I recently tried to redeem hotel points for an upcoming stay, excited to finally cash in on the nights I had accumulated, but what should have been a simple process quickly turned into a frustrating maze of restrictions, blackout dates, and fine print that made the reward feel anything but rewarding. Instead of feeling valued as a loyal customer, I felt tricked, like the hotel chain had dangled an incentive in front of me only to yank it away when I tried to use it.
This experience got me thinking about the psychology behind incentive programs. When done right, they make customers feel appreciated and motivated to engage further. When done wrong, they create friction, diminish trust, and sometimes even drive customers away.
At their core, incentive programs tap into basic human motivations: the desire for reward, the need for fairness, and the preference for simplicity. When companies design these programs without considering these psychological principles, they risk alienating their most loyal customers.
Take, for example, Starbucks. In 2016, the coffee giant revamped its rewards program, moving from a visit-based system to a spending-based one. Previously, customers earned a free reward after 12 visits, regardless of purchase size. The new structure required customers to spend significantly more to earn the same reward, particularly hurting those who made frequent but lower-cost purchases. Customers felt the value they had grown accustomed to was suddenly taken away, leading to widespread backlash. The lesson? Incentives need to maintain a sense of fairness; moving the goalposts mid-game can alienate even your most devoted customers.
Complexity Kills Engagement
A major pitfall of poorly designed incentive programs is unnecessary complexity. My hotel points experience is a prime example. Rather than a straightforward redemption process, I was met with restrictions that made using my points more trouble than it was worth.
Chipotle faced a similar issue with its short-lived “Chiptopia” rewards program in 2016. The program involved multiple tiers, required customers to make purchases within specific time frames, and was so complicated that many customers didn’t even bother participating. It’s a perfect example of how making rewards difficult to understand or use can lead to disengagement.
Contrast that with Sephora’s Beauty Insider program, which has been widely praised for its simplicity and transparency. Customers earn points per dollar spent, which they can then redeem for a variety of beauty products and experiences. The program is clear, flexible, and most importantly, makes customers feel like they’re getting something valuable in return for their loyalty.
What Businesses Can Learn
My frustrating hotel experience wasn’t unique—many customers have felt burned by rewards programs that overpromise and underdeliver. But the best programs, like the one from Sephora, get it right by focusing on three key elements:
- Fairness: Customers should feel like they’re getting real value, instead of feeling like they are being tricked into spending more for diminishing returns.
- Simplicity: The easier it is to understand and use a rewards program, the more likely customers are to engage with it.
- Transparency: Clear communication about how to earn and redeem rewards builds trust and prevents frustration.
At the end of the day, loyalty is a two-way street. If you want customers to stay engaged, you must design incentive programs that feel rewarding, instead of feeling like it is a bait-and-switch. Because at the end of the day, a reward that feels impossible to redeem isn’t a reward at all.
