The Role of Gamification in Consumer-Centric Companies
Exploring how gamification is redefining customer loyalty programs, driving innovation, and unlocking new growth opportunities.
Hi there!
This week on Eximius Echo, we explore how gamification is transforming consumer-focused companies by driving engagement, enhancing loyalty, and boosting retention in today’s competitive landscape.
If you’ve not heard of us, Eximius is a pre-seed stage fund focusing on FinTech, SaaS, Consumer, Online Media & Gaming, and HealthTech. You can find out more here. This newsletter is an attempt to share ideas, insights, and context within the realms of our chosen sectors. Let’s dive in.
Nearly 90% of companies compete primarily on just customer experience. With over 50 million companies being started every year, companies around the world are looking to engage their customers deeply to create long term loyalty and retention for a competitive edge. This need has become more pronounced with an accelerated increase in customer acquisition costs (gone up by 222% in the past decade), and rising digital marketing spends (forecasted to surpass $900 billion by 2029). Thus, in the current paradigm, the value for customer retention has never been higher.
This has paradoxically happened at a time of decreasing brand loyalty. While 70% of customers are still loyal to particular brands, this number neared 80% just a couple of years ago. Therefore, when customers are inundated with choices, brands are needing to spend increasingly on innovative loyalty programs meant to not just retain users, but also nudge them towards greater activity. In the pursuit of such programs, the global spend by brands on loyalty management stood at $11.7 billion in 2023 and is expected to rise to $41.2 billion by 2032 (a 3.5x increase).
To address these challenges, brands are turning to gamification, an innovative strategy to transform customer engagement and loyalty. In this newsletter, we explore the concept of gamification, its benefits, and how leading companies are using it to create meaningful connections with their customers.
What is Gamification?
Gamification is simply the philosophy of utilising key concepts from game-design to not just enhance the user’s experience, but also nudge them towards a deeper relation with a product. To achieve this outcome, brands use features like leaderboards, mini-contests, log-in rewards, and progress trackers to make interacting with their offerings a more rewarding experience.
This approach is so effective because it motivates people through a combination of intrinsic and extrinsic motivation to drive behaviour. Tools like leaderboards create a feeling of competition (extrinsic motivation) which motivates people to ‘defeat’ other users and rise to the top, whereas tools like progress trackers and log-in rewards create intrinsic motivation for completion to nudge the user to keep returning. Fundamentally, gamification gives each user a personal underlying purpose to keep returning all under the garb of ‘fun’ interactions created to boost dopamine.
While gamification, as a philosophy, has been around since the 19th century when marketers sold stamps to merchants who then used them to reward devoted consumers, the inflection point for the industry were the 2010s. The onset of smartphones, greater precision in data analytics platforms, and the proliferation of social platforms like Facebook and Twitters have all been key triggers in gamification’s growth.
As digitisation has increased multifold, gamification has become nigh-ubiquitous. As a result, 70% of the global 2000 companies are actively using gamification across business operations. Propelled by this, the market is projected to increase to $102.5 billion in 2033 with a CAGR of 18.53%.
How Does Gamification Work?
As per Yu-kai Chou, one of the pioneers of the space, successful gamification requires an experience to tap into one of eight core human drives:
Thus, whenever someone incorporates gamification, they essentially look to stir one of these drives through ‘play-based’ mechanics to drive user behaviour. For example, a leaderboard would stir the drive for development & accomplishment and will nudge the user to surpass the competition.
These drives are also bifurcated into white hat and black hat (as shown above) based on the response they aim to derive from a user. Social influence and ownership are omitted from this categorisation. White hat core drives are motivation elements that make people feel powerful, fulfilled, and satisfied. While they are meant to make users feel empowered, they are passive in nature. Black hat, on the other hand, tend to make users feel obsessed, anxious, and addicted. While their simple purpose is to strongly nudge users towards action, they can end up leaving the user feeling manipulated.
Successful gamification is a balancing act. Users need to feel empowered while still feeling compelled to act. Companies need to focus on white hate drives while strategically sprinkling black hat drives to encourage users to delve deeper.
What are the Merits of Gamification?
While striking the perfect balance is indeed an onerous task, rewards are indeed handsome. MasterCard covered some of its and its associates’ customers and how they used gamification to drive key results. Below are a few key conclusions:
Brand Awareness: A mobile telecommunications company created games to offer weekly prizes, deals, and exclusives. The game generated 95,000 plays per minute at its peak usage, and the campaign also drove a 3X increase in traffic to the brand partners’ websites. Furthermore, some 50% of subscribers engaged with the games, double the normal campaign engagement.
Conversion Rates: J. Crew, a clothing retailer, created an immersive virtual shopping experience with play games and digital avatars. Time spent on the platform increased as a result by an average of 73% with customers engaging with the virtual store, on average, being 184% more likely to proceed to checkout.
Customer Engagement: A tech company launched an active online forum for gamers. To drive engagement, they featured trivia-based competitions, collect-and-wins and sponsored events, among others, to award points, badges and rewards. This brought about a 50% increase in return visitors, with an 80% increase in community discussions.
In addition to these, Starbucks’ rewards program is the most notable illustration on gamification. Their rewards program started in 2009 with a visit-based business model to reward customers for buying Starbucks products. The program involves an intensive progressive tier system which provides users with stars that can be used to avail products. This mechanism featured progress tracking, challenges, etc. with the sole purpose of bringing a user back and rewarding them with products for their loyalty. The platform now serves over 31 million users who spend 3X more than non-members and tend to visit more often as well.
Thus, the above examples provide a comprehensive view on why brands are adopting gamification and the kind of results they are able to generate with the philosophy.
Conclusion
In an ecosystem of rapid digitisation, loyal users are fast becoming a rare commodity. As CACs increase, brands are investing heavily into their loyalty programs and user engagement to retain customers and enhance their interactions. In this pursuit, companies around the world are moving towards gamification.
Defined simply as the practice of using game mechanics like leaderboards, progress trackers, etc. to drive customer engagements, gamification uses both intrinsic and extrinsic motivation to nudge behaviour. With the onset of the digital age, this philosophy has only become more ubiquitous with 70% of the top 2000 companies using gamification. This will trigger massive growth in this space over the next 10 years.
For companies looking to capture this wave, it is important for them to understand precisely what human drives they are wanting to target. They need to be cautious to make their users feel empowered while still strongly nudging them to interact deeper. This balance is vital for any experience to succeed.
Companies who have successfully found this balance generate strong returns across several key fronts. From increased brand awareness to higher conversion rates and deeper customer engagement, gamification has emerged as a key strategy for unlocking exponential growth.
As the emphasis on this philosophy deepens, we feel that there is a strong space for start-ups to build in this space and help large companies create tailored gamified experiences. If you are building in this space, we would love to speak at pitches@eximiusvc.com.