Ran Kivetz

The Goal-Gradient Hypothesis Resurrected: Purchase Acceleration, Illusionary Goal Progress, and Customer Retention

Abstract:
The goal gradient hypothesis (Hull 1934) denotes the classic finding from behaviorism that animals expend more effort as they approach a reward (e.g., hungry rats run faster as they near cheese). Building on this hypothesis, we generate new propositions for the human psychology of rewards. We test these propositions using a variety of methods, data, and modeling approaches, including field experiments, paper-and-pencil problems, and secondary customer data as well as hazard rate, Tobit, and logit models. Some of the key findings indicate that: (a) participants in a real café reward program ("buy ten coffees, get one free") purchase coffees more frequently the closer they are to earning a free coffee; (b) Internet users who rate songs in return for reward certificates visit the rating website more often, rate more songs per visit, and persist longer in the rating effort as they approach the reward goal; (c) the illusion of progress toward the goal likewise induces purchase acceleration; for example, customers who receive a "12-stamp" coffee card with two pre-existing "bonus" stamps complete the 10 required purchases faster than customers who receive a "regular" 10-stamp card; and (d) a stronger tendency to accelerate toward the reward predicts greater retention and faster reengagement in the program. Our conceptualization and empirical findings are captures by a parsimonious goal-distance model, in which effort investment is a function of the proportion of original distance remaining to the goal (i.e., psychological distance). In addition, using statistical and experimental controls, we show that the observed goal-gradients cannot be explained by habituation, expiration concerns, other time-trend effects, or heterogeneity bias. We discuss the theoretical implications of the findings and their managerial implications of incentive systems, promotions, and customer retention.

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