Gift theory and the loyalty programme nobody loves

Kalise is the brand most people in the Canary Islands grew up with, in ice cream and in yogurts at the same time. When we built the first wave of its brand tracker, with 500 category consumers surveyed online, the question behind the project was blunt: is our lead built on preference, or on habit? When you’re the default, habit can look a lot like preference, and you usually find out which one you have when a competitor starts to win.

Most loyalty programmes have the same question underneath them, and it’s rarely the one the dashboard answers. The dashboard shows members, points issued and redemption rates, and all three can grow while the relationship stays exactly where it was. To see why, it helps to go back a hundred years, to a French anthropologist who never held a points card.

What Mauss saw in the gift

In 1925 Marcel Mauss published “Essai sur le don”, known in English as The Gift. He compared how gifts worked in Polynesia, Melanesia and the Pacific Northwest, from Maori treasures to the shell necklaces and armbands that travel around a ring of islands off New Guinea, the Trobriands among them, and kept finding the same pattern. Gifts look voluntary, but in practice they come with three obligations: to give, to receive and to give back.¹

Those obligations are what turn an exchange into a relationship. Drawing on a Maori account of the hau, the spirit of a thing given, Mauss argued that a gift carries something of the person who gives it, which is why it binds the person who receives it. The bond lasts because the debt is never quite settled, and each return gift invites another. Later anthropologists disputed his reading of the hau, Claude Lévi-Strauss in 1950 and Marshall Sahlins in Stone Age Economics (1972) among them, but the idea that gifts create obligations has lasted. Mauss noticed the darker side too: a gift that can’t be returned leaves the receiver in an inferior position, which helps explain why people can find generosity they can’t repay uncomfortable.¹

A market exchange works differently, and the Trobrianders had a word for it: gimwali, plain haggling, which they kept apart from the kula. You pay, you receive and you’re done. Nobody feels they owe the supermarket anything for selling them milk at the advertised price.

In a points programme the customer buys, earns points at a published rate, redeems them and gets the reward. The balance is owed until it’s redeemed, and then the account is clear. In gift exchange, as Marcel Mauss described it, one side gives, the other receives and then gives back, and each return invites another, so something always stays open between them.

A points programme A gift, as Mauss saw it

Each exchange is priced in advance. Points build up until the customer redeems them, and then the account is clear. The rules are clear and the reward is earned, so it can feel more like a payment than a favour.

Left open at the end0

Marcel Mauss, The Gift (Essai sur le don), 1925. Gratitude and clear rules: Lena Steinhoff and Robert Palmatier, 2016.

Why loyalty programmes fail to build a bond

Most points programmes sit much closer to the supermarket than to the Trobriand Islands. Buy ten coffees and the eleventh is free; spend this much and earn that many points. The rules are clear, the reward is earned, and what stays open is a balance at a fixed rate, which the brand owes and the customer clears by redeeming.

That clarity has a cost. In an online experiment by Lena Steinhoff and Robert Palmatier, people imagined being offered a free pastry in a coffee shop. Those told they’d qualified under the shop’s published rules reported slightly less gratitude than those given no reason. Clear rules also made people who watched others get the pastry feel less unfairly treated, so clarity is a trade-off. In the same paper’s survey of 265 recent airline passengers, those who’d received rewards such as priority boarding reported more gratitude, and gratitude went with the loyalty they reported.² Gratitude matters because it’s what makes people want to give something back. Earlier work by Palmatier and colleagues found that relationship investments which make customers feel grateful drive purchase intentions, sales growth and share of wallet through exactly that kind of reciprocal behaviour.³

Some of the earliest research on loyalty programmes was sceptical. In 1997, an article by Grahame Dowling and Mark Uncles in Sloan Management Review described loyalty programmes as surprisingly ineffective, given how popular they are.⁴ The same year, Byron and Anne Sharp compared Australia’s Fly Buys, a large coalition programme, with the repeat-purchase levels you’d expect from each brand’s size: only two of the six participating brands showed substantial excess loyalty, and some of it showed up among non-members too.⁵

Later studies show where the money goes. In French grocery retail, Lars Meyer-Waarden and Christophe Benavent found that heavier buyers join first, that their behaviour changes only slightly after joining, and that the small gains fade six to nine months later.⁶ When Jorna Leenheer and colleagues allowed for the fact that loyal shoppers join first, Dutch grocery programmes still lifted members’ share of spending, but by about a seventh of what a simple comparison of members and non-members suggests.⁷ Yuping Liu’s study of a convenience-store programme found that heavy buyers claimed the most rewards without changing what they bought, while light and moderate buyers gradually bought more and became more loyal to the chain.⁸ Put simply, a good part of the budget can end up paying your best customers for a habit they already had, while the gains come mostly from lighter buyers.

The largest review we know of is more positive. A meta-analysis in the Journal of the Academy of Marketing Science, covering 429 effects from three decades of studies, found strong evidence that loyalty programmes raise loyalty, mostly the behavioural kind, where people buy again. Changing how people feel about the brand is harder.⁹ The mechanics of points are well understood, too. Ran Kivetz and colleagues showed in a real café reward programme that members bought coffee more often the closer they got to the free one, the same goal-gradient effect that behavioural psychologists first described in animals approaching a reward.¹⁰ And some programmes earn their keep in other ways, through customer data or revenue from partners, even when they do little for how people feel.

Habit can look like preference

Back to the Kalise question. A lot of what looks like loyalty in repeat-purchase markets is habit. Mark Uncles, Grahame Dowling and Kathy Hammond concluded in 2003 that loyalty in these markets is shaped more by the passive acceptance of brands than by strong attitudes towards them.¹¹ In diary studies by Wendy Wood and colleagues, about 45% of everyday behaviours were repeated in the same place almost every day, and in a study of students’ fast-food buying, those with strong habits repeated them whatever they intended to do, as long as the context stayed the same.¹²

Habit is valuable, and a points programme can reinforce it. But habits lean on context, so they’re most exposed when the context changes: a new store layout, a competitor’s offer at the till, a move to buying online. That’s the moment you find out how much of your lead was preference, and it’s why the question Kalise asked is worth asking before any loyalty team redesigns its tiers.

Three tests from The Gift

Mauss doesn’t give you a programme design, but his essay suggests three tests for any loyalty programme.

1. Did the customer have to earn it? If the reward follows a published rule, it works like a payment. Keep it if it drives the behaviour you want, but expect less gratitude for it. Things the customer didn’t have to earn, and that feel chosen for them, are much closer to a gift. Give them discreetly, because customers who see others rewarded without knowing why can feel unfairly treated.²
2. Can the customer give something back? In a typical points programme, the only way to give back is the next purchase. Ask for their knowledge, their opinion on what you make or their help with other customers, and treat what they give as a contribution.
3. Is there anything to keep going? Gift exchange lasts because it never quite closes. A programme where every reward clears the account leaves nothing open between you and the customer once it’s redeemed. Keep the obligation light, though. In an ethnographic study of people moving house in Montreal, Jean-Sébastien Marcoux found that people sometimes turn to the market to free themselves from the sense of owing others.¹³

Conor Henderson, Joshua Beck and Robert Palmatier reviewed the research on loyalty programmes in 2011 and found that most of it rests on three kinds of mechanism: status, habit and relationship.¹⁴ Basic points schemes lean mostly on the second, and tiered ones add the first. If what you want is the third, the design starts somewhere else.

This is what we do

Before you change the programme, find out what kind of loyalty you have, and that often takes all three lenses of our H3™ method. A survey tells you how many members are loyal and how strongly, and when the reasons behind each score are coded into themes, as they were in the Kalise tracker, it starts to show why. Interviews show what the brand and the programme mean in people’s lives, and whether anyone would miss the programme if it disappeared tomorrow. Social listening shows how members talk about it when nobody is asking, and whether they describe it as a deal or as a relationship.

Points can buy the next purchase. The bond Mauss described starts when a customer wants to give something back, and it lasts while giving back feels like their choice.