card.

YUPING: And they found that people were, the customers, who got that buy 10 get one free, but with two to start with, actually had a shorter, what they call interwash time.

YUPING: So how much time you actually wait between, you know, one car wash to the next, it’s actually shorter, about almost three days shorter than those who were given that fresh card with no endowed progress, but you get, you need to earn a free wash using, you know, doing eight washes.

PAULA: My goodness.

PAULA: I mean, that is, I mean, statistically extraordinary to me.

PAULA: I mean, as you said, a full sense of progress, everything else is the same, but to have, you know, 2.9 days shorter on average between every single wash, I mean, that’s just extraordinary insight for somebody who’s, you know, literally trying to get people in, obviously as quickly and as regularly as possible.

YUPING: Yeah, definitely.

YUPING: So I think there’s a lot to utilize really based on this, based on this, you know, we can consider to be reward distance psychology or progress psychology.

YUPING: And I will mention another one related to this distance psychology too is also the consumer mindset of the way they think.

YUPING: And academic research have basically for, actually for years now, not necessarily in the loyalty program setting, but in other settings too, we’re looking at, you know, your distance to a particular event actually changes how you think.

YUPING: And it doesn’t really come as a surprise.

YUPING: Basically, as you are further away from something, you are looking more at the big picture, right?

YUPING: So you’re looking at how great you are moving, you know, towards something, or you’re thinking about if you’re eventually gonna get there.

YUPING: So what research has shown is that at the beginning of when you’re about to move towards a reward, you know, you are kind of more concerned with if you’re gonna get the reward, right?

YUPING: So at the beginning, as you start to, you know, do your car wash or do your coffee shop cart, you’re gonna think, am I gonna get that free car wash or am I gonna get that free coffee?

YUPING: But as you move closer, you started thinking more concrete terms, like you’re thinking about the more specific logistic of it.

YUPING: And that’s when you started asking, like, the question of when something is gonna happen.

YUPING: So instead of just if, because, you know, by that point, you kind of know where you are in the program, and so you’re more focused on the when.

YUPING: So if the company or the program comes with a communication message, gives you a concrete idea of that, it creates a really motivating effect.

PAULA: For sure, yeah, yeah, you’re absolutely right.

PAULA: I mean, I think the if question is so huge at the beginning, and I’m sure you’re doing plenty of research in this particular area.

PAULA: But even when I think about the ask that we have, you know, when we’re asking people to give us all of this data that we talk about, we’re asking them to invest their time in signing up to something with a promise and a value proposition, which obviously has been very well thought through and very well tested.

PAULA: But I think there’s a gap in trust, I guess, maybe at the beginning.

PAULA: As you said, it’s, you know, am I going to get a reward?

PAULA: Like, am I going to understand this program?

PAULA: Is it going to be worth, you know, swiping every time and all of the behaviors required in order to get there versus this idea of, okay, it’s working.

PAULA: So, you know, when’s it going to happen?

PAULA: That’s a really big distinction.

YUPING: Yeah, there’s a really big distinction in the way that you think about the if and versus the when, you know, think whether you’re looking at the bigger picture or the, you know, the more concrete information.

YUPING: And we have found in our own research that, you know, that focus on the big picture versus the more concrete information also makes a difference in terms of how companies should communicate with you as well.

YUPING: So, for example, when we are looking at when people are further away, actually more rational, cognitive kind of information in the communication message actually works better.

YUPING: So I emphasize to you the points you are making, emphasize to you, you know, how you can get there and, you know, just a lot of informational purposes.

YUPING: But then as you get closer, you know, you’re looking at the more concrete pictures.

YUPING: Research has also shown that people get more emotional, they get more excited, but also other kind of mixed emotion that comes into place as well.

YUPING: So at this point in time, when you are communicating with a member, you know, adding more of that emotional message into the process, you know, getting you excited or, you know, just talking about the relaxing benefit of things would also create a significant difference as well as people get closer to the reward.

PAULA: Yeah, I never thought about that psychological opportunity to increase the excitement levels, you know, because I think we’re always trying to be excited about the offers and the coupons and the program and whatever, but, you know, purely around the excitement is building because you’re making more progress.

PAULA: It’s a very important piece of communication.

YUPING: Yeah, definitely.

