• by Mark McKinney , October 4, 2013

The problem with most loyalty programs is that they don't build loyalty in the true sense of the word. Instead, they encourage buying one more products as opposed to asking people for support, advocacy and the Holy Grail of loyalty -- trust. Only 25 percent of the population feels loyal to any loyalty program, and 50 percent of even the most active participants abandon it after one year. Why? Most loyalty programs stumble in their use of psychology and violate the following principles of the psychology of building trust:

The Negative Contrast effect: When rewards become expected, they are no longer a bonus. Case in point: airline loyalty programs often entice their customers with mileage points. Getting rewards for flying is great at first, but customers quickly begin to expect the bonus miles and start to think of them as a right. If the program ever adjusts to where customers feel cheated (e.g., points expire), this can produce a negative contrast effect and degrade trust.

Cognitive dissonance:  When you have a difference in your behavior and attitude (I bought this low-quality soap), it creates a psychological state called dissonance. Usually, people resolve this uneasy feeling by changing their attitudes (I actually DO like this soap) because changing your own attitude is easier than changing your behavior. But if you have a reason for the dissonance (say you had a coupon), then you probably won't change your attitude. There's no need to. You can resolve the dissonance of your attitude about the low quality of the soap through the savings from the coupon. Bottom line -- when loyalty programs bribe you into behavior, it doesn't do much for building trust.

Reactance: We don't like being told what to do. When brands try to tell you what to buy through subtle methods like loyalty programs, people sometimes do the opposite. You might think we outgrow this at some point, but we don't. We're all rebels at heart. And we don't trust authority, man.

So how do you build a loyalty program that people actually like and that leads them to trust you?

Focus on trust: Don't focus on the next sale. Focus on building trust, and the sales will come pouring in. Keep your promises, care as much about your customers as your bottom line, and make your values well known. Research shows we trust those who hold similar values. Use yours to attract loyal customers.

Surprise and delight: Instead of a free sandwich after every ten punches, think about a schedule where any purchase could earn a “surprise and delight” reward. You don't have to give more -- just package rewards differently. This taps into a powerful psychological principle: variable ratio reinforcement. People only get excited when they are getting close to the reward. With variable reinforcement, people never lose that excitement. That's why slot machines are so addicting.

Pay it forward: Design your program to let people share their rewards. It shows you value generosity.

Personalize: Understand your customers and give them reward choices. When you put their needs first, you generate high levels of trust.

Make it fun: People like to play games. Let people compete for loyalty points and badges. When building the game, think beyond purchase. Reward customers for advocacy, for helping with market research, and for helping with product innovation.

These psychology principles are not new. In fact, they have been proven thousands of times since they've been put to paper. By harnessing the power of psychology and creating a loyalty program that builds trust, you will discover the map to the Holy Grail of Loyalty.