Do Incentives Work Online?

I’ve been having a lively and relentless discussion with my buddy, Peter.

Here’s the question under fire: How effectively can online customers be turned into regular customers at ecommerce sites through the use of incentives?

‘Buy nine coffees and get your next cup free.’

‘Fly around the world and get a half zillion air miles.’

‘Buy more groceries here and get lots of points.’

There’s lots of stuff like this happening and working in the offline world. But how effective is the same approach in the online world?

Do online customers react the same way? Will a few points on the purchase of books, flowers, CDs and theatre tickets create long term loyalty to your site?

It’s tempting to believe that that they will. Hence the appearance of a whole bunch of new Internet companies that are in the business of creating Internet incentive programs.

But if you base your belief in the efficacy of online incentives on your experiences offline, you’re building that belief on a bundle of assumptions. And, lest we forget, assumptions are always bad things.

So. How effective will online incentive programs turn out to be?

Just to stick my neck out — and set myself up to be emailed by a dozen incentive companies by sundown — I’m going to guess that online incentives aren’t going to produce the long term customer loyalties people are hoping for.

My thinking on this is likely a little under-developed right now. But here’s how I see it: Offline, your customers are on your turf. It’s a home game for you, the retailer. Your customers come to your ‘stadium.’

For example, each Friday, I pick up a bunch of weekend groceries on my way home. I have a choice of three supermarkets, all on my side of the road — all on the way home, all with great parking.

At this point you can influence my choice with an incentive or ‘points’ program. Once I’ve made that choice, it’s up to you to leverage the program to get me into a shopping habit.

But keep in mind the environment here. My options are limited. There are only one or two reasonable routes open to me on my drive home and only a handful of stores from which I can choose. A good incentive program can tip the balance.

But online, I have a million routes home from which to choose — and everything is on ‘my side of the road.’ Online, I believe that customers are on their own turf. It’s their home stadium. The ‘market’ is owned not by the marketers, but by the customers.

If I have 500 stores from which to choose, will your incentive program be strong enough to create a habit?

What happens when my friendly ‘shopping bot’ leads me elsewhere? What happens when a friend tells me what a great experience they had at a different site? What happens when I encounter a broken link on the way to my ‘points account’?

My guess is that the loyalty you create with points is going to be pretty thin. It’s just not going to be that easy to create loyalty online.

So when my good buddy Peter asks, “If you’re so smart, and you don’t like points programs, what would you do to create customer loyalty at my site?” To which I’ll reply, “Take the money you were going to spend on the points program and invest it in outstanding customer service.”

Makes sense to me, anyway.