Tip Sheet Switch­ing your re­wards pro­gram can cut costs—as long as you don’t anger cus­tomers

Switch­ing loy­alty plat­forms might cut costs—as long as you avoid an­ger­ing cus­tomers


IN 2014, BOLOCO, a New Eng­land chain of 11 bur­rito joints, moved to a mo­bile-only re­wards pro­gram. Com­pany ex­ec­u­tives say they in­tended the switch as a tech­savvy up­grade for cus­tomers. But it was also a cost-sav­ing strat­egy, as the com­pany tried to re­duce the dis­counts it was giv­ing out. Now bur­rito fans would re­ceive $2.50 for ev­ery $50 spent— in­stead of what had once been a free bur­rito at that thresh­old.

“We gave our tens of thou­sands of loy­alty-card users just 30 days to make the switch, and they re­volted,” says co-founder and CEO John Pep­per. Boloco’s blog was in­un­dated with an­gry com­ments, and the brand was raked over the coals on so­cial me­dia. Onceloyal cus­tomers swore off the chain in­def­i­nitely. “The goal had been to re­duce the dis­counts, and we ac­com­plished that—along with sales and prof­its,” jokes Pep­per, who had re­in­stated the old re­wards pro­gram by early 2016.

Boloco is hardly the only com­pany that’s en­coun­tered the dan­gers of med- dling with cus­tomer loy­alty pro­grams, which have been around since at least the 1930s, ac­cord­ing to David Robin­son, a mar­ket­ing lec­turer at Univer­sity of Cal­i­for­nia, Berke­ley. He points to the air­line in­dus­try, where re­wards pro­grams are of­ten in flux de­pend­ing on the econ­omy and pas­sen­ger vol­ume. “Ev­ery­one gives points, then dou­ble points, then triple points—then the whole thing col­lapses and starts again,” he says.

But re­wards rein­ven­tion can be met with plenty of back­lash. Last year, af­ter Star­bucks an­nounced it would change its loy­alty pro­gram, caf­feine fiends took to so­cial me­dia and threat­ened to get their fix else­where. The stock dipped and, ac­cord­ing to one sur­vey, brand per­cep­tion nose- dived by 50 per­cent. And last year, both Sta­ples and JPMor­gan Chase agreed to pay out $2 mil­lion to set­tle cus­tomer law­suits over re­wards com­plaints.

The back­lash can be even more dire for smaller com­pa­nies: Last sum­mer, Four Cor­ners Tav­ern Group, a col­lec­tion of 11 Chicago bars and restau­rants, was hit by a class-ac­tion law­suit for an

un­spec­i­fied amount, al­leg­ing that many cus­tomers were left hang­ing with no way to redeem their old credits af­ter the com­pany moved to a new sys­tem.

So are you stuck with what­ever re­wards sys­tem you start with … for­ever? Nope. Founders and re­wards ex­perts share the best ways to make a change— with­out in­fu­ri­at­ing your cus­tomers.

Avoid Sur­prises

Break the news of a pro­gram change well be­fore your cur­rent pro­gram ex­pires, to give cus­tomers am­ple time to redeem their cur­rent points, says Su­nil Saha, co-founder and CEO of Perkville, an Oak­land, Cal­i­for­nia–based re­wards plat­form that works with many small busi­nesses in the health and well­ness in­dus­try. Don’t just hit Send on an email and con­sider your job done. Train em­ploy­ees to men­tion it at the reg­is­ter, in­clude re­minders in the com­pany e-news­let­ter, and share the info on your site and so­cial chan­nels. “As a small busi­ness, your cus­tomer ser­vice is ev­ery­thing,” says Anne Peza­lla, co-owner of Oak Park, Illi­nois, re­tailer Lively Athletics, which last year switched its third-party re­wards provider.

High­light the Good

If you want to cut back on what you’re spend­ing on re­wards, make sure your new sys­tem has some ad­van­tages for cus­tomers. For ex­am­ple, give cus­tomers more points for men­tion­ing your busi­ness on so­cial me­dia. Or, if a Perkville client needs to scale back, “we might ad­vise it to re­duce points for a loy­alty mem­ber check­ing into the gym but to in­crease points for a re­fer­ral,” says Saha.

Proac­tively Com­bat Com­plaints

Thomas Fisher, founder and CEO of Chicago e-ci­garette shop Cloud Va­por Lounge, in­formed his cus­tomers 60 days be­fore he switched from one third-party loy­alty plat­form to an­other. He also sent sev­eral re­minders closer to the ex­pi­ra­tion date. “We were thought­ful about giv­ing no­tice, but peo­ple still came in who were obliv­i­ous,” he says. Rather than ar­gue with en­thu­si­as­tic pa­trons, Fisher’s staff gave car­ry­over points to any­one an­noyed by the switch. “If you’re go­ing to make changes, you have to em­power your staff to make de­ci­sions to keep cus­tomers happy,” he says.

ANTE UP Cus­tomer loy­alty pro­grams can get ex­pen­sive—but chang­ing them can re­duce cus­tomer trust or rev­enue, or even mean time in court.

Pho­to­graph by AARON TILLEY

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