How To Use Goal Gradient Rewards In Banking

Behavioral Bank Marketing - Picture of a gift

Put a rat in a maze, and they will speed up as they get near the end as can smell the reward. Forget rats, human sprinters also run the last 15% of a race faster than the previous 30%. Forget athletes, citizens make more donations to a charity as that charity gets closer to its fundraising goal. Forget citizens, bank customers also complete more new account applications, hit savings goals, and complete conversions if they can view a goal that is close. In this article, we look at the “Gradient Hypothesis” and how to use this behavioral marketing technique to increase both loans and deposits at your bank.


The Goal Gradient Hypothesis


Back in 1932, Clark Hull used rats in a maze to discover that the tendency, or energy, towards a goal increases with the proximity to the goal. The experiment was replicated hundreds of times over with athletes, charities, and other human behavior.

Hull created a mathematical equation for this behavior. He said that the probability that a human will increase their effort towards something is a product of how big the reward is, how much they desire that reward and how much of their behavior towards that reward is already ingrained in a habit less any resistance or friction present in obtaining that reward.


Goal Gradient Formula


In other words, the better your reward, the more comfortable we are about doing something and the easier it is to obtain that reward, the more likely we are to obtain that reward.


You Are Almost At The Reward


The Goal Gradient Hypothesis can benefit bankers in any number of ways. In a recent study, researchers charted the quantitative impact of offering rewards for behavior. When customers can see their rewards and their progress, they convert to the desired behavior 84% of the time versus 62% of the time, or 35% more. That 35% lift when it comes to loans or deposits is material and could be the difference between an average bank and a top-performing bank. 


Conversion with Reward Motivation in Bank Marketing



Putting This Into Action


Combine the academic research with our experience, and we draw the following lessons:


Get Them To Commit: To start on the right track, you need to obtain some sort of commitment from your customers (i.e., “Ready to Start!). This is why travel loyalty programs often have you opt-in for certain rewards like free nights. Research shows that you are 14% more likely to complete the goal if you affirm that goal to start. Banks that automatically opt their customers in for programs may lose that behavioral trigger. We have also found that the more difficult the task, the more important it is to obtain a starting commitment (which is also the reason why you are more likely to achieve your New Year’s resolutions if you write them down).


Show Progress: The Goal Gradient Hypothesis is the exact theory to explain why showing a progress bar for digital surveys or applications helps conversions. As the customer completes each step, they get emotionally rewarded by seeing their progress while progressing closer to their end goal


Sample Account Opening Progress Bar to Help Conversions



Front Load Progress: When you give someone two punches on a 12 punch free coffee ticket, they are more likely to complete the card that if you gave them one with ten punches to go. In like manner, banks can either start the customer journey off with a boost of some sort or at least make it easy for them to obtain process. In the digital account opening process above, by collecting simple name and email information upfront, not only do you have contact information first in case they abandon the process, but it gives them an easy visual progress cue that gives them a 10% higher probability of completing the entire process in one sitting.


Create A Habit: Clark Hull discovered that if you are comfortable doing something, you are more likely to do it when offered a reward. Thus, if you get a customer to fill out a small form first, they are more likely to complete a longer application later. This is also why front-loading progress helps as it gets the customer used to completing a task and getting a reward. For savings goals, for example, you want to provide lower levels of incentives to start before having the customer go one or more years before they get their grand reward at the end.


Choose Short Rewards Over Longer Ones: A recent survey showed that 62% of post-college graduates (we assume not finance majors) would rather have $100,000 right way than $10 million when they reach age 65. Any bank sales manager knows this as monthly, or quarterly incentives work far better than annual bonuses.


Time When You Market: Work by Washington University and the University of Pennsylvania suggest banks are most effective when a goal program is marketed around a landmark day such as New Year’s Day, graduation or even a Monday. This is why our research shows that the first two weeks in January are one of the best for bank marketing with the highest conversions. This “fresh start” phenomenon also explains why gym sales are greater on Monday’s or at the start of seasons.


Motivate At 50%: It is the middle of any effort that we perform the worst. Be it a race or a new account application, usually, we expend the most energy in the first 20% of any program as it is new, easy, and exciting. Then, when the hard work kicks in and we get tired, the pre-race adrenaline wears out, or the loan questions get more complex, we slow or have a higher probability of abandonment. This is why smart banks make sure they increase their messaging and put more energy into (i.e., “You are almost there!”) right after the 50% mark. After the 70% mark, usually, the proximity of the end goal will provide the motivation needed.


Market Progress or Goal Proximity But Not Both: Depending on the individual, the reward and the motivation, banks benefit the most by marketing campaigns that alternate between highlighting a customer’s progress towards the goal and then how close they are to the next or final goal. Marketing progress usually gives you about a 6% lift for a single effort while marketing around a final goal usually gives you about a 7% lift for that single effort. However, if you combine the two into a single marketing message, your lift is only around 8% or less than the 13% lift you would have received from the two reminders.


Market To A Peer Benchmark: Do you want to increase your effectiveness even more? Providing progress against a set of peers will increase conversions. Letting customers know that they are behind or ahead of others like them will provide more than 10% lift for motivation.


Beware of The Post-Reward Drop: Whenever you offer a reward and then stop, the desired behavior gets reduced. How much? In the research cited above, if your baseline behavior is 62%, and your conversions on your reward behavior is at 84%, then the data shows that your post-reward conversion will drop to 50% for the first period before building back up over five periods (a period is whatever you interval for progress would be – i.e., daily rewards, weekly, monthly, etc.). Bankers need to plan and market around this side effect to limit its impact.


One final note, if you want to predict how well your program will go, the first 20% of the program happens to be highly correlative to success. The more participation you can get during this first 20%, the more likely your success will be, and the more accurate your predictions for success will be. 


Having frequent and near-term rewards increase our motivation. As you design compensation, surveys, marketing promotions, digital applications, or loyalty programs, consider structuring your rewards to take advantage of the powerful Goal Gradient Hypothesis.