Also Known As: positive reinforcement, conditioned rewards
An extrinsic reward is a physical reward given to someone for doing a task. Extrinsic rewards are valuable ways to motivate new customers who have yet to try a new experience.
Loyalty Programs. Loyalty programs have become a mainstream marketing tool for airliners and ecommerce stores. But what’s the value of turning a new customer into a loyal customer?
Let’s assume your average order value is $100 and a loyal customer buys once a month. This comes to $1,200 in annual revenue. At a 30% profit margin, a loyal customer is worth $360 in yearly profit. The one-time customer would bring in $100 of revenue and $30 of profit. That means a loyal customer is worth $330 more!
But, you can do one better. Let’s say you offer a free t-shirt to any new customer who joins your loyalty program. The cost of a t-shirt is $10.
That means every new customer that becomes a loyal customer is worth an extra $350 ($360 annual profit - a $10 shirt). Additionally, would also benefit from the word-of-mouth created from this happy customer.
See Also: Salience