YUPING: And the funny thing is that I think that, you know, one of the publisher research studies actually show that not only do I get excited like when I get to the reward, but there’s also a visible difference.

YUPING: Let’s say you have earned enough points for, you know, for you to get a free flight and you redeem the reward, but you are not haven’t really flown the reward yet.

YUPING: So even during that time period, it creates a visible lift in your behavior because you had this anticipation of you’re going to get something for free or you’re going to get something good.

YUPING: And that changes your behavior during the process of doing that as well.

PAULA: Yeah.

PAULA: Well, that’s a very good case in point.

PAULA: I’ve just redeemed for an upgrade on an upcoming flight, Yuping.

PAULA: So my excitement levels are super high.

PAULA: So let’s hope it happens.

PAULA: And I know we jumped straight into this article, Yuping, literally so that people can get a sense of the kind of work that you do.

PAULA: But I should probably actually ask you to take a step back and tell us about The Loyalty Science Lab.

PAULA: How was it created?

PAULA: What are your objectives and how are you going about coming up with these kinds of insights for us?

YUPING: Sure.

YUPING: I think that The Loyalty Science Lab was kind of created, I would say probably for two purposes.

YUPING: On one side of things, I have been doing loyalty research probably for the last about 20 years or so.

YUPING: And there are many other researchers are doing the same kinds of things as well.

YUPING: But because a lot of the academic research has been published in academic journals that usually targets an academic audience.

YUPING: So a lot of that research is actually kind of buried within these journals, a lot of great insights like the things that we just talked about.

YUPING: And it wasn’t really getting to the loyalty practice as it really should.

YUPING: And I know that as a researcher myself, we put in a lot of our heart and effort into this kind of work.

YUPING: And so one purpose of really starting The Loyalty Science Lab is to say, there’s all this wonderful loyalty research we understand about consumer psychology, how people do in loyalty program, or how they become loyal to a company in general.

YUPING: And more practitioners need to see that.

YUPING: So that’s kind of like a big driver of what we’re doing over here.

YUPING: And you mentioned about medium.

YUPING: So we try to write about both our own research, as well as other people’s published research in a loyalty area, so that a loyalty practitioner can go past all the company and math stuff, study design, all of that, and to really get to the meat of the insight of what’s generated in these kind of research.

YUPING: So that’s kind of like one piece of that.

YUPING: And the other component to it too is also create more opportunities for practice and academics to kind of work together.

YUPING: Because frankly, in academic research, I think there is a great amount of thirst for being able to run field experiments with real programs, to be able to reach real customers beyond just a lab experiment and so forth.

YUPING: And so we kind of create that collaborative opportunity for academic researchers to have the curiosity, having a question they wanted to ask, having a hypothesis they want to test, and then real world loyalty practitioners, they have all this data, they have the ability to be able to test some things really very easily.

YUPING: And so it’s a great partnership to be able to work together.

YUPING: And the ultimate goal is really to just advance the loyalty field, right?

YUPING: So we better understand why people are loyal to things, how loyalty program works, what makes people loyal to a brand and so forth.

YUPING: So that’s kind of like the, you know, sort of the, I would say, the overarching goal of, you know, what Loyalty Science Lab wants to reach.

PAULA: Wonderful.

PAULA: Yeah.

PAULA: And just as a point, actually, as you said, medium.com is super accessible.

PAULA: All of the articles that we’re going to share with listeners are brilliantly written with very actionable insights.

PAULA: And I’m going to…

YUPING: Thank you.

PAULA: Yeah, no, they really are, Yuping.

PAULA: Do you write all of those articles yourself for Medium?

YUPING: Pretty much, yeah.

YUPING: All of the articles, I have written them so far.

PAULA: Wonderful.

PAULA: And I’m going to read some titles of them again, just to whet the appetites, let’s say, of the listeners.

PAULA: So we’ve already talked a little bit, for example, about what happens when people get closer to a reward.

PAULA: So we’ve talked and discussed that in some detail.

PAULA: Then there’s one you’ve written called How to Nudge People to Go Further in a Loyalty Program.

PAULA: So I love the idea.

PAULA: We all love positive nudging and some incredible insights.

PAULA: We’ll talk about how important that is, and obviously in the right direction.

