Sunday 17 May 2009

Carrot Squared

I’ve come across quite a few altruistic loyalty schemes of late – schemes which are looking to use commercial principles of consumer loyalty to change peoples behaviour.

The thought pattern is, if loyalty works for retailers or airlines, why couldn’t it work to encourage recycling or a healthy lifestyle?

Whether it’s wellness programmes, green programmes or recycling programmes, there are many schemes out there looking to use the principles of loyalty marketing to change consumer, employee or citizens behaviour.

Indeed, back in 2004 the UK government advisor Ed Mayo of the National Consumer Council said “The problem is that people's efforts are not rewarded in any way. What people want is carrots, not sticks”

The Carrot and Stick is the standard line when discussing the use of these types of schemes. Using fees or taxes to punish bad behaviour whilst rewarding with cash, tax breaks or points for good behaviour.

The problem though in many cases is that the stick part of the equation is in the wrong place. Take recycling for example - why am I as a consumer getting taxed for the amount of rubbish I create when this is simply a result of how manufactures choose to package things. If manufacturers of goods and services were forced to internalise the costs of their products, recognising for example the true cost of creating, using and disposing of the item and its packaging then the item would either be more expensive, limiting it's purchase or more likely would create less waste thus helping to reduce the problem.

Take the laptop I’m using now, it is estimated that counting everything in, a 10lb laptop uses over 40,000 lbs of raw materials – many of which are finite when extracted and polluting when disposed off. If all of this was accounted for within the price, you can bet it wouldn’t be as cheap as it is.

Even with the “stick” aligned however by the internalisation of costs, as a consumer I can still choose how to consume and this is where the carrot comes in, with incentives for doing the right thing.

However, this isn’t an environmental blog, and whilst these issues are important, I'm interested in how the mechanics of commercial consumer loyalty programmes can be used to help change the behaviours that people can control.

Within a commercial loyalty programme, your best customers are typically the most frequent, most recent customers spending the most money. Once you have transactional data these customers are easy to identify and once found the approach is typically “protect and retain”. For the worst customers, those potentially draining marketing resources, there may be an attempt to on-board these, but very quickly they will be marginalised with marketing spend being focused where it has the most impact.

The approach within altruistic programmes is the inverse of consumer loyalty – your “best customers” are those from which you have the most to gain; not those from which you are already gaining.

Whilst participants that are doing what you want - whether it’s recycling, quitting smoking or reducing their weight – are important, its actually the ones who aren’t which need the motivation and hence the marketing spend. The danger can be to focus where there is the greatest impact – changing behaviour – rather than appearing to spend money that isn’t needed on maintaining behaviour.

A good example of this is the UK government announcement last year that it was to spend £4.5m sending excluded students to “community cohesion” camps – simply put, a week long adventure holiday that includes abseiling, quad biking and water skiing. Whether this will ultimately help these students change their behaviour is not the point – it immediately raises questions about how the good students are to be recognised and rewarded?

This is not unlike the issues with focusing on acquisition vs retention. As I’ve discussed previously, a sole focus on acquisition means that you’ll lose customers you already have who you then have to re-acquire – the leaky bucket syndrome. Within these altruistic programmes, there is potential for the same effect .

A single focus on the behaviour you can change means you ignore “retaining” those who have already changed and risk them coming back full circle.

This means essentially you need two approaches. You need a programme which recognises and rewards change – whether it's a reduction in waste or a reduction in your waist – and then continues to recognise and reward the maintenance of this.

For example, within a wellness programme you may need to reward someone for simply walking to work – possibly a small distance but a great change in behaviour – whilst also recognising someone else who chooses to jog 10 miles a day and is already healthy and maintaining their fitness. There needs to be two approaches to these very different stages to ensure one doesn’t outstrip the resources for the other whilst also ensuring that both are recognised and rewarded.

Many consumer loyalty programmes have some mechanisms to address recognising different customers groups – elements such as tiering that provide increased benefits, earnings and rewards for increased value – but they typically still fit within a single programme approach.

For a behaviour changing programme I think there needs to be two approaches within a single programme – one which rewards the change and one which rewards the maintenance of this.

Neither approach should be more or less rewarding – it is the behaviours required to unlock the reward value which are important rather than the value itself.

PruHealth have a great commercial example of this with Vitality Points, rewarding you for making healthy choices such as using the gym by lowering both your gym membership fee and health insurance premium. For example they reward members with 150 points per year for remaining a non-smoker as well as rewarding other members with 150 points for joining a quit smoking programme – in essence providing the same value for different behaviours. Contrast this with a programme in Dundee which looks to reward people who stop smoking for a week with £12.50 off their shopping – but nothing for those who already have.

The requirement to recognise the change separately to the maintenance of behaviour is in essence two different carrots or Carrott2.

I think we will see more of these kind of programmes being trialled and rolled out and may even begin to see the emergence of coalition style programmes which reward all aspects of being a good citizen.

However, for these programmes to ultimately work we need to remember that the rules are different to consumer loyalty and that when designing the programme, the reward and recognition needs to be aligned to both changing and maintaining behaviours.

I am however looking forward to the challenge of driving customer behaviour for the benefit of the individual, not just the corporate.

1 comment:

Import2sage said...

Very good example taken of carrot and stick to make the concept understand.