Social Commerce: Learning from the Car Wash

For brands interested in using social commerce to boost customer loyalty (propensity to re-purchase), check out this study from a… carwash, as noted by that font of endless insight that is the Farnam Blog.

Forget the psychobabble jargon about the “Endowed Progress Effect”, what you need to know is that loyalty programs that involve collecting points/miles/stamps work much better – 82% better to be precise – when you give customers a few initial points/miles/stamps for free.  For example, when university researchers Joseph Nunes and Xavier Drèze handed out two loyalty cards for a car wash; one requiring 8 stamps for a free car wash, and the other requiring 10 stamps for a free car wash, but with 2 stamps already added (so an equivalent eight more needed), they observed very different results.  Those given a false head-start with a 10 stamp card were far more likely to pay for the additional 8 car washes – boosting loyalty by 82%;

The authors also identified four other key loyalty insights:

• As people progress toward a goal, their effort will increase and thus completion time will decrease. Endowed progress, which provides artificial advancement towards the goal, exacerbates this effect.
• Loyalty to a loyalty program (persistence) depends on relative progress made by a person, not on the amount of reward points or miles that would be lost by failing to continue.
• Third, when the endowed progress is issued in points rather than purchases, both the endowment and the return that customers obtain for their efforts appear more significant and thus customers will exert more effort.
• The endowed progress effect is more likely to operate when consumers are provided with a reason for the endowment, even if that reason is specious — such as, “Our company is considering a rewards program; would you like to participate?”

So, implications when using social commerce as a loyalty platform?  Offer your fans points that can be redeemed, give your fans a head start with start-up points (for a reason), and show them a progress bar for their loyalty rewards. And hum along to the cult Car Wash soundtrack.

Source: Nunes, Joseph C. and Xavier Drèze (2006), “The Endowed Progress Effect: How Artificial Advancement Increases Effort,” Journal of Consumer Research, 32 (4), 504–12.