PAULA: You talk about how to gauge loyalty program engagement.

PAULA: And one that I really loved actually, your business needs a loyalty model.

PAULA: And I remember when we spoke the last time, Yuping, you really made a very good point, which I’d never thought about even as a loyalty practitioner, that so many businesses write their business plans and develop their business models really exclusively focused on acquiring customers.

PAULA: And it’s almost like retaining them is a complete afterthought that it might be like, I don’t know, six months a year or a couple of years into running the business before anybody starts to think, oh, what’s our loyalty strategy?

YUPING: Yeah, definitely.

YUPING: And that’s, you know, common.

YUPING: If you think about an entrepreneur just starting a business, you know, probably he’s going to be really worried about if I open my shop, are people going to come?

YUPING: Yeah.

YUPING: Or if I make this product available online, will people buy it?

YUPING: And so typically what they’re, you know, looking for or focused on, whether it’s a new product or a completely new business, is that go-to-market strategy, right?

YUPING: How do I get to the market?

YUPING: How do I get people to know about me and get people to buy from me?

YUPING: But I think that, you know, a really well thought out business model to really think from the beginning of it is more than just that element of will people buy from me, but also what if somebody buys from you?

YUPING: What happens then, right?

YUPING: And I think that, you know, from the article that we talk about the different business loyalty models is that depending on how you’re trying to appeal to your customers and try to retain them, keeping them as loyal customer, it really would affect some of the strategies that you kind of follow.

YUPING: So, you know, one example of a loyalty model we have there is more of an ecosystem based model.

YUPING: So it’s more than just you yourself, right?

YUPING: So you are in alliance with other brands or other business or a part of a platform in order to retain customers.

YUPING: So it’s kind of like the, not necessarily the wisdom of the crowd, but more of the network kind of effect to be able to retain customer, making it more difficult for people to switch.

YUPING: And, you know, maybe during the pandemic, this is not as big of a thing anymore, but if you think about the traditional shopping mall context, you know, each of the shop over there kind of creates a pool for the customer and creating why do people keep on coming back?

YUPING: Because of all of these different shops that is available in the shopping mall context that keeps people coming back.

YUPING: So it’s really at the beginning, not only do you need to think about this, why people should buy from me, but also why they should keep buying from me, right?

YUPING: And that really would influence how you position yourself, how you communicate with your customers, and a variety of different business strategies will be coming from what we call a loyalty model.

PAULA: Yeah, absolutely.

PAULA: And I mean, it definitely is an emerging field, I think much more on the academic side, Yuping.

PAULA: And as you know, I’ve done episodes on the whole model of customer-based corporate valuation, which again, back to Professor Fader and also Dan McCarthy are doing lots of work around, you know, is a company being truly valued based on, you know, the repeat purchase?

PAULA: So the longevity of that business essentially, way beyond, I suppose, the simple definitions of customer lifetime value that I think we’ve all done but not done in sufficient detail.

PAULA: But I think you’re really starting to capture it a lot more.

PAULA: And I know you’re very passionate as well, Yuping, about the difference between, I think, what you call true loyalty and habitual loyalty.

PAULA: So I’d love you to explain, you know, how do we understand the difference between them and maybe measure them.

YUPING: Yeah, definitely.

YUPING: So this is actually a great research topic that I’m very passionate about.

YUPING: And so when you think about how in the practice world, typically we identify a loyal customer, we typically look at if they keep on coming back, if they keep on buying, or how much they actually spend, right?

YUPING: So when you look at from that perspective, there might be a group of your customers that are really loyal.

YUPING: However, what our research was basically trying to get at is that why customer is loyal to you actually matters.

YUPING: And so we specifically identify two types of drivers of that kind of loyal behavior.

YUPING: One type is that what we call true loyalty in the sense that they really love you, they buy your product because they really like you, and they just wouldn’t switch to anybody else because they think you’re the best.

YUPING: So that’s what we consider a true loyalty.

YUPING: Probably I would say the dream of many companies wanted to get there.

YUPING: But the reality of the world is that you can’t possibly be loving that many brands.

YUPING: There is this fatigue of how many brands that you can truly be that loyal to.

YUPING: And so a lot of other situation is, I use the brand, it works fine, I feel good enough about it, let me just keep on buying it.

