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What?  You Launched A Loyalty Program Without An Exit Strategy?

By Babs Ryan, ThoughtWorks Retail 

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Seems that some loyalty customers are Plenti [sic] angry about having their current loyalty program replaced.  Here’s what a few of them said in chat rooms:

Jennifer: “This new program looks ridiculous! …I doubt I will shop there at all now.”

Brenda: “I could not opt out of shared information…. How do I opt out of the…card?”

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Laura: “…activated…WITHOUT MY PERMISSION!”

Linda: “These are not rewards, just marketing tools for other company’s [sic]. I want no part of it.”

Mel (about Rite Aid as part of Plenti): “Well that sucks. I don’t shop at Macy’s (and when I do, it’s usually for a wedding registry gift), use Shell b/c of WD fuel perks and Sprint is our cell carrier. Don’t have Nationwide, Hulu or that energy co that is listed. Goodbye Wrong Aid.”

How should you migrate loyalty members to a new or updated program? What’s the best thing to do when you’ve got a loyalty program and you’re not seeing incremental sales — replace, add, change features/terms or eliminate it?  What can you expect after the change? What did similar retailers find were advantages and pitfalls of their change in direction?

Best Time To Build A Loyalty Plan Exit Strategy

The burning customer attacks really root from marketers’ mortal sin of failing to have a pre-planned exit strategy rather than the introduction of a new program. Like fire escapes and spare tires in the trunk, the time to build your Plan B is when Plan A is being conceived.Why is it best to build a loyalty program exit strategy at the same time as designing the program? Because it will influence what the loyalty program looks like or whether you launch a “program” at all.  

9 Exit Considerations For Loyalty Leaders When Building A Program

Instant or cumulative rewards: There are 1001 reasons not to launch a cumulative points, cash back, or rewards program, including the fact that about half of consumers have no interest in participating. Here’s one more. Ending it. Even though 46% to 70% of points are never redeemed and about half of members are inactive, if you wipe out unredeemed points, customers will jump ship. Forever. It’s like throwing away the toy that little Johnny hasn’t touched for two years. A major card issuer did this in one country, and their top-spending cardholders threw tantrums and also threw away their cards.  

Skip the long list of soft benefits:

Most program customers only use two features, with 90% using the same feature. The second most popular feature is typically used by less than 10% of members. The dozens of soft benefits (like gift wrap, expedited dressing rooms) don’t have value in acquiring or keeping members, so why include them? Why not empower associates to have the discretion to use those surprise-and-delighters, regardless of membership, or make a few of them integral, like luxury brands?  

Death and taxes: When canceling the program, will there be a run to redeem points for goods and services, impacting inventory and margins? What happens when laws change?  Will customers still love the brand if redeemed points are taxed (recall Citi saying “Thank You” by issuing 1099-Miscs)? Shortly after the Durbin Amendment changed how card interchange fees could be assessed, banks’ debit card rewards programs were withdrawn.

A short term, well-publicized end date: New program?  The faster your program ends, the better. Better yet, don’t launch a “program” at all. Consumers, particularly Millennials, are fickle. Scarce, unique and limited products are what keep them coming back for more. Target drives loyalty (and a lot of free PR!) with a series of cheap-chic designer now-you-see-it-now-you-don’t brands like Lilly Pulitzer, Missoni and Isaac Mizrahi. Forever 21’s success is rooted in fast business strategy pivoting as often as fast fashion.  

Me-too: When American Airlines first launched frequent flier miles, it was a great idea. When all their competitors launched the same thing, not so much. When airlines started to reward with early boarding, great. When 60% of fliers get preferential boarding, and zone 2 really means last to board, not so great. What’s your exit plan for when all your customers become platinum, and gold feels like brown?

Devaluing your brand: Giving away or discounting your own products as redemptions not only impacts profitability, but also sends a message to your customers that your products aren’t worth the price on the tag.

Points are meaningless: Points have no value until they are redeemed for something. Will shoppers become more loyal when finding out they can get free headphones? Programs offering frequent flier miles found themselves in a bind when renewing contracts with the airlines that increased their wholesale mile cost. What happens when your rewards partners change their terms?

Cost center or profit generator: Long-term programs have long-term costs. Is incremental spend year-on-year greater than the costs of running the program?

To program or not to program: Sears may be able to attribute 74% of quarterly sales to Shop Your Way, but might also be able to attribute it to the decline of shoppers and profits. Half of consumers are turned off by being “programmed,” and 83% of coupons are redeemed by only 22% of shoppers. When a core retail strategy is based on attracting the niche of rewards/coupon junkies, will the junkies stay when the program disappears?  Will non-junkies come back?
Ooops.  

No exit plan and you need to kill or change your program?  Here are some ideas of what to do:

  • Create a staged plan with test cells to gauge impact on sales with different exit/change strategies and communications. Deploy small, in market tests rather than rely on focus groups and surveys. Iterate based upon customer/associate feedback. Test live prototypes using agile, minimal viable product practices.
  • Use customer, associate and customer service representative research to create unique offerings specific to your brand, that wouldn’t work for your competitors. Include social listening to weigh what happened when similar retailers changed their programs. Some grocers have encountered negligible backlash when eliminating their discount “key fob” programs, while points programs have fared worse.
  • Employ agile loyalty strategy subject matter experts and software developers who have a history of rapidly building bespoke solutions that can be iterated upon or abandoned with minimal investment and risk.
  • Think how to make what you sell or how you sell it unique and better (differentiate the brand), rather than a unique and better loyalty program.
  • Stay clear of another discount-based, price-based, or cumulative program.
  • Reward at the time of the behavior for reinforcement.
  • Open up your perception of who a “member” is. Should it be all your customers? Eliminate tiers — they tell the majority of customers they’re less important.
  • Focus on segments of one — how does each customer feel special or get a “deal,” compared to all program members.  Move from programs to making every customer feel like platinum.
  • Empower associates and customer service reps to reward at will. Focus on clienteling, not membership.
  • Communicate early and often with customers about what’s better about the brand, rather than the program.
  • Be equipped and prepared to change in a heartbeat, and structure your teams for responsiveness.

Constant, rapid change is now a requirement for retailers to succeed and respond to consumer trends. When it comes to rethinking loyalty, think clienteling to individuals rather than programs, unique products and services above programs, empower employees, reward with lifestyle enhancement rather than discounts, deploy many small tests, topical not cumulative, move fast, stay agile.  

Babs Ryan is a global strategic product innovation consultant. She has multiple U.S. patent filings in loyalty, retail, financial services, and gaming and has traveled in more than 80 countries. In her role as retail principal at ThoughtWorks Retail, she oversees creating and delivering differentiating value propositions, products and services for brands, using agile, continuous delivery, and lean enterprise