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Why Your Business Should Get in on the Gamification Trend

Gamification, a principle for applying gameplay mechanics and theories to everyday problems, is growing in popularity. Here's how your small business can start playing.
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The Cut & Color Room doesn't split hairs: The snootiness and arrogance so prevalent across rival salons have no place here. "Our specialty is a no-attitude environment," says Jeff Morris, co-owner of the Orlando, Fla.-based business. "Other salons can make customers feel self-conscious. But everyone on our staff is so nice. You can feel the difference."

Maybe too nice. The Cut & Color Room maintains an impressive inventory of beauty products from upscale brands like Bumble and bumble, Alterna and Goldwell, and its stylists regularly recommend items tailored to their clients' needs. But too often Morris stood by as patrons took those expert suggestions to nearby retailers, purchasing the exact same products from national chains like Sephora or Ulta in order to earn customer rewards points.

"Losing that business lit the match underneath us," Morris says. "We knew we needed to work on something to keep those sales in-house."

The salon owners decided to introduce a rewards program of their own. But Morris wanted to steer clear of the standard "buy 10, get one free" punch-card model. Instead, he partnered with Perka, a cardless loyalty system optimized for iOS and Android smartphones that offers consumers increasing tiers of perks in exchange for frequenting local merchants and checking in via the application. It's a quintessential example of gamification ; i.e., leveraging gameplay mechanics to engage consumers and solve problems.

The Cut & Color Room offers clients a range of rewards--from services to free flatirons and blow-dryers--for as few as 100 Perka points or as many as 10,000, depending on the retail value of items purchased. "For every dollar you spend on our products and services, you receive one point," Morris explains. "You don't get haircut points at Sephora." The salon also offers points for booking follow-up appointments and referring new customers.

Five months after The Cut & Color Room launched the Perka program, more than 600 customers had enrolled. While the average client visits the salon every six weeks, Perka users are coming back every four to five weeks, and some heavy users are returning at least twice per month.

"We're driving repeat engagement," says Mike Lazzaro, Perka's senior vice president of strategic planning. "We're striking a balance between delivering the ideal experience for customers and driving incremental revenues for the merchant."

Gamified platforms like Perka enable small businesses across all sectors to roll out sophisticated and multifaceted loyalty efforts on par with airline and credit card rewards programs, says Gabe Zichermann, founder and CEO of New York City startup Gamification Co. and creative agency Dopamine, as well as co-author of the 2013 book The Gamification Revolution.

"Until gamification came around, running a loyalty program was dauntingly, impossibly expensive--that's why most SMBs offer 'buy 10, get one free,'" Zichermann says. Such programs, he contends, are "a really bad idea. Cafes and sandwich shops start 'buy 10, get one free' programs hoping to produce customer loyalty and action, but over time, they realize they're giving away a lot of sandwiches. What's most frustrating is that they're giving free things to the same people who are most likely to give them money in the first place.

"The problem is that the average customer loyalty program in 2010 cost $500,000," he adds. "Now you can offer one for under $1,000 a year."

Merchants can sign up for Perka for as little as $35 per month, with no annual fees or contract required. The service works on all mobile phones; customers without an iPhone or Android can engage via SMS. Upon visiting a Perka partner, consumers tap the "Check In" button or introduce themselves to the cashier to earn virtual stamps for each qualifying purchase; the clerk authenticates transactions via the store's point-of-sale system, and stamps are automatically deposited into customers' Perka accounts.

Merchants can set up programs in less than an hour. Staffers at Perka, which is based in New York City, help merchants determine a mix of simple and challenging incentives designed to reward regular customers and VIPs, incentivize new customers to return and even boost traffic during slow periods. "There are two types of customers--users and savers--and you want to provide aspirational reward levels for both," says Perka co-founder Rob Bethge. "There needs to be excitement around the program. You don't want customers to download the Perka app, then not get an incentive for two or three months. You want customers to question whether to burn their points right away or save them up."

More than 2,000 small businesses worldwide now support Perka. The company promises merchants everything they need to promote their program in-store and online, as well as tools for sending offers directly to consumers' phones or for posting deals to Facebook and Twitter. There's also an online dashboard for tracking transaction data.

"The traditional punch card is static--the offer doesn't change," Lazzaro says. "But Perka allows business owners to change things up on a week-by-week basis. Smart people can do really creative things with the right technology."

Perka isn't the only game in town. Another startup vying to revolutionize customer loyalty programs is San Francisco-based Perkville, which eschews punch cards as well as mobile apps; instead, consumers' e-mail addresses are stored in the participating merchant's POS system, and that address doubles as their virtual rewards card across the Perkville network, with all transaction data automatically uploaded into the system.

"Small-business owners are busy people. You can't add friction to the rewards process," explains Perkville co-founder Sunil Saha. "Integrating directly into the POS system delivers a seamless experience."

Perkville also enables retailers and restaurateurs to create customized rewards programs, letting consumers earn points for purchases, referrals, Facebook posts and tweets. Customers can track their points on the Perkville website and redeem them online, receiving a voucher they bring to the merchant location to claim their prize. Pay-as-you-go Perkville services start at $29 per month, and the firm's partner network now spans more than 1,700 locations across the globe.

Many Perkville partners herald from the fitness and spa vertical, which is particularly well-suited to gamification principles. "Our main goal is to keep you motivated and coming back to the gym to reach the goals you've set," says Shanna Kane, vice president of marketing at O2 Fitness, an independently owned chain with 11 locations in North Carolina. "Different incentives are a great way to keep you coming back consistently. We give you five points just for checking in, and if you check in 10 times in one month, we give you 25 bonus points. You can also earn points for taking a personal training session or completing a boot-camp class."

Consumers can redeem those points for gym classes and services; in addition, O2 has brokered agreements with other local businesses, letting customers cash in Perkville points for free spray tans, massages and low-calorie meals.

Roughly 65 percent of O2 Fitness members have created Perkville accounts since the chain rolled out the program in January 2013. "We always wanted to start a rewards program, but we didn't have the means or the staff. We thought it would require a lot of hands-on work, and we couldn't find a way to do it cost-effectively," Kane says. "Perkville is really simple, which is a big thing for us."

For every company like O2 or The Cut & Color Room embracing customer rewards initiatives, there are dozens of others still sitting on the sidelines. Author Zichermann estimates that only 5 to 10 percent of all businesses have adopted loyalty programs of any kind.

"Most people think every business has a loyalty program. In fact, most don't have them at all," Zichermann says. "It's still early days for companies like Perkville and Perka, but the opportunity is humongous. Gamification can empower millions of businesses. This is the future of customer engagement."