Are you following the widely used practice of small financial benefits or monetary gifts to your customers as a token of your gratitude? You might want to rethink your strategy. Read ahead and we will help you not make the same mistake as most of the industry does!
It is a common practice for firms to express their gratitude to loyal customers by offering small monetary acknowledgements, hoping that as a result they would feel more appreciated, increasing their satisfaction, thus providing a long-term commitment in marketing channel relationships (Hoffman and Lowitt 2008).
A more-is-better mentality has been present in the beliefs of companies. Recent research by Liu, Lamberton and Haws (2015) however showed that small monetary benefits sometimes have the opposite then expected effect, and make consumers feel less appreciated.
In a previous post we discussed the effect of small incentives on motivation, but what happens in the important marketing context of acknowledging consumers for efforts they have already voluntarily expended?
It’s widely believed that meeting or exceeding consumers’ expectations regarding a financial benefit will directly increase their satisfaction with the firm, no matter its magnitude. A company hence might conclude that any benefit greater than nothing should provide some level of increase in satisfaction (Reis et al. 2000).
The study argues that a consumer who receive only a verbal acknowledgement, that effectively communicates gratitude, will be keen to have a deeper relationship with a firm (Algoe, Fredrickson, and Gable 2013) .Given that this message meets verbal norms, the consumer should evaluate it positively. Now consider that the firm decides to add a small financial benefit to this message. Though this financial benefit objectively makes the consumer better off than they were before, it will be evaluated negatively if it does not match the amount they would expect for their time or effort, as they have now set two standards – a monetary and a verbal. The average of the positive verbal component and the negative financial component will be lower than the consumer’s positive evaluation of the verbal acknowledgment alone. This difference in evaluation is the trivialization effect – the extent to which adding a financial benefit to a verbal acknowledgement reduces consumers’ felt appreciation.
In an experiment people were asked to imagine a scenario in which they frequently buy at a shop, bring their friends in – essentially being loyal customers. Then they were presented with an e-mail with a discount of 0-40% in 9 groups rising by 5%. After seeing this email, they were asked to rate how appreciated they felt, out of 7. Customers receiving no money felt more appreciated (5.2) than those receiving 5% (4.5) or 10% (5.0) discounts. Naturally, the level of appreciation steadily rose alongside the level of discount given.
This shows that to make customers feel more appreciated, it’s better not to offer a discount at all, than offer a small one. Increasing the reward given will eventually remove the Trivialization Effect, however, which is good news.
How should I apply this in my managerial practice? Showing gratitude to customers is undoubtedly important, particularly in the cases of ongoing relationships. It is important that one doesn’t underestimate the value of simple verbal acknowledgment. With ODICCI you can create customized rewards for your customers, in which you can easily implement thank you messages.
Secondly, managers should understand their market and its expectations. Using ODICCI you can create quizzes and surveys tailored to your needs, providing great insight into your customers. With features such as real time reporting you can even adjust your campaign on the fly.
Liu, P. J., Lamberton, C., & Haws, K. L. (2015). Should firms use small financial benefits to express appreciation to consumers? Understanding and avoiding trivialization effects. Journal of Marketing, 79(3), 74-90.