How Loyalty Programs Work (Part 2)

Leveraging Human Psychology to Improve Loyalty Program Effectiveness

Image by Loyalty Science Lab

In the first part of this series, we explored three fundamental psychological mechanisms that loyalty programs can leverage: the rewarded behavior effect, point pressure, and elevated status. Each of these mechanisms taps into different aspects of human psychology to influence member behavior and program effectiveness.

In this second part, we’ll examine three additional psychological levers that can make your loyalty program more impactful:

• Switching costs
• Habit development
• Sense of community

Mechanism #4: Switching Cost

When customers invest time and resources into a loyalty program, they become less likely to switch to competitors, a phenomenon known as switching costs. These costs aren’t necessarily monetary; they can include psychological investments, accumulated points or status, and established relationships with the brand.

Switching costs tend to be particularly influential under certain conditions: when customers are light users (making the accumulated benefits more precious), when they’re closer to earning a reward (due to point pressure), and when points or status are at risk of expiring.