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It’s 2020; time to make Incentives a sustainable retention strategy

“My company doesn’t believe in running discounts for reaching retention and activation goals. They want to spend as little money as possible and get people to use the app for the value it provides” Joe, the Product Manager of a large On Demand Service App.Joe isn’t the only one.

Many companies off-late have realized that monetary incentives are great to push numbers in the short term but they are hurtful in the long run.

This brings us to the question,

How can we build an incentive strategy that works across the user lifecycle to grow your business sustainably?

Opportunity: Incentivize customers to build Product habit loops

Your business grows based on actions that customers do on your platform.

1 Action which is the core value proposition of your platform(Booking a ride in Uber)

2. Actions which are other use cases of your product(Booking an Uber Premier ride)

3. Actions which build a customer moat for your platform(Buying a subscription/Uber Pass to increase switching costs)

4. Actions which help you with user growth(Referral marketing)

Your goal as a Product Owner/ Growth lead should be to build habits out of these Actions which can be directly mapped to your key KPIs

Incentives are one of the best ways to motivate people to do something. You can use Incentives to motivate people to try to use your product.

Let’s say, for example, a new user joins Uber and is yet to experience the value of the platform. You send them an incentive to motivate them to try Uber out.

To get the Incentive, the user puts aside their uncertainties with the product and gives Uber a try.

After giving Uber a try, they’ve also experienced the Reward of taking a ride through Uber. This reward feeds into building an organic trigger in the user’s mind and thus slowly builds a Product habit loop.

Now the goal is to taper down the Incentive Habit loop and make users build a strong Product Habit loop.

The Problem

The current problem is that the discounts are run at a segment level because of lack of tools/resources to help product and growth teams which leads to

1. Customers end up building a habit of using incentives to do these product actions which is expensive and has low switching costs.

2. People don’t end up building the habit because the incentive wasn’t good enough for them

The Opportunity

1. Craft different types of rewards

2. Give users a unique Incentive experience

3. Spend “just enough” money on a user to motivate them to do an activity

There’s more to rewards than just free money(1/3)

Customers don’t want your free money, they want something more

There was a company similar to Quora called Mahalo which gave a monetary payout to people who wrote answers. It didn’t survive long because people could earn money doing other jobs. Quora came in and gave people recognition in the form of Top writers(social rewards) and gobbled up the user base of Mahalo.

Free stuff is driven by extrinsic motivation which leads to them doing the activity for the sake of the reward. This becomes harder to maintain as you need to keep giving more discounts to just keep them on your platform

As you can notice, the rewards start out by being explicit($20 off on your next purchase) for a user who has just begun using the platform and they become more artificial as the user is invested into the platform(You’ve earned the Tier 2 Badge for completing 100 orders on Instacart).

Leverage existing product habits as incentives to build/reinforce other habits

Product habit loops take time to build. But once they are built, you could leverage users’ existing product habit loops to make your incentives more personalized and intrinsic in nature.

Let’s say there is a user who is consistently using Uber X and you want to increase the number of new users by encouraging them to build a habit of referring friends.

I can create an incentive which leverages the UberX habit loop like

“ Get 3 Free UberX Rides when you invite 1 person to Uber”

Build new experiences which encourage habit formation and long term behavior(2/3)

Do you like putting the coupon code in the field and seeing the discount amount on your cart screen?

Incentive experiences are their own habit loops and you can get users addicted to discounts.

But the problem is that coupons have become like an ad. Just like how the first ad had more than 75% click-through rate and now it’s less than 1 percent, coupons have lost their charm as every other site offers a coupon code for you to apply.

So even if the incentive is good, people would most likely ignore a coupon as they are naturally inclined towards ignoring the 100 other coupons they keep getting.

Build Incentive experiences based on habit-forming and gamification concepts

You can leverage concepts like Reward of the hunt, Variable Rewards to define experiences which keep users excited about these incentives and mainly improve redemption rates for companies

Making the Incentive appear Variable

Scratch cards and other similar incentive constructs like Spin the wheel and slot machines play on the innate gambling nature of humans. It is said that in gambling, people high on dopamine in anticipation of reward and not the reward itself.

The variability in the presentation of the reward fits directly fits into the habit model and can be leveraged for building product habits. One good thing is that you can give high or low discounts at random to users and they will not be disappointed about it.

Multi-step Programs

Based on the concept of Reward of the hunt, you can create a challenge for customers to chase after and are satisfied when they complete the challenge.

You can change it based on different people’s context

You can create customize the program difficulty based on the audience and the goals of the campaign

Using habit-forming nudges in your incentive experience to encourage healthy habits

The above two constructs seem to be common but when clubbed with habit-forming variables, it can have an immense impact on the number of habits built

-Time limit

-Reinforcing existing behavior

-Explicit variable reward

-The intrinsic value of the platform

For example, in the scratch card, you could add the “Action Reinforcement” variable to show them “why” they received a reward to build an association of product habits with positive rewards

One thing to note is that certain experiences are best suited for the lifecycle of the user

Stop building bad habits by context-driven discounts(3/3)

One of the key reasons why customers build the habit of incentive loops is because they get more than what they needed to finish a transaction.

For instance, a person who’s almost on the verge of purchasing or already has built a habit of purchasing will require lesser incentives than a person who has not used the app in a while.

By giving unnecessary incentives, the person continues to have the habit of using discounts for performing critical activities in your app.

By giving just the right discount amount to each user based on their context(purchase propensity, recency of purchase, lifecycle stage of the user, current habit loops, etc.),

- More conversions: You spend more on users who need monetary motivation to do the activity

- Healthier habits: You don’t (over)spend on people who are anyway going to complete the transaction and thus help them naturally transition to healthier habits

Wrapping Up

In this post, we spoke about different incentive strategies that can be used across the customer lifecycle. Using Incentives just as a catalyst for Product Habits is super key and how well you do it depends on each user’s context and campaign goals. We also spoke about how the current Incentives are just plain boring for customers and you can add a subtle gamification layer to make your incentives something your users look forward to.

Incentives can be powerful if used the right way, we need the right tools and infrastructure to make this happen

Recognizing this problem, we built MARS to help growth and product teams scale personalized incentive experiences to each customer which lead to sustainable growth

In our future posts, we’ll talk about an Incentive framework that leverages psychology, gamification and retention principles to help you create an Incentive strategy for your platform. Please reach out to me at sumant@marax.ai or LinkedIn if you’d like to talk more on this subject.P.S.

We regularly host exclusive expert-driven workshops on “Incentives as sustainable retention strategy”. Sign-up here if you are interested in participating in the next one.