Facepalm moments in Loyalty. D'oh!

“Those that fail to learn from history are doomed to repeat it.” (Winston Churchill)

Loyalty programs have been changing left, right and center. To keep loyalty programs interesting and relevant to its customers, operators often tinker with their programs by introducing new changes to its design and rules. Unfortunately, many of these changes backfired and peeved their customers. Let’s look at some of these examples as cautionary tales for brands and operators who are thinking of redesigning their programme. 

#1 PROGRAM DEVALUATION

Program Devaluation is defined as a change made to the program that make the rewards or loyalty currency (e.g. points, miles, cashback) worth less with the same effort (e.g. amount spend, miles clocked in, no. of nights stay) done by a customer. 

I'd argue that most program devaluation exercises are not made with the customers in mind. Whenever a company thinks that their loyalty program is making them lose money or not making them enough money, they ring in the changes. 

Grab Rewards

In July 2018, the largest ride-hailing player in SEA - Grab - made its first (of many since over the years) changes to its rewards program. The earn rate (how much customers get to earn for every $1 spend) was reduced up to 10x. Furthermore, customers would now need more points to redeem rewards. Making both the earn rate and the redemption rate worse was a double whammy. And to rub salt into wounds, there was no proper communication given to its customers except for an in-app notification a few days before the supposed changes kicked in. 

Many customers were up in arms, making their feeling heard and felt via social media with major news channels amplifying it. Grab acknowledged their mistake by extending the notice period before implementing the change. 

Southwest Rapid Rewards

This month Southwest (an airline company in North America) devalued its program overnight without notifying its loyalty program members in advance. After a year stuck at home where miles junkies have all sat on their miles, this move by Southwest did not go down well with its customers. 

#2 CORE PROGRAM MECHANICS

Starbucks Rewards is arguably the epitome of a successful rewards program not just in the food industry, but globally. But even they have not always got it right. 

In 2016, Starbucks made a fundamental change to its rewards program when they switched to rewarding customers based on monetary spend from frequency of visits. The benefits reaped by Starbucks are obvious: the new program encourages increased spend per customer, and while coffee is the major revenue source for Starbucks, the new program allows the barista to cross-sell and up-sell the visitors with food, coffee beans and merchandise at the chain’s outlets. This change was met with disdain all over the social media spheres with many calling Starbucks a cheat. 

Just three years later in 2019, Starbucks infuriated customers by changing its rewards program. Under the new program design, customers have multiple benchmarks where they can cash in their stars for rewards. Customers can get rewards faster, with the option to make minor customisations for free in exchange for a few stars. However, some of the most popular rewards — such as Starbucks' lattes, macchiatos, and other handcrafted drinks — now require more stars, an increase from the old program. This is seen as “program devaluation” by many customers who feel alienated by the change. The move is seen as a reversal from the 2016 initiative, which benefited larger spenders, but it's in concert with the company's strategy to grow frequency among its more casual customers.

#3 REWARDS SIMPLIFICATION

The intent was noble. Tesco wanted to make its program more convenient for its customers so they do not have to keep checking the value of their points. So in 2018, Tesco “simplified” the value of its rewards. Some of the rewards which could be used for four times or two times their value were all made to three times their value instead to "make things easier". Expectedly, this move angered many of their loyal customers. 

#4 POINTS EXPIRY

From time to time, loyalty programs update their points expiry rule. This seems harmless. Except when you do it wrong. 

In late 2006, Aeroplan announced that starting July 1, 2007, members would lose all their miles if they didn't add or redeem points at least once over 12 months. Expired accounts could be reinstated for a fee. This move was met with a lawsuit which alleged that the rule change was a breach of contract and that customers didn't receive adequate notice. 

So what’s the lessons here? 

Conveying bad news is always one of the toughest things to get across. You may be the most skilled spin doctor out there, but there’s always a fear of backlash. In the age of social media, that fear of backlash is only amplified further. And let’s get this clear. THERE WILL BE BACKLASH. People do not like changes, especially ones that are perceived to be bad for them. But here are observations and tips on how you can pull off your changes without upsetting your customers.

RESEARCH RESEARCH RESEARCH: Speak to your customers and understand their sentiment and pain points with your current programs. Changes made to your program are ideally borne out of your intention to make your customers experience better. Run through your proposed design changes with your core customers and get their feedback. You can and will never satisfy everyone therefore when in doubt, prioritise your core customers. 

TRANSPARENCY: Don’t treat your customers as fools. Don’t mask your program devaluation with sweet-nothings. Opt for a non-BS communication that is transparent and explains the reason why you have to devalue your program. 

YOU TAKE SOME; YOU GIVE SOME: If offering generous monetary rewards will obliterate your margin, try weaving in non-financial perks e.g. e.g. late check out time, interest-based community, dedicated hotline etc. Experiential rewards are crucial when you're trying to differentiate yourself. Loyalty needs to move beyond transactional rewards! 

NOTICE PERIOD: How would you feel if your bank tells you tomorrow that your interest rate is gonna be halved with immediate effect? Yep. Be fair to your customers and give them an early notice. While there is no rule governing the notice period, I think 30days is the bare minimum, 60 is very fair. Inform them via all of your touch points. 

DO YOUR SUM: This is super important. Loyalty programs that devalue their points regularly tells me that the program owner does not manage its P&L, including financial forecasts, well. Devaluing your points should be your last lever to pull in improving your program P&L. Programs who devalue their points regularly risk losing the trust of your customers. 

Whatever changes you make to an existing loyalty program, you'll likely have at least a few miffed customers on your hands. But you cannot let the fear of backlash from stopping you from innovating your program. Always put your customers at the center of your program (re)design. Just take note of the potential pitfalls that others before you have fallen into so you don’t repeat their mistakes. Good luck!

P.S. If you need my help with your program redesign, drop me a message!