If you want someone to achieve a goal, you should give them a head start – even if that head start is really just an illusion.
Loyalty programs are based on the idea that consumers are more likely to repeat purchase if they are given incentives to reach specific goals with well-defined rewards. A classic example is the airline industry: consumers often prefer a specific airline in the hopes of earning enough miles for a free flight, even when lower cost or more convenient options are available.
Researchers Nunes and Drèze showed that people who are provided with artificial advancement towards a goal exhibit greater persistence towards reaching the goal. Artificial advancement means giving a head start towards a goal while simultaneously moving the goal away by the same amount. They dubbed this the endowed progress effect.
Nunes and Drèze demonstrated the endowed progress effect using a loyalty program at a car wash. There were two versions of the loyalty program which stamped a card for every purchase. The first version required 8 stamps to receive a free car wash while the second required 10 stamps but two stamps were filled in a special sign-up promotion. In the first version, only 19% of the members redeemed a free car wash while 34% redeemed in the second. The difference is despite the fact both versions required eight purchases and provided the exact same reward.
The researchers explained this behavior based on the goal gradient effect – people who perceive they are closer to a goal usually exert more effort. In the first version of the loyalty program, people start off 0% towards an 8-stamp goal; in the second, they start off 20% towards a 10-stamp goal. While the level of effort is the same, the head start stamps provide the illusion that the task is incomplete rather than not yet begun.
Nunes and Drèze experimented with variants of the loyalty program showing that the endowed progress effect increased the likelihood people would join a loyalty program, the perceived attractiveness of the program, and peoples’ subjective assessment of whether they would achieve the rewards. There was one caveat: the endowed progress effect disappeared when there was no reason given for the head start. The reason could but completely arbitrary – for example, a special promotion – but a reason for the head start had to be given.
Clearly, anyone designing a loyalty program should always provide a head start towards the goal. The endowed progress effect shows customers will be more loyal. It’s why you get free miles when you sign up for an airline reward program.
You may be tempted to use the endowed program effect for your company’s performance management goals but you shouldn’t. The research shows the effect is limited to task-oriented goals in which the reward is only granted when the entire task is completed. And it would be a bad idea to make your company’s goals all or nothing. Right?