YUPING: And so over the course of time, you’re basically just repeating that behavior, whether that’s going to the grocery store in the cereal aisle, you just grab that box you’ve always had.

YUPING: You don’t even really think about how much you like the brand or not.

YUPING: It’s just a matter of a habitual thing that you do.

YUPING: And I think that you can see a lot of the similar kind of loyal behavior from the two different types of drivers.

YUPING: So if you look at both of these two customers, they are both not going to switch very easily.

YUPING: They also both have pretty high frequency of purchase.

YUPING: They tend to buy your brands all the time.

YUPING: And so there’s a lot of similarities in how they actually act in front of you.

YUPING: But if you really look into the psychological side of things, you can actually identify some important differences in between what they’re actually doing in this.

YUPING: We actually have an article actually about this as well.

YUPING: And the basic point is that habitual customers or the psychology of habit is very different from doing things because you really want it to.

YUPING: Habitual customers or the psychology of habit is really based on automatic process.

YUPING: I’ll give you a very easy example.

YUPING: Let’s say you come back home.

YUPING: You sit down on the couch, you flip the remote control, turn on your TV, and you watch your TV.

YUPING: So let’s say that’s a habit you do.

YUPING: You don’t really have to make a decision to actually do that.

YUPING: It’s pretty much something that’s fairly automatically you do.

YUPING: And so when you see that in people’s purchase behavior, there is actually a little bit difference if you look really much more detail.

YUPING: So one of the things that characterizes the habitual behavior, one is that it’s high frequency, and which also applies to many of the true loyal customers as well.

YUPING: But the other important thing is this stability of their behavior.

YUPING: So in other words, the true loyal customers, they probably will buy you whether they are in this location, in that location, whoever they are with, they love you, without question.

YUPING: And versus the habitual customers, they tend to have a set of these behavioral routines that are very tied in to specific things, to specific time, to the people they’re with, to the location where they are.

YUPING: And so if you look at their behavior, they have a lot more stability when it comes to this kind of behavior.

YUPING: So if you look at, for example, let’s say you have multiple stores and you see where they buy from, it tends to be very consistently from certain locations.

YUPING: And if you look at the time when they actually buy, grocery purchase, for example, they always come on Sunday afternoon to make a purchase and things like that.

YUPING: So you have seen much more regularity or stability in some of these characteristics of their behavior compared with these true loyal customers.

PAULA: So do you think that any loyalty program manager, given the millions of priorities, as you know, obviously, everybody’s juggling and, you know, as you said, the data is always there.

PAULA: Do you think it is important enough and accessible enough to be able to pull out that data?

PAULA: Let’s say I’m a grocery store, for example.

PAULA: You know, do you think it’s important for me to understand, you know, the loyalty driver?

PAULA: It’s just a habit or these people are genuinely, truly feeling loyal to me?

PAULA: Like, is that something that you would genuinely be saying we should be focusing our time and effort on?

YUPING: Yeah, definitely.

YUPING: I think that, you know, the data, like you said, is already there, and we have developed actually a system for being able to measure, identify people’s habits, strengths, and create a score at the individual customer level.

YUPING: And one of the findings, this is important of not just out of academic curiosity, you know, why we need to know these different drivers, but we have also done some field testing where we look at how these different loyal customers actually respond differently to marketing campaigns.

YUPING: I’ll give you an example of a field test that we did was with a gas station convenience store combo.

YUPING: And so with a lot of these businesses, the gasoline part doesn’t really make a whole lot of money.

YUPING: So the more profitable products are typically in the store.

YUPING: So a lot of these gas station convenience store owners really wanted to bring customers inside the store.

YUPING: And so we field test a very simple campaign where to get people to come inside the store, we basically offer free water.

YUPING: If you buy a certain number of waters, we give you a free one.

YUPING: Because everybody can use more water, right?

YUPING: And so these are customers who have never been in a store before.

YUPING: So they are always just the gas customers.

YUPING: They come in, they get gas, they pretty much leave.

YUPING: And so we are trying to see if we can change their behavior and bring them inside the store.

YUPING: And one interesting finding from that is that depending on your habit, whether you have to exhibit that stable behavior when you come for the gas, that the different campaign messages would actually work differently.

