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Coffee Loyalty Cards - The Stamp of Success

02/06/2014 11:21 BST | Updated 30/07/2014 10:59 BST

"Do you have a loyalty card?" the Barista asked as I paid for my double espresso. My card was duly stamped - only two more coffees before I could claim a free brew. Most people in the queue had a loyalty card too. And so I got to thinking.

If these cards are so effective at driving consumer behaviour and building brand loyalty why do we not see similar tools used within organisations to drive employee behaviour? Unless you work in sales, most organisational reward programmes are likely to be bonus schemes and/or very occasional rewards for exceptional effort. I've not come across short-term, quick, immediate employee reward schemes similar to retail loyalty programmes.

Retail organisations invest vast amounts of money in loyalty programmes designed to drive consumer behaviour. These programmes are based on consumer insights about what motivates people to behave in certain ways and how to attract them to one brand over another. The consumers who purchase coffee are also your colleagues. What can we learn about motivating a colleague from motivating them as a consumer?

My research led me to fascinating insights on "goal-gradient hypothesis". The principle is simple - the closer you are to achieving your goal the more effort you are likely to expend to achieve the goal. In an excellent paper, Kivetz, Urminsky and Zheng (2006) found that customers purchased more coffee and more frequently the closer they got to filling up their loyalty card with stamps. They also found that if you gave the customer a helping hand by filling in the first two stamps at the start (for example stamping the first two blanks of a 12 blank card), then because that meant they were now closer to the goal of a free coffee they then increased the frequency they purchased coffee when compared to those people who had been given a card with no stamps but requiring exactly the same number of stamps to complete the card (i.e. a blank card requiring 10 stamps to get a free coffee).

They looked at a whole range of activities and found the same effect. The closer you are to the goal the more likely you are to do the things likely to get you to the goal. In addition, the closer to the goal you get, the more loyal you are likely to be and the more likely you are to engage in future such programmes.

Of course it's an illusion - each step requires the same effort as the previous step and therefore there is no real value in accelerating the behaviour just because you're two steps further on than before. However, the evidence is overwhelming - this is the way people behave. We work out how far away from the goal we are and this provides a frame of reference that influences the effort we are prepared to expend.

In my last blog, I touched on the power of goals to drive behaviour - the harder the goal set the higher the level of performance achieved - the message was set hard goals. Where the goal gradient hypothesis fits in, is in the importance of setting smaller more achievable sub goals, or milestones along the way.

Given this, my suggestion is we break goals down into smaller units and reward key milestones along the way with a series of loyalty acknowledgements or 'stamps', such that when a particular goal is achieved a reward is received. The process can then be repeated for each subsequent goal. To accelerate the behaviour, some of the initial stamps can be achieved by relatively little effort and so enable people to get closer to the goal easily - like pre-stamping the coffee loyalty card.

The type and nature of the reward will depend on the benefit achieved by achieving the goal. As a good manager, you will have identified the ROI of achieving a given goal, be that increased sales, faster response time, greater efficiencies or whatever your core metrics measure. These measures will help you determine what a suitable reward could be.

The lesson from the world of coffee is that it needs to be really clear what you need to do to get each stamp and a clearly defined benefit from collection of a specified number of stamps. You can start the process by acknowledging great work already done and providing a stamp or two to get them started. It may even be worth considering offering a 'team card' as well as an 'individual card' for collecting stamps.

So next time you order your 'skinny latte with an extra shot' think about what the equivalent would be for members of your team to get a stamp on the card for work completed.

Dominic Irvine 30th May 2014 All rights asserted