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June 11, 2018

Small gestures make a huge difference to your sales - Reciprocity

Jagoda Hryszko
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Last time, we took a closer look at the psychology behind gamification. This time, we’d like to introduce another effective tactic ready to build into your marketing strategy - reciprocity.

The concept of reciprocity in sales is based on the fact that people feel obliged to repay if they have been given something for free in advance. There has already been a lot said about reciprocity in general and we’d like to extend your view in this matter. By using 3 large-scale experiments, we’re going to show you different ways to use reciprocity which make the most of its marketing power.

‍Photo by Javier Molina on Unsplash

Study 1: Monetary incentives bias consumers’ judgments

The first research shows the impact of reciprocity by using sponsorship and its effect on decision-making. The study investigated the activity of consumers' brains in response to sponsorship in the form of monetary values ($30, $100, $300). Three artificial brands were sponsors of the experiment, and their logos were displayed next to random paintings which people had to asses according to their individual preferences.

Offering monetary favors resulted in a strong trend towards preferring a sponsor’s paintings over other pieces of art. In the brain data, research showed that sponsor and non-sponsor paintings stimulated structures of the brain responsible for emotional reactions and decision-making differently.

“The favor consistently altered preference responses for sponsored paintings in this experiment”

Conclusions

Even a mere offer or a small gesture from a company can significantly affect people's judgments and decisions. Moreover, because the least significant growth of preferences towards a sponsor was noted for people who were offered $300 (the highest incentive), chances for a better reciprocity effect don’t correlate with a favor’s net value.

Study 2: Windfall gains and reciprocity

The second research shows the effect of reciprocity on customer experience and buying decisions. The experiment was run in a Pharmacy chain over 5 weeks. Customers who entered the Pharmacy were welcomed with a free keychain and were also thanked for choosing the store. There were no promotional data on keychains, and their monetary value was equal to 50 cents. The researchers recorded spent amounts and compared received average spend with a respective control group of clients who weren’t welcomed with a gift.

Conclusions

The results show that endowing an unexpected gain (gift) and simple gestures towards clients significantly influence their buying decisions. The reciprocity presented in this study is an effective tool to increase the average spent amount.

Study 3: Manipulating observability instead of financial incentives

The last research reveals a totally different side of reciprocity and its meaning in promotion strategies. The subject of this study was indirect reciprocity. In simple words, “we help those who help others, and we cooperate expecting that others will cooperate in return,” and this chain reaction is so-called indirect reciprocity. It's proven that social cooperation can be favorized amongst societies and can help to achieve even great global goals in conditions where the main aim is perceived as "good" regarding believed social norms.

Meaning of observability

To understand the sense of indirect reciprocity, and then its value for marketing, we need to dig a little deeper.

It has already been proven that the level of observability corresponds with a willingness to cooperate and instill reciprocity. The power of this phenomena comes from the fact we are much more likely to help strangers and support social cooperation when our reputation is at stake. The research showed that even a large group of uncorrelated people could support each other in order to make a "good" change. The key to invoking such phenomena is providing a high level of observability. For example, if my neighborhood could see my support for a local project and also a share of others, then people who haven't participated yet will be much more likely to cooperate. They would feel their reputation is at stake and their concern for reputation is much more powerful than financial incentives.

"We show that observability triples participation in this public goods game. The effect is over four times larger than offering a $25 monetary incentive"

Finally, now we know what stands behind indirect reciprocity, let's explore its marketing value.

What's the connection between customer loyalty, brand awareness, and indirect reciprocity?

I guess you already heard about a campaign like “Buy our water, 1% of the value of each bottle is given to supporting building wells in Africa”. Don’t you?

Indirect reciprocity when properly understood and used enables companies to run campaigns fighting for public goods which shape their branding image and increase sales. This is a good moment for mentioning customer loyalty again. Let me remind you that “64% of those who said they had a brand relationship cited shared values as the main reason for the relationship”.

You don’t have to build wells in Africa or fight World hunger to use indirect reciprocity and make a positive change for your business. Values that your company identifies with should be close to the things that matter to your audience. Local projects and initiatives are perfect for playing with indirect reciprocity because they allow for easy manipulation and control of observability. Favorite ideas create “Walls of Fame” or share information about their supporters in social media. The point is customers who donate or make a purchase and support your campaign want to be noticed. In fact, they are seeking high-observability.

Let’s see an example campaign.

Promotion displayed is for illustrative purposes only

Conclusions

Campaigns with a high-level of observability, fighting for values important for your visitors, can make a good change for the community and ensure customer loyalty. An altruistic message wrapped into an attractive promotional campaign may prove that your support for the public good can also make a significant difference to your sales.

Measuring reciprocity effect

To catch this difference, the impact of your acts of reciprocity need to be tracked and measured. We are going to show you the simplest way to estimate the final campaign outcome. Here we go:

  1. Use unique codes as incentives to track and limit your reciprocity efforts with ease
  2. Select two groups amongst your audience. The first (1) should get free unique codes and the second (2) is a control group with no free incentives. Choose representative groups to make sure you receive credible data.
  3. Now, make some simple calculations
  • Net revenue per visitor (NR) = (RT - RC) * M

RT = (Tested Group Revenue) / (Tested Group Visitors)

RC = (Control Revenue) / (Control Visitors)

C = (Cost of Reciprocity Promotional Codes) / (1st Group Visitors)

M = Your average product margin [%]

NR above $0 means you have run a beneficial campaign and the reciprocity phenomena worked out. Of course, for more accurate feedback you need to use more advanced algorithms with more specific factors, but this one can be perfect to start with.

Summary

Understanding the patterns our brains follow enables marketers to create personalized and more tailored sales strategies. Although environment and internal factors also shape our responses to popular tactics like gamification or reciprocity, we are all vulnerable to the same incentives. No matter if you're ready to use indirect reciprocity or endow customers with small gifts, science proves both strategies will work. The simplicity of mere gestures makes reciprocity reachable for businesses of every size and shape.

Tagged:
customer loyalty
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best practices
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