driving customer loyalty with gamification

Engaging E-Commerce: Driving Customer Loyalty with Gamification www.pomegranate.co.ukINSIDE SERIES 1

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ENGAGING E-COMMERCE

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Driving Customer Loyalty with Gamification

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more tools has led to increased levels of competition, with the battle for customer and brand loyalty reaching unprecedented levels. From our weekly food shop at Tesco with Clubcard points, to Starbucks cards where you can earn free lattes: companies are openly fi ghting for our loyalty.

In the mid-1990s, the concept of online shopping gained traction, revolutionising the retail industry. E-commerce has matured over the last two decades, becoming increasingly sophisticated; more marketplaces and

As the number of loyalty programs has grown, their consumer engagement has declined by as much as 30 percent in the last fi ve years (Zichermann, 2013). E-commerce marketers struggling to engage their customers and falling short of their sales targets are now increasingly jumping on the gamifi cation bandwagon, using it as a means to create differentiation. If done right, gamifi cation leverages the innate human desires to compete and achieve, and provides value and meaning to actions. Gamifi cation is commonly seen as a paradigm for enhancing online user engagement, brand awareness and loyalty (Vittal et al, 2011).

However, it is often implemented by individuals lacking an in-depth understanding of the psychology behind the use of game mechanics, and how they infl uence human behaviours. The issue primarily lies with marketers not designing gamifi cation into the user experience and the customer journey from the start. Many active examples of game mechanics in e-commerce apply gamifi cation like a ‘bolt-on,’ simply creating visual noise and obstructing the shopping experience.

The Internet is a nearly perfect market because information is instantaneous and buyers compare the offerings of sellers worldwide. The result is fierce price competition, dwindling product differentiation and vanishing loyalty.

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Driving Customer Loyalty with Gamification

ENGAGING E-COMMERCE

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Without a clearly thought out framework that aligns business objectives with user experience, audience profi les and attuned mechanics, powerful devices such as achievement badges and points accumulation are meaningless, and rather than stimulate, they fail to engage users. It is these primitive applications of ‘game mechanics’ that have left many marketers doubtful as to how impactful gamifi cation is, and the value it holds as a marketing strategy for e-commerce sites.

REWARDING THE ‘RIGHT’ BEHAVIOUR

Reichheld and Sasser (1990) estimated that a 5 per cent increase in customer loyalty can increase profi ts between 25 and 85 per cent. With such powerful statistics fl oating around, it is no wonder that loyalty schemes have soared in popularity over the last decade. With old-fashioned, lack-lustre frequent fl yer-esque loyalty schemes on their way out, gamifi cation has quickly captured marketers’ attention as a way to reinvigorate the concept and drive deeper engagement.

The crucial difference between traditional “earn and burn” loyalty scheme models and the new emerging ‘trend’ of gamifi ed loyalty schemes, is the process of rewarding users for non-purchase interactions, such as online engagement. It is this opportunity to create and reward a specifi c set of activities or behaviours, which are tied to social and online channels, that encourages information sharing and increases online customer engagement (Vittal et al, 2011). Moreover, an important factor to success is providing both intrinsic and extrinsic motivations, where a person can carry out actions simply because it is fun and self-fulfi lling, not always for a tangible reward.

With the multitude of channels available to customers today, sharing your website’s content is valuable. If a customer shares a positive experience with your brand on Facebook, then this action can and should be rewarded. As a result of Telefl ora’s social loyalty scheme, which offered points, rewards, levels and badges in return for reviews, comments and posting on Facebook, referral traffi c from Facebook increased by 105 per cent. On top of a 10-fold increase in the number of pictures and videos being uploaded, Telefl ora’s conversion rate improved by 92 per cent (Moth, 2013). By rewarding customers in this way, they are given a reason to return to the website outside of advertising campaigns, which can be hugely benefi cial for companies that drive their revenue via advertising.

An important factor to success is providing both intrinsic and extrinsic motivations, where a person can carry out actions simply because it is fun and self-fulfilling, not always for a tangible reward.

