Gaming is big business. Worth hundreds of billions of dollars a year, the industry rivals Hollywood in big name titles and huge audiences alike. The result is a level of popularity and familiarity that borders on addiction. Playing video games releases endorphins and dopamine, partly because progressing through the steps of a gaming experience provides a regular sense of achievement that users enjoy.
Gamification is when aspects of video game experience are brought into the realm of online user-driven processes that are non-gaming. A better gamification definition is this by Gartner:
“Gamification is the use of game mechanics and experience design to digitally engage and motivate people to achieve their goals.” – Gartner
In other words, gamifying otherwise repetitive and mundane tasks and processes makes them more likely to be engaged with and completed. There are lots of applications for gamification, such as online training courses. Organizations everywhere seek to gamify some process or other than they ask users to engage with.
And that’s where loyalty programs come in. What better to gamify than the very system you’ve set up to increase customer loyalty?
Why add gamification into loyalty programs?
Here are 6 reasons why is makes good business sense to put gamification in loyalty programs:
Gamification appeals to hard-wired human nature
Video games have been hooking users since the 1970s. In step with gaming business models becoming more subscription based with in-app purchase opportunities, game publishers have steadily honed the game experience to be even more compelling. Gamification taps into human psychology in a few different ways:
First, it provides a sense of achievement that ‘rewards’ the brain each time you achieve a goal. Early games were basically one goal, but then evolved to multiple levels. Today, games provide multi-layered goals and micro-achievements. This encourages reward-seeking behavior.
Second, gaming is competitive. Again, early games would invariably give the player a numeric score which they could then try and beat on their next turn. Today the idea of ‘game progress’ is measured in more sophisticated ways. And users can be far more competitive with other players by having visibility of their progress, rather than just playing against themselves.
Third, gaming is habit-forming. It’s more than just fun or enjoyable. Users don’t want to feel like they’re missing out – that’s human nature. Games often play on this by offering power-ups, in-game currency and free lives at 24-hour intervals so you’re always rewarded for returning each day.
Gamification makes your loyalty program stand out from other loyalty programs
US consumers belong to 16.7 loyalty programs on average, but actively use about 8 of them. That’s quite a lot, and they could belong to more if they wanted to. The issue for organizations is being appealing enough to customers to get them to join their loyalty program. And to stick with it once they’ve become a member. For that brands need an edge; something a little different. Gamification in loyalty programs can deliver that.
The broader trend going on is that not gamifying your loyalty program could make you stand out for the wrong reasons. This might not be a problem for some brands, but most will be concerned about appearing old-fashioned and behind the times if they don’t gamify loyalty.
Gamification increases digital engagement, digital customer journeys and social sharing
Most loyalty programs have evolved at least part of their processes into the digital realm. Gamification is a boost to bringing loyalty programs into a fully digital experience.
This is especially important for those organizations running twin-track loyalty programs; the ‘old’ system that might rely on stamp cards and paper-based processes, in parallel with the ‘new’ which is web or app-based. Similar issues arise when organizations acquire or merge, with the inevitable issues of trying to integrate programs and their reward structures. Digitalizing this under a common architecture should include a gamified approach to optimize participation and better connect back-end systems integrations to facilitate real-time customer insights and personalization.
Finally, there is good evidence that customers who like gaming and engage strongly with gamification are more likely to be active on social media. This optimizes the potential for these customers to share their experience of the loyalty program more widely, encouraging others to become interested and get membership.
Gamification allows you to incentivize participation without offering a tangible reward
One of the big challenges with loyalty programs is funding them appropriately. Of course the idea is that they fund themselves by delivering additional revenue that you wouldn’t receive without a loyalty program. But it’s a very competitive business, and it’s tricky getting the balance right in terms of the value of rewards. For example, many loyalty programs offer an eye-catching incentive to join. This can be a ‘loss leader’, but pay off further down the line. Generous loyalty programs naturally attract significant loyalty – imagine if you got a free Starbucks coffee with every 2 purchases instead of every 10.
Gamifying your loyalty program makes customers feel rewarded without it costing you a penny. Good practice is to supplement these virtual rewards with real rewards and incentives so that the overall package delivers more value to loyal customers than if you didn’t gamify the loyalty program at all.
Gamification encourages customers to invest more time and effort engaging with your brand experience
As outlined above in terms of human psychology, gamification encourages reward-seeking behavior and a desire to continually ‘check-in’ to see progress and aim for the next achievement. This establishes a stronger context for making repeat purchases truly habit forming.
The truth is that customer loyalty demands a lot from customers. It requires their time, effort and dogged continuance of purchasing behavior in spite of distractions from similar providers. It helps a great deal if the product is perceived as high quality at a fair price, and meets all expectations for enjoyment and utility – but loyalty programs cannot control these aspects.
By encouraging repeated engagement with the loyalty program, gamification deepens and prolongs the overall brand experience. This is incredibly valuable in communicating key marketing messages, positioning adjacent products and gaining personalized insights into customer preferences.
Gamification in the loyalty program shows where else to gamify the customer experience
Gamification is spreading across customer engagement and customer experience – not just loyalty programs. But if this is where you start from, you can quickly detect which customers like, enjoy and want gamification in other aspects of their experience. A great customer feedback system is essential to this, enabling you to understand how and why customers are engaging the way they do. Then you can implement added waves of gamification with confidence.
There may be some customers who don’t respond to gamification. Therefore this insight is equally critical to giving them the best possible experience – and one that supports their ongoing loyalty.
Benefits of gamified loyalty programs
The biggest benefit of gamifying your loyalty program is increased loyalty! The immediate impact of gamification is to drive engagement, which in turn results in increased brand loyalty. Gallup research calculated a 23% premium associated with customers who are fully engaged with a brand compared with average customers. This premium comes in the form of increased share of wallet, profitability, revenue and relationship growth.
Gamification of loyalty programs is not new either. Customers don’t find it peculiar or off-putting, and neither is it a short-term fad that people lose interest in. Another study found 60% of consumers are more likely to buy from a brand if they enjoyed playing a game with it – a figure that rises to 86% among those who’ve experienced gamification before.
Another benefit is the generational impact of gaming’s popularity. Everyone regardless of age, it seems, is a closet Candy Crush or Wordle fan who uses mobile gaming apps frequently. But the trend is most pronounced among millenials and GenZ. According to one report, 40% of this group say there should be games with loyalty programs. It’s around one-third across all age groups. Clearly these proportions will only rise with time.
Other benefits include:
- Increases ROI on loyalty program budgets
- Stimulates innovation in loyalty program components, structure and marketing
- Encourages greater word of mouth around the brand
- Facilitates a more complete, end-to-end digital brand experience
Types of Gamified loyalty program
So what does gamifying loyalty programs really come down to?
Common gamification techniques
Here are some of the techniques used by companies to achieve gamification:
Tasks, challenges and obstacles
This is where the loyalty program sets the bar for a certain number of purchases, points or actions to complete a task. It feels good to see yourself moving steadily closer to accomplishing the goal, usually by accumulating points to mark progress.
Streaks and milestones
Streaks and milestones are slightly different to tasks because they record the commitment made by the customer in the broadest possible context. For example, logging into the loyalty program app for 50 days in a row, or winning your 10th reward. These ensure there is always something for the customer to work towards.
Ranks and levels
Many loyalty programs are tiered into two or three streams (e.g. a standard gold, silver, bronze frequent flier program) but gamification takes this much, much further. The key here is the data that the gamified loyalty program interface provides about status. Many of these status levels have names rather than numbers, and customers can see where they stand with some kind of graphic that moves with each action or purchase.
Badges and other virtual rewards
These are simply the manifestation of status and progress in the form of virtual badges, trophies or other rewards. The customer cares most about the physical rewards (free goods and services, discounts, tangible prizes) but these extra virtual rewards are psychologically important too; providing more reasons for the customer to remain focused, engaged and paying attention.
Teams, leaderboards and “people in your area”
These aspects bring the added dynamic of other customers who are also members of the loyalty program. Some programs allow friends and family members to pool their rewards, and working towards a team goal increases effort and commitment. Leaderboards are a competitive device, showing customers how well they are achieving versus other people. True competition can only really happen when rewards are finite; in other words when there are a limited number of rewards and customers must compete for them. This is a difficult area that may work for some customer groups and not for others. Some customers will enjoy the spirit of competition greatly; others will resent the cynicism of a company making their customers ‘perform’ for prizes.
The ‘people in your area’ device is one favored by streaming services. Strictly speaking, Amazon Prime and Netflix don’t do this as part of a loyalty program, but it is designed to increase engagement. By showing customers what other people in their neighborhood are watching, customers are more inclined to try these shows and movies through a sense of community kinship.
Examples of gamification in loyalty programs
Here are 5 examples of loyalty programs using gamification in a best practice way.
The Starbucks Rewards app is probably the most popular example of gamification of this kind. Many other brands have since imitated it, and for good reason.
One area to call out is the ‘menu challenge’. This is where customers are issued with a list of purchases to complete to win bonus stars. Bonus stars can then be redeemed against food and drink orders, or even merchandise.
The approach uses familiar gamification techniques like badges, points and levels. It also puts a time limit around the challenge, increasing excitement and jeopardy. This is a great example of making “the game” more about the customer’s real-life behavior and less about how they interact with an app. The benefit to Starbucks isn’t just more revenue and loyalty – it’s also encouraging customers to sample a broader choice of menu, so that they increase preference for more items and grow their overall spend with each subsequent visit.
Chipotle Rewards is another exemplary loyalty program that uses many gamification techniques. However, it was its specific 3-day promotion – Race to Rewards – that really caught our eye.
Race to Rewards invites customers to test their gaming skills on an 80s-style arcade racer, complete with chunky graphics reminiscent of the ‘Wreck-It Ralph’ movies. Try it twice and win some free tortilla chips with your next purchase. But if you hit the highest score over the 3 days, you won a Tesla!
This was a hugely successful campaign that put gaming front and center of the Chipotle experience. Customers were drawn to the amazing prize on offer, but thousands were drawn into restaurants – and the loyalty program – with the promise of free chips just for having fun playing a game!
Waiting for your pizza delivery is a feeling that oscillates between excitement and frustration. Dominos has tapped into this by gamifying the experience so customers can track the progress of their pizza from prep to oven to arrival at your door.
Pizza lovers can also use Dominos Pizza Chef to design their own pizza creations using augmented reality. All this adds to the richness of the Dominos brand experience and keeps customers coming back for more.
The PINK Nation loyalty program targets the GenZ generation who are known to engage best with gamification. The program operates with the standard ‘purchases equals points’ approach, but has added facets that encourage deeper engagement. For example, customers can get extra points by playing daily trivia games and sharing promotions on social media. It’s a smart move because customers don’t buy apparel every day, but this gamification makes the app ‘stickier’ and more likely to be used. The rewards on offer are also experiential, taking the program beyond just discounts and vouchers. The big attraction is tickets to attend exclusive events and fashion shows.
Unlike Victoria’s Secret, 7-Eleven really does have the potential for daily repeat customers. Convenience stores, like coffee shops, are therefore ideally placed to gamify loyal behavior into ‘streaks’.
Streaks are simply successions of purchases. When used in loyalty programs, customers who build up daily or weekly streaks can accumulate some great rewards. The brand, meanwhile, can take the opportunity to cultivate extreme loyalty and make repeat purchases into a habitual behavior.
Who should use gamification?
A counter argument for gamification in loyalty programs is that games aren’t for everyone, and older people are less engaged in these kinds of techniques. There are a few things to say about that:
- It’s true that video gaming is most popular among younger age groups and slightly more popular among men than women. That doesn’t mean that only young people engage with gamification, or that women are turned off by it. Don’t assume anything until you’ve at least tested it with your target customer audience.
- Gamified loyalty programs are mature and successful – they prove mass market adoption. Remember, gamification is more about innate human psychology than simply appealing to people who classify themselves as ‘gamers’.
- Different types of games and gamified elements appeal to different people. Some audience groups are more competitive than others. Some are more engaged with puzzles; others with quizzes. Some prefer accumulating a series of small rewards; others to having a shot at a big prize. Again, testing and customer feedback are key to learning what works for your brand.
- Gamified loyalty programs are great for keeping customers engaged above and beyond their purchasing frequency. Take this example: frequent fliers enrolled on loyalty programs seldom fly more than monthly. Gamifying that loyalty program is therefore an opportunity to engage more often. This isn’t just for cups of coffee.
The conclusion is that every brand should at least experiment with gamifying aspects of their loyalty programs. In pretty much all instances it will be a good call to implement.
How can you measure the success of your loyalty program?
The success of loyalty programs is typically measured by evidential KPIs around purchases. If customers spend more while in the loyalty program than if they weren’t – you’ve got a worthwhile program in play.
The digital nature of loyalty programs makes this easier to track, assuming that customers order goods and services through the same interface, and/or that all parts of the customer journey (and back-end processing) are ‘joined-up’. Some of the evidential measurements would include:
- Customer Lifetime Value
- Repeat Purchase Rate
These measurements can be applied to individual customers or calculated to customer cohorts with an average ‘per customer’ value.
Customer retention and churn
Any discussion of customer loyalty inevitably arrives at customer churn, the potential for losing a customer and the rate at which customers are lost. Such rates are typically calculated on a cohort basis rather than individually. Measure would include:
- Customer Retention Rate
- Customer Churn Rate
Each of these 4 evidential measurements are useful in determining the ROI of loyalty program investments. They can also be used in testing the success of gamified loyalty program elements in driving increased loyalty.
Indicators of future loyalty and loyal intent
The holy grail of customer loyalty is not just a customer who purchases repeatedly, but one who is also an advocate and promoter of the brand. Using only the evidential KPIs described above overlooks the possibility of customers who are only loyal because they are being rewarded by free stuff or mildly entertained by an engaging, gamified process. This is why future-looking loyalty metrics are so important to measure as well.
Future-looking customer loyalty metrics
There are two common metrics for accurately predicting (i) the loyalty of customers before they’ve demonstrated it, and (ii) the likelihood that customers will advocate and recommend the brand to others. These are:
- Net Promoter Score® (NPS)
- Customer Loyalty Index
NPS is among the most popular customer-related metrics and widely accepted as the key KPI for customer loyalty. It relies on customer feedback to determine NPS ratings and an overall NPS score.
Customer loyalty index (CLI) also relies on customer feedback and shares a similar approach to NPS, incorporating three questions instead of one. Both are highly important when measuring customer loyalty, particularly for tracking trends and improvement opportunities related to loyalty programs.
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