An Interview with Jessica Boyce

How did you first become interested in behavioural economics and when did you first start to look at how it could apply to loyalty?

Psychology as a whole has always fascinated me. What we perceive as complex, and often indecipherable behaviours can be broken down into bite-sized chunks to allow an almost complete understanding of a person's behaviour.

This led me to work for a company that created bespoke loyalty programmes with a focus on changing behaviours.  The learnings that I gained have greatly shaped my career and continued my passion for psychology, with a specialism in behavioural economics, which continues to be a driving focus for Stream Loyalty. All the campaigns that we run, the proposals that we pitch and the marketing strategies that we design are rooted in behavioural economics.

Can you explain the core principles of behavioural economics?

Behavioural economics combines insights from psychology and economics to understand the behaviours which drive individuals to make economic decisions. Unlike classical economics (which assumes that people always make rational decisions to maximise their utility), behavioural economics acknowledges that human behaviour is often influenced by cognitive biases, emotions, and social factors.

Utilising the core principles, we look at how we can understand and interrupt the irrational behaviour of members in a loyalty programme. The most common behaviour change that our clients want to achieve is to increased brand awareness and loyalty from their customers, as this ultimately produces ROI and allows a larger share of wallet. Remember, retaining a customer is significantly cheaper than acquiring a new customer.

In addtion, your retained customers will act as brand advocates and generate natural acquisition through word of mouth and brand trust.

Can you provide any examples of how cognitive biases can impact decision-making?

As a quick recap, cognitive bias refers to why an individual might deviate from rational decision-making to making irrational or illogical decisions from an economic point of view. These biases often occur as a result of unconscious decision-making.

A good example of this is the anchoring bias; this suggests that the first impression that is made to the audience is the baseline that they then use to form future decisions. For example, if an individual is asked to make a judgment on a product, and are told that it is worth £1,000, versus a visually similar product that is worth significantly less, the individual would put more value on the former, rather than the latter, as we are unconsciously primed to believe that a higher cost must mean a better product (unconscious bias). I’m sure you can all think of a time when your unconscious bias meant that you believed that the more something cost, the better it was…right?

How do emotions and social factors influence consumer decision-making in behavioural economics?

Emotions play a significant role in consumer decision-making, as emotions can - and do -shape our preferences and influence what we like or dislike. For example, a positive emotional experience associated with a brand (e.g. a good customer experience or a significant saving) can create brand loyalty, making consumers more likely to choose that brand over others.

Alongside this, social implications also play a large role. Some brands focus their entire marketing budget on making their product appear exclusive and a social ‘must-have’. This creates a social status value in owning the product. As people want to conform, this could be the entire way that these products are sold, even if it isn’t the best value for money.

Of the 10 principles that you wrote about in your previous article for Stream Loyalty which one do you think can have the most impact in a loyalty programme or strategy?

Anchoring bias, which I’ve also mentioned above. Once that anchor has been set, it can be difficult to change that perception and it's one of the hardest challenges with a loyalty programme. In some cases, it is simply better to start from scratch (e.g. Hermes undergoing a complete rebrand and changing its name to Evri).

Do you think advancements in technology and data analytics will have an influence on how behavioural economics can be used to foster brand loyalty?

Definitely. We can already see how advancements in technology and data analytics have begun to significantly influence how behavioural economics principles are applied to foster brand loyalty. An example of maximising technology and data analytics is something Stream Loyalty helps our clients to capitalise on: personalised marketing.

Our anniversary or birthday bonus campaigns help foster that feeling of importance, which generates brand loyalty. As well as that, the more data that you are capturing and the more that you can segment your audience, the more that you are then able to complete personalised marketing and behavioural targeting.

You can also further use technology to introduce gamification which adds that fun element to a programme, such as Stream’s Spin to Win campaign, where data that is provided could lead to winning a prize.

Can you provide insights into any emerging trends in behavioural economics that could reshape brand loyalty strategies in the future?

Trends in behavioural economics influence brand loyalty strategies, which ultimately shape how businesses interact with customers and build long-lasting relationships. An example of this can be found when looking at behavioural personalisation.

Behavioural personalisation goes beyond capturing traditional data, such as demographic, age or gender; it suggests that by understanding how customers interact with products and services, businesses can personalise offerings, content, and loyalty rewards. Predictive analytics and machine learning algorithms help in anticipating customer needs and tailoring experiences, thus fostering stronger brand loyalty.

Are there any ethical considerations businesses should consider when applying behavioural economics to influence behaviour?

Yes, definitely. Each industry is different and when designing a programme, you must consider the ramifications which could be had. For example, take the Automotive Financial Services; within this sector, it is commonplace to award sales staff in dealerships for selling car finance when a customer purchases a new or used car. However, there are strict guidelines set out by the FCA to ensure that the sales staff do not miss-sell a financial product which could be to the detriment of the consumer (e.g. selling a Contract Hire agreement rather than a Personal Contract Purchase).

How can companies apply behavioural economic concepts to create more effective rewards or loyalty programmes?

Companies can apply behavioural economic concepts to design more effective rewards and loyalty programmes by understanding and leveraging the psychological factors that influence consumer behaviour.

One behavioural economic principle which explains this is the loss aversion principle. Companies can utilise this by framing rewards as potential losses which turn into gains. For example, highlight to the customer what they would be missing out on if they didn’t participate in the programme.

The coalition Loyalty Programme, Nectar, utilises this on their receipts and allows users to retrospectively sign up to the programme to gain those points which they missed.

Can you share an experience where you have applied behavioural economics to address a problem or opportunity related to consumer loyalty?

One of my clients had successfully launched a loyalty programme to their sales staff; this programme was very successful in its first year with consistent engagement with the comms, website and rewards. As the programme entered its third year, the website traffic had significantly decreased; as a result, the uptake on product campaigns was very low, mainly because the users didn’t know it was available.

As a way to encourage the staff to go back onto the site, we created badges which could be earned for desired actions. Logging in once a week; clicking on the notifications within five days; selling a current campaign-related product were just some of the ways members could earn badges. These badges did not reward the staff with points; it was strictly a status item.

We utilised the competitive nature of the sales staff, which led to a significant increase in website activity and therefore campaign-related sales. The badges became so ingrained, that I even took a call from a user who didn’t achieve a badge (as he was on holiday) to ask if there was a possible way to overwrite the system – as this badge was the only one he didn’t have - which shows how ingrained these badges became from a status point of view.

Can you provide an example of a loyalty programme that effectively uses behavioural economics principles?

Starbucks Rewards offers variable rewards to its members utilising a tiered system. They reward their highest-spenders differently than their lower-spending members.

Customers earn "Stars" for each purchase, and the reward structure is gamified. By offering different levels of rewards (green, gold, and personalised), Starbucks creates a sense of achievement and progression, encouraging customers to earn more stars and move to higher tiers.

They therefore invest more in the higher-tiered members, keeping them loyal, whilst also encouraging their lower-spending customers to achieve a higher status.

Can you recommend any books or resources for those who want to delve deeper into the subject of behavioural economics and loyalty?

"The Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value" by Frederick F. Reichheld: This book explores how customer loyalty impacts business growth and profitability; it provides practical insights into building and maintaining loyal customer relationships.