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However, companies need to be careful how they reward such actions. It is essential to look at the mix of tangible and intangible rewards: the inclusion of levels and badges, and a sense of progression and achievement are essential to a successful loyalty scheme. Additionally, it is important to consider the impact any tangible rewards will have on your margins.

When BlueFly introduced game mechanics to enhance their customers’ online shopping experience they offered, among other rewards, special deals and discounts as players earned higher badges through actions they took on the site. If you offer discount codes or vouchers as part of the reward structure as BlueFly did, then you must consider whether or not such rewards would still be fi nancially viable if the loyalty scheme was to become hugely popular. This is why a carefully planned reward structure and risk assessment should always be completed prior to implementation.

Moreover, successful loyalty schemes are supported by intelligence-driven strategies, so before incorporating gamifi cation elements, fi rst consider your objectives, and how gamifi cation will help you achieve them. Adding an advanced gamifi cation layer to a loyalty scheme will not compensate for a weak or ill thought out strategy, and overcomplicating a loyalty scheme can have the opposite effect on user participation.

UNDERSTANDING USER MOTIVATIONS

The use of game mechanics in loyalty schemes aims to trigger or intensify specifi c emotions, behaviours and actions in users. Adding a gamifi cation layer to an existing loyalty scheme means assigning specifi c values to actions or tasks, and can dilute the value or reward for customers if the users’ perceived ‘needs’ and motivations are not properly understood.

One alternative to offering users a tangible reward is to offer them exclusivity and access, which is highly valued in the retail industry. Gabe Zichermanm (2011) references Gilt Groupe in his book, Gamifi cation By Design, and how they specifi cally targeted the top 1% of their online shoppers with their ‘Gilt Noir’ loyalty scheme, which offered members the ability to shop 15 minutes before any sale began. This is a brilliant example of a company understanding their customers’ intrinsic motivations and needs, offering them a highly valued, exclusive intangible reward, to drive deeper brand loyalty.

In order for gamifi ed elements to have a meaningful impression on customers and encourage them to participate, it is crucial to understand what it is that motivates them – status, money, access etc, and to use such insights in your gamifi cation strategy building. It would be naive to assume that all audiences will respond to the same gamifi cation elements (Matthews, 2013).

Adding an advanced gamification layer to a loyalty scheme will not compensate for a weak or ill thought out strategy, and overcomplicating a loyalty scheme can have the opposite effect on user participation.

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Moreover, the wording and marketing of the gamifi cation techniques must be in line with your brand and the feel of your site, and aimed at your target audience (Matthews, 2013). For instance, if you are dealing with younger children you may want to use the term ‘Quest’ instead of ‘Challenge,’ as this will resonate more with them, encouraging greater online participation and brand engagement.

CUSTOMER INSIGHT

In addition to providing marketers with an exciting new way of engaging their customers, gamifi cation can provide a highly valuable customer activity data set. Warner Bros Entertainment created a virtual currency, where members of their Insider Rewards Program could earn credits for online activities including watching trailers, entering contests and making e-cards. The credit could then be redeemed for virtual, low-cost merchandise such as ring tones and wallpapers. The online user activity data created by this virtual currency helped Warner Bros gain a more complete view of their customers.

Integration with social channels can create an additional set of valuable social customer activity data that can enhance and extend customer insights (Vittal et al, 2011). Integrating social media into gamifi ed loyalty schemes has proved both popular and successful as it fulfi ls the human desire to compete, and creates a sense of social loyalty. One-on-one challenges on social channels broaden the loyalty experience by including the entire member base and their friends and family. This allows member to earn rewards whilst gaining insight into how they compare against other members.

CONCLUSION & RECOMMENDATIONS

In a short space of time, gamifi cation has gone from being almost unheard of, to one of the most talked about topics in the marketing industry. However all too often, case studies are cited as gamifi cation when they are actually just a game. Adding a leader board and letting people earn points for commenting on a social channel is not gamifi cation, and is a short-lived, tactical solution. It is important to understand that gamifi cation is not a ‘quick fi x;’ it is about implementing a long-term strategy that will impact on many areas of the customer relationship. Having agreed metrics in place ensures the success of the strategy is monitored, and the feedback process is clearly defi ned (Thomas et al, 2012).

Although the benefi ts of using gamifi cation to improve customer retention and engagement are indisputable, it is essential that marketers do not rely too heavily on it to rescue lacklustre loyalty schemes. E-commerce marketers must have a well thought out loyalty program strategy and reward structure before they jump on the gamifi cation

Gamification is not a ‘quick fix’; it is about implementing a long-term strategy that will impact on many areas of the customer relationship.

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Engaging E-Commerce: Driving Customer Loyalty with Gamification www.pomegranate.co.ukInsIDE sErIEs 6

bandwagon, and must carefully evaluate whether or not gamification will contribute to intelligence-driven loyalty. Moreover, it is crucial that the integration of gamification techniques into your site feels natural and not like a ‘bolt-on.’

In summary, a well-designed gamification system can provide huge benefits for online retailing, engineering stimulation and value-driven relationships that will be rewarded by happy, retained customers.

Here are a few key steps to success:

• Start by clearly understanding the people and the behaviours you wish to affect. • Define the game mechanics that enhance the user experience, not that simply help

the business objectives.• Pay careful attention to integration within the visual environment.• Never force customers into a gamified journey. • Ensure the feedback loop is built from useful metrics that will inform development. • Don’t over do it, certain activities such as the payment process need to remain

functional and not fun.

GET IN TOUCH

If you found this interesting and informative and want to know more about how Gamification could help your business get in touch.

E: [email protected]: +44 (0)20 7336 7322

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Engaging E-Commerce: Driving Customer Loyalty with Gamification www.pomegranate.co.ukInsIDE sErIEs 7

REFERENCES

Chang, T. 2012. Gamification: Insights And Emerging Trends. [online] Available at: http://techcrunch.com/2012/05/11/gamification-insights-trends/ [Accessed 11th March 2013].

Griffith, G. 2013. Gamification in ecommerce (part one). [online] Available at: http://esellermedia.com/2013/01/11/gamification-in-ecommerce-part-one/ [Accessed 11th January 2013].

Kuttner, R. (1998) ‘The net: a market too perfect for profits.’ Business Week, 3577, pp. 20.

Mannering, L. 2012. Gamification of Ecommerce. [online] Available at: http://www.onlineretailingblog.com/gamification-of-ecommerce/ [Accessed: 9th February, 2013]

Moth, D. 2013. Six interesting examples of gamification in ecommerce. [online] Available at: http://econsultancy.com/uk/blog/61912-six-interesting-examples-of-gamification-in-ecommerce [Accessed 21st January 2013].

Reichheld, F, and Sasser, W. (1990) ‘Zero defects: quality comes to services.’ Harvard Business Review, pp. 105–111.

Sappington, B. 2013. Gamification Brings in Serious Business. [online] Available at: http://www.ecommercetimes.com/story/76923.html [Accessed 25th January 2013].

Thomas, D., Armour, A., and Hemmings, S. 2012. Can Business Win With Gamification? [online] Available at: http://www.pomegranate.co.uk/challenge-series [Accessed 4th March 2013].

Vitall, S., Murphy, E., Frankland, D., and Smith, A. (2011) What’s In A Game? The Effect of Gamification On Customer Loyalty programs. Forrester Research.

Wright, M. (2011). How 9 Retailers Successfully Leveraged Game Mechanics. [online] Available at: http://mashable.com/2011/12/27/retail-gamification/ [Accessed 15th February 2013].

Zichermann, G. 2011. Gamification By Design. O’Reilly Media.

Zichermann, G. 2013. Startups are disrupting the loyalty industry. [online] Available at: http://pandodaily.com/2013/02/22/startups-are-disrupting-the-loyalty-industry/ [Accessed 22nd February, 2013].

driving customer loyalty with gamification

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