Should you nudge customers who are close to VIP?

A customer who is a few dollars short of VIP is a tempting target for a nudge. This guide sets out what research on reward cards found, what it leaves open, and how to test a nudge on your own list before you rely on it.

What the studies found

Two well-known papers look at how people respond as a reward gets nearer.

• Goal-gradient. Kivetz, Urminsky and Zheng studied reward programs. In a café with a free-coffee card, members bought coffee more often as they got closer to a free coffee. Customers given a 12-stamp card with two bonus stamps already filled in finished the 10 required purchases faster than customers given a regular 10-stamp card (abstract of the 2006 working paper).
• Endowed progress. Nunes and Drèze, in the Journal of Consumer Research, found that reframing an eight-step task as a ten-step task with two steps already complete “increases the likelihood of task completion and decreases completion time” (abstract).

What they don’t show

The studies are about stamp cards for repeat purchases. They don’t test online stores, and they don’t test a dollar spend threshold. A customer a few dollars short of VIP might respond differently from a customer one coffee short of a free one. The studies also don’t count what a nudge costs you in margin if it comes with an offer.

Other pieces of evidence you may have seen are not used here. Figures from blog posts about card redemption rates came through secondary summaries, and we didn’t confirm them against the original papers, so we leave them out.

Build the list

The people to nudge are those who are close to the threshold and haven’t reached it. Count spend per person. A customer whose orders sit on two profiles can look far from the threshold on each, when together they are close or already over it (why split profiles hide your VIPs). You’d nudge someone who is already a VIP, or miss someone who is nearly there.

In a spreadsheet, that is everyone under the threshold whose total is within a margin you choose. A tool that counts people across profiles saves the grouping work, and Help shows the VIP lists in MergeGuard.

Run a test with a holdout

A holdout group is the part of the list that gets no nudge. It shows what would have happened anyway, which is the only way to tell a nudge’s effect from ordinary buying.

1. Split the list at random into a nudge group and a holdout group.
2. Choose the window and the measure before you start.
3. Send the nudge to one group only.
4. Compare the two at the end of the window.

Success is more orders from the nudge group than from the holdout group over the window you set. Failure is no difference, or a difference that the cost of the offer cancels out. Both are useful answers.

Read the result

On a small list, a few orders can come from chance. In a small group, one extra order is a large share of the result. Treat a small gap as no result. Repeat the test on the next group to cross the threshold if the first one is unclear.

Where to send

Send the nudge from your own email tool, and only to customers who have agreed to hear from you. Check marketing consent there before you send.