YUPING: So specifically, we test two different situations, where in one, you buy a certain number of bottles of water, you get one for free.

YUPING: And so it doesn’t matter you buy the whole one bunch at one time, or you buy it over time.

YUPING: The only requirements, you buy these many, you get one free.

YUPING: And in the other situation, we actually ask, could you buy one each time when you come to the store?

YUPING: And as you get so many, the same number, right?

YUPING: Get so many, you will be able to get water for free.

YUPING: So for the customer, the kind of the benefit is about the same.

YUPING: But we found that in the first situation where you just require them to buy water, it doesn’t matter how they buy it and so forth, we found the habitual customers, the people who have a stable behavior of buying gas, they didn’t respond as well to that campaign, not only during the promotional time, but also even afterwards, we actually end up that particular campaign would end up actually disrupt their habit, and they don’t even come for gas as much anymore.

YUPING: And so the reason for that is because a lot of times, habitual behavior, I mentioned earlier, it’s a very automatic process.

YUPING: The whole idea is you don’t think about it.

YUPING: But if you’re not careful when you give a campaign or send a customer a message or a promotion, whatever it is, that you actually start to make them think, a lot of times that thinking process actually breaks the habit.

YUPING: And so that’s why it’s actually important to identify these highly habitual customers because they truly think differently or probably not think in the process and sometimes interference and less is actually more with a lot of these customers.

PAULA: Wow.

PAULA: Yeah, that’s one I’m always fascinated by, Yuping, because I remember recommending to the telecoms program I worked on many years ago, I really always wanted to celebrate the anniversary, because literally the context was, I started working for them and telecoms, as you know, is very ubiquitous, hard to differentiate.

PAULA: So building loyalty was a great strategy.

PAULA: But I remember telling a friend of mine, I was going to work for them.

PAULA: And she said, look, I’ve been 10 years a customer of that company, and they’ve never said thank you.

PAULA: And it really stuck with me that she’d never been thanked, she’d never been acknowledged.

PAULA: And when I talked to the client about it, they were like, they were super scared about, I think what you’re talking about this idea of disruption.

PAULA: And I think, again, probably because they were on annual contract, I suppose, format as well, which, again, I suppose is the epitome of habitual loyalty.

PAULA: They said, if we reach out and say thank you for being a customer for another year, everybody will kind of go, oh, it must be time to change, I better go and negotiate.

YUPING: So I think, go ahead, sorry.

PAULA: Is that a real risk?

PAULA: Like, would you definitely be saying, you know, if it is a habitual customer, then let’s let them be habitual and let’s not interrupt their thinking or confuse them with too many offers and promotions.

YUPING: So I think that, you know, it also depends on the customer, right?

YUPING: So there are customers we renew year after year because they really, truly like you, versus there are some customers who are doing this basically as a very inertia kind of thing.

YUPING: You know, I just totally, you know, because there’s, without getting too too academic about this, but there’s actually a little bit difference in this kind of what we call inaction kind of inertia based on inaction that we just don’t want to worry about more things.

YUPING: And therefore we just keep something going because if I wanted to switch, that kind of creates more effort for me.

YUPING: That’s actually a little bit different from the pure based habit where you automatically do something just because you have done it frequently enough in the past.

YUPING: And so I think that, you know, it really depends on that, depends on going into the psychological driver and looking at their behavior and see what is really causing them to stay with you over time, right?

YUPING: So you make that differentiation on the loyalty driver.

YUPING: And, you know, the ones that truly love you, they wanted to get a thank you note.

YUPING: And they want you to show gratitude towards them and so forth.

YUPING: Versus in some other cases, you know, probably will mess them up because of that habitual psychology.

PAULA: My goodness.

PAULA: What I’m just thinking, as you’re saying that, Yuping, is I think we need actually a psychologist for every loyalty program, you know?

PAULA: So keep you and your colleagues super busy.

YUPING: Well, yeah, definitely.

YUPING: I mean, there’s more, believe it or not, there’s more, you know, psychologists and marketing researchers that have received their PhD and gone out to work in the field because there’s more need for testing these kind of consumer psychology things, try to understand why they do things they do.

PAULA: Wow.

PAULA: I love to hear that actually, because I’ve often said one of the reasons I started this show was I always felt like I just didn’t have the education on the marketing side to really feel like I was fully leveraging my program properly and driving it.

PAULA: So if there’s much more people who are much better trained than maybe my generation coming out, that’s very reassuring.

YUPING: Yeah, definitely.

YUPING: And we have actually, for The Loyalty Science Lab, we have an awesome advisory board that are all seasoned professionals.

YUPING: But two of them are also PhDs who are working in the practice field.

YUPING: So we have Charlotte Blank, who is actually the Chief Behavioral Officer at Maurice.

YUPING: And so she has training in research and all of that.

YUPING: She’s directing a lot of the research projects over there.

YUPING: And then we also have Bonnie Hollop, who has a PhD in AI, artificial intelligence, that also works in the loyalty customer and data field.

YUPING: And so I think there’s more and more of this, kind of like the idea of Loyalty Science Lab, more of the merging between what you used to consider to be the nerdy stuff versus what’s practical.

YUPING: There’s a lot of synergy actually between the two.

PAULA: Yeah, they’re starting to merge, I think, Yuping.

PAULA: You know, we’re all getting a bit nerdier as we get comfortable.

PAULA: Absolutely.

YUPING: And proud of it.

PAULA: Totally, totally.

PAULA: And I know you’re a big fan of technology in general.

PAULA: And again, I’m not sure exactly how that comes through.

PAULA: But what would you say are the most relevant technologies, maybe, that, again, thinking about this audience of loyalty program owners, managers and directors?

PAULA: What is it?

PAULA: Is it AI, for example?

PAULA: You mentioned your advisory board there, you know, with somebody with that field of expertise.

PAULA: Or, you know, I’m very passionate, for example, about voice technology, which I know you are as well.

PAULA: So where would you say are some of the most exciting technologies for loyalty professionals?

YUPING: I would say definitely AI is the two things, actually, you mentioned.

YUPING: And I would agree that both of them are going to have a pretty significant impact in the future.

YUPING: So on the first one, on the AI component, I think that right now there is a lot of progress that has already been made on how do we mine the data from customers and being able to create duplicate profiles and being able to identify what is coming next for the customer and how do we market to them.

YUPING: And, you know, one of my own research projects, we’re actually looking at the next generation of the AI.

YUPING: And what we are arguing is that, you know, just number crunching and to learn from the behavior is not quite enough, but the next generation of AI agents needs to be also more empathic in the sense of understanding customer really from their perspective and also have more emotional intelligence in the interaction process as well.

YUPING: So I think that’s going to be something.

YUPING: And a lot of the underlying technology has already been developed or is in the process of becoming more mature.

YUPING: And so I think that the future customer interaction that’s driven by AI will, I think, will look very different from the way it is today, you know, compared with the typical chatbot, give you a couple of options or even be able to do, you know, more natural language-like, but it’s still very limited in the capacity.

YUPING: I think that’s going to change in the near future.

YUPING: And the other one is actually about voice shopping.

YUPING: So it’s interesting that you mentioned that because we’re about to start a project actually specifically looking at this voice shopping, not just from a perspective, you know, it’s a different interface, but also because it’s a different interface that it drives people’s decision-making differently, right?

YUPING: So if you think about a person who’s shopping on the screen, looking at all these products, you know, it could be thousands of products, doing filtering and all of this stuff, there is the way your mind actually thinks in that process versus a spontaneous thing that happens through, whether that’s Google Home or Amazon Alexa, you know, your approach or the way your brain would actually process that information is different, you know, because in one situation, you have that visual information in front of you.

YUPING: In the other case, it’s completely audio information.

YUPING: And so there’s a lot of psychology actually behind that voice shopping process that will change how you as a customer make a decision.

YUPING: And I think, you know, on top of that, I would say that a lot of current thinking about this voice shopping process is also that it creates almost like an intermediary for your decision-making process, because, I mean, you know, face the reality when you’re asking Amazon Alexa to give you a couple of product options for something.

YUPING: They can’t give you like a hundred different choices.

YUPING: So the agent or the AI agent that’s kind of in the background driving this process is going to be kind of making recommendations for you.

YUPING: So if you think about the future decision-making, you know, it’s no longer just customer by itself.

YUPING: Companies or these device makers will create a lot of that, make a lot of that decisions for you, or at least narrow down the options for you.

YUPING: And so it’s going to have significant implications.

YUPING: If your company is not included as one of the recommendations, you probably don’t even have a chance to really be known by the customer, not to mention be loyal to.

PAULA: Absolutely.

PAULA: And I know it’s very early days, Yuping, like what you’re talking about there certainly hasn’t hit where I live and work and shop.

PAULA: I think certainly in the US, it’s much more advanced, but it certainly fascinates me and worries me.

PAULA: And so I’m guessing that’s probably what most of listeners will also be starting to think going, how do we start to figure that out, even if it is quite far away?

PAULA: So as a general piece, Yuping, how long will it be before you’re kicking off that research now, you mentioned in terms of the voice specifically, how long before you would have conclusions, like does it take months or years, or what’s the horizon for that?

YUPING: You know, that’s an interesting question to ask, because a lot of times I think I talk with practitioners, academic research a lot of times take much longer process.

YUPING: I think it’s not just because of that publication process, you need to go through peer review and all of that.

YUPING: Before it gets published, it will probably be at least a year or two.

YUPING: But it’s also because typically it comes out as more than just one project, right?

YUPING: It’s a stream of research.

YUPING: So where we are right now is at the very beginning process of it, where we’re writing up grant proposals to try to get some grants out of that process.

YUPING: So I would say probably in a year, maybe some change that we will be able to have some preliminary results to show and, of course, validate it with further studies.

PAULA: Well, there’s no question, Yuping.

PAULA: I’m already putting you on my follow-up list for next year now to make sure we have a repeat performance.

PAULA: Wonderful.

PAULA: The last piece I just wanted to ask you then, Yuping, you mentioned when we spoke before something which I really like, which is about the popularity of mail, traditional, like the opposite of what we’ve just been talking about with our high-tech AI solutions for loyalty.

PAULA: But you have seen, I think, just some feedback, I suppose, that traditional communications also seem to be resonating.

PAULA: And I’m not sure if that’s something you’ve studied statistically, for example, as part of your research or just your own sense of what’s coming through, whether it’s pandemic-related or just in general, how people are feeling.

YUPING: Yeah, I think that I wouldn’t say I necessarily have my own research in this area, but one of the things that the example I mentioned earlier when we were talking about the field study we did with the retailer in Europe.

YUPING: And in that particular situation, actually most of their customers are actually not buying online.

YUPING: They are the typical traditional store shoppers.

YUPING: They like to go into the store.

YUPING: And this was, by the way, before the pandemic.

YUPING: And so in that particular situation, the company basically have very little email information from their customers.

YUPING: And most of their customers don’t really respond very well with the emails anyway.

YUPING: So in that particular study, we actually did a typical, what we call snail mail, and send it to the customer.

YUPING: And that has been effective, and that works for the company.

YUPING: And of course, some of that probably is changing now because of the pandemic.

YUPING: But I think there’s always a road there.

YUPING: Just because it’s the amount of competition, right?

YUPING: If you have a thousand emails coming in in a day, I’m of course exaggerating, but sometimes it feels close to that in my inbox.

YUPING: Versus if you get a couple of pieces of mail in a day, sometimes it gets your attention.

YUPING: I mean, we get here, we get personalized coupons from Kroger, for example.

YUPING: We retain that.

YUPING: We use that every single time when you go shop at Kroger.

YUPING: So it has its own place, I think.

PAULA: I think you’re right.

PAULA: I think we’ve come from having too much direct mail at home now to perhaps too much digital, too much email.

PAULA: So I think we’re coming full circle.

PAULA: So to your point, actually, at the very start of the conversation, personalized.

PAULA: So let’s first of all understand maybe what people do like and appreciate and maybe communicate to them in the channel that they enjoy.

PAULA: But I also think there’s real value in mixing it up.

PAULA: I often find myself like if somebody’s not responding to me, like I want maybe a guest on the show or something, if they’re not responding to email, then I will pick up the phone.

PAULA: And it’s almost like that there’s a surprise element where people kind of go, oh, you really want to talk to me.

PAULA: Okay, let’s do it.

YUPING: Yeah, definitely.

YUPING: And this is where personalization comes in.

YUPING: I think personalization is more than just like giving you the right message, but also when I reach out to you and through what channel that I reach out to you.

YUPING: It’s usually a complicated process.

YUPING: Everybody is different.

YUPING: And also for the same person, at different points in the customer journey, their preference will be different as well.

YUPING: And so it’s important to kind of understand that about what it is that your customer wants and where they want to be reached and get to them at that point in time.

PAULA: Music to my ears, Yuping.

PAULA: Really fascinating.

PAULA: There’s so much there.

PAULA: I feel like we could talk for hours.

PAULA: But in the interests of, you know, I suppose having plenty more shows to come back to together, I have two final questions.

PAULA: The last one actually is just to make sure people know where to find you, because as I said, there’s so much information.

PAULA: The Loyalty Science Lab is publishing extraordinary articles that you’re writing.

PAULA: But just before I ask you that, do you tend to invite or welcome ideas from, as you call, the more commercial side of the world, like us as practitioners?

PAULA: Is that something you welcome, or do you already have enough requests for support already with your own colleagues and clients and advisory board?

YUPING: Oh, no, definitely.

YUPING: We always love to hear from practitioners.

YUPING: Even outside of my advisory board, I speak with practitioners all the time to try to understand what their concerns are.

YUPING: And I also frequently get requests from a practitioner to say, we’re trying to make a decision about this.

YUPING: Do you have some research evidence to say one way or the other, that kind of thing?

YUPING: So I definitely would love to hear from practitioners what your concern is.

YUPING: What do you want to see that we write about?

YUPING: That would be great feedback for us.

YUPING: And we have, as you already mentioned, we have a medium blog where we write about these kind of research in more in-depth articles.

YUPING: It’s at loyaltysciencelab.medium.com.

YUPING: And besides that, we also have a LinkedIn page if you’re on LinkedIn all the time.

YUPING: It’s a bit long of a link.

YUPING: It’s a showcase page under our university.

YUPING: But if you just go to LinkedIn and search for Loyalty Science Lab, you should be able to find the page there.

YUPING: Or go to my, look for me and look it up on my profile.

YUPING: There’s a link there too.

PAULA: Absolutely.

PAULA: Yeah, so what I will do is when I send out the email to all of my email subscribers, Yuping, I will directly include all of the articles.

PAULA: I’ll just do short links to them because I don’t normally have all of the links, but I think this is really so relevant in order to make sure people get to the right destination.

PAULA: So for you personally then, is LinkedIn the best place for people to reach out if they do want to connect with you?

YUPING: Yeah, to connect with me.

YUPING: So I would say my LinkedIn page and the Loyalty Science Lab LinkedIn page would be great places to start because everything we post on Medium is also posted on LinkedIn as well.

YUPING: So they can get a link pretty easily to go over there.

PAULA: Wonderful.

PAULA: And also if anybody is listening and wants to reach out to me in order to get to Yuping for any reason, obviously I’ll just connect you directly.

PAULA: So we’ll make sure that we have all access.

PAULA: Yeah?

YUPING: Yeah, I would love to hear from your audience because I’ve been a fan of your show for a while and I think you discussed some of the really important topics in loyalty.

PAULA: Wonderful.

YUPING: Wonderful job.

PAULA: Thank you, Yuping.

PAULA: That’s super nice.

PAULA: Wow.

PAULA: I’m so excited.

PAULA: Well, listen, on that note, as I said, I’m really inspired by all of the work you’re doing.

PAULA: Super grateful to have you today and hope to bring you back again many times in the future.

PAULA: So Yuping Liu-Thompkins, Professor of Marketing and Director of the Loyalty Science Lab at Old Dominion University.

PAULA: Thank you so much from Let’s Talk Loyalty.

YUPING: Thank you, Paula.

YUPING: Very happy to be here.

PAULA: This show is sponsored by The Wise Marketeer, the world’s most popular source of loyalty marketing news, insights and research.

PAULA: The Wise Marketeer also offers loyalty marketing training through its Loyalty Academy, which has already certified over 170 executives in 20 countries as certified loyalty marketing professionals.

PAULA: For more information, check out thewisemarketeer.com and loyaltyacademy.org.

PAULA: Thanks so much for listening to this episode of Let’s Talk Loyalty.

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