Reward Psychology Part 1: consistent rewards to win new customers

Competition in the £200+ billion UK grocery sector is fierce. Promotions play a big part in attracting and retaining customers. Effective promotions tap into the psychology of human motivation — often in counterintuitive ways.
How does reward psychology work?
Reward psychology is all about understanding how rewards shape behaviour. Evidence from psychology shows that consistent rewards are most effective when creating new habits. This continuous reinforcement helps make the behaviour stick.
However, once the behaviour is established, consistent rewards become less effective. This is where variable rewards take over. Uncertainty around when a reward will land increases anticipation and engagement.
Evidence from 70 years of experimentation in behavioural psychology has proven the effectiveness of these “intermittent reinforcement schedules”— more on that in Part 2 of this series on reward psychology.
Build habits by encouraging repetition until behaviours become automatic
Getting started can be the hardest part of any customer relationship. Customers tend to stick with the familiar. To beat inertia, retailers need to offer sizeable promotions that cut through.
Here are some examples of promotions I like from the UK grocery market:
Laddered discounts for new customers. Here are a couple of door drops from Ocado and Waitrose offering laddered discounts. There are several things worth taking note of:
- Both offer a laddered discount for new customers. You get money off your first three to five online shops. And the discount is sizeable: £80 for Ocado and £40 for Waitrose.
- These consistent rewards help establish the desired behaviour — registering a grocery account and completing regular shops over a few weeks.
- Once you complete five shops, you’re well on the way to establishing a new habit. Ocado knows this — their data shows that “shoppers who complete five orders with Ocado are much more likely to give long-term repeat business, and they are strong candidates for conversion to Ocado’s subscription service, Smart Pass”.
- Bonus points go to Waitrose for their lovely van-shaped leaflet. The moment you pick it up from your doorstep you know it’s about online shopping. I bet a lot of customers put it on their fridge as an aide memoir.
Laddered discounts can re-establish habits too. HelloFresh has a similar strategy. They send lapsed customers a “please come back” mailing with a laddered promotion for their next eight purchases.
Again, this encourages you to buy consistently to re-establish the habit. Customers are aware they’re building towards this goal of eight purchases, and become reluctant to break their streak.
The goal gradient effect
All these offers are examples of the goal gradient effect. Motivation increases as people get closer to achieving a goal. The sense of closure you get when you achieve the offer feels great, giving a sense of completeness.
Consistent rewards develop habits
Consistent rewards start as external motivation — customers just want the discount. Over time, however, this external motivation subtly transforms into an internal motivation: enjoying the product.
To put it another way, the customer starts with the aim of maximising their discounts, but ends with enjoying the quality of Ocado’s groceries or the convenience of HelloFresh. Thereby developing a self-sustaining habit.
This is Part 1 of a two-part series about the art of reward psychology. Keep your eyes out for Part 2 about variable rewards to keep customers engaged — coming soon. Get in touch with Trinity McQueen to find out how we can help you win more customers with reward psychology.