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Why The Carrot App is Killing It with Loyalty Reward Points

A Canadian company has combined nudge theory, Canadians’ keenness for loyalty reward points, and mobile technology to produce an app that achieves profound social good, personalizes communication effectively, and reduces marketing spends significantly.

Enter Carrot Rewards, the app that gives users reward points, including Aeroplan Miles, Petro-Points, and Scene points, simply for interacting with it.

Funded with $5 million from the Public Health Agency of Canada, with an additional $2.5 million from the Government of British Columbia and $2 million from venture capitalists, Carrot presents a new and effective communication model for government agencies to connect with citizens about healthy behavior, offering a measurable substitute for common mass media channels.

Founded by Andreas Souvaliotis, Carrot was created by Social Change Rewards with the thesis that personalized government-agency communication combined with loyalty rewards from top point providers that were delivered to a mobile device would result in higher engagement than traditional advertising, which is where spending on government messaging often ends up.

The effect of nudge and incentives on citizen behavior and government spending has been demonstrated before.

In 2010, the Ontario Power Authority, in an effort to drive citizen pledges to reduce energy consumption, replaced mass-media advertising with targeted messages that included AIR MILES rewards for participation.  The result was not only in a 530% increase in program participation, but a 50% decrease in participant cost per acquisition for the government.

In a more pure nudge example, when government-provided economic explanations and subsidies failed to persuade U.K. home owners to insulate their attics for increased energy savings, the project seemed like a lost cause.  That is, until the government learned the reason for the reluctance:  attics were storage spaces that presented a hassle for home owners to clean.  Pairing the insulation work with an attic cleaning service that would clear and dispose of unwanted items led to a tripling of the households taking up the subsidy for insulation.

The attic cleaning was the nudge that encouraged the free choice of the desired behavior – insulating the space.

In Canada, loyalty reward programs are the low-hanging fruit of nudge.

According to a Yahoo study, 90% of Canadians own a loyalty rewards card with the average citizen’s wallet containing four cards. All of these cards have an impact on behavior: 40% of card holders will spend more in retail stores or on brands that have loyalty cards associated with them.

The loyalty-points nudge provides the impetus to engage with well-designed government health messaging that can lead to small lifestyle changes – like the purchasing of one piece of green produce – that have a huge impact when taken in the aggregate.

Nudge does not work to create drastic behavior shifts.  ““We kick-start people into the journey, then the journey gradually happens by itself,” says Souvaliotis.  The app may aim to get a user to simply call a smoking cessation hotline.  If the user does, the team at the Heart and Stoke Foundation know how to engage callers from that point to maximum effect.  The first step is the most critical.

“A tiny nudge is worth its weight in gold in the eyes of policy makers,” says Souvaliotis.

Souvaliotis sees the application of Carrot beyond health activities, and Social Change Rewards’ investors agree.

John Albright, Managing Partner of lead private investor Relay Ventures, sees the potential scale of the mobile-only, nudge-inspired customized communication app.

Albright says, “The current problem for non-profits, governments, and private bodies that are trying to educate people on the best way to take care of themselves physically, financially, intellectually, mentally, emotionally, whatever way it is, is that the traditional media has died, as you see with newspapers, magazines, direct mail, and even the web.  So how do you reach out to today’s young workers and make sure they plan out for themselves a healthy life physically, financially, and emotionally?  It’s through mobile devices.”

The potential for the app is apparent when applied across the number of government agencies that strive for effective and measurable communication and citizen education. Tens of millions of dollars are already being spent every year by government agencies to communicate with citizens through traditional channels. What Social Change Rewards has done is figured out a way for governmental and special bodies to reach out to their stakeholders in an effective, measurable manner.

From a business opportunity perspective, what succeeds in government communication can be replicated in other domains where conventional communication channels remain primary.

“It’s rare,” Albright says. “They’re mobile content provider to a Canadian-only audience and have a multi-billion dollar market opportunity.”

I reached out to Dilip Soman, Co-Director of Behavioral Economics in Action at Rotman and policy advisor on behavioral economics, for his view on the potential of the platform.

“The carrot app is an interesting idea. We’ve known from the prior success of loyalty programs in marketing that there is a segment of the population that is greatly influenced by reward points,” says Soman.

“Mobile technology empowers us to communicate in more behaviourally informed ways and hence influence behaviour to a greater extent than was possible before. It is therefore no surprise that governments (like other organizations) are interested in using mobile technology to reach citizens,” says Soman.

He adds a thought when considering Carrot Rewards: “Over time, I hope the developers are able to harness the ability to customize reward types and reward schedules as a function of individual characteristics, location, tenure in program, and success of prior rewards in changing behaviour.”

While individual characteristics are already accounted for, Souvaliotis says further advanced customization is imminent.

“Here is how much more magical this can become,” Souvaliotis says. “Imagine the day, which is no more than a couple of months away, when the app in your phone will actually be helping reward you for every step you take, or it will reward you for walking more than you walked yesterday, or it might reward you for walking more than your best friend did yesterday.”

Carrot will, in keeping with the principles of nudge, start moving from the most superficial, least disruptive types of intervention to slightly more action-centric interventions in which users are rewarded for actions like showing up at a gym, giving blood, or any number of other social and personal high impact health activities.

With the initial validation in B.C., Carrot marks a shift away from spray-and-pray mass media advertising to a method of citizen communication that is personalized to an individual’s lifestyle and feeds the motivation to actually adopt behaviors that have a high impact on citizen health at a fraction of the cost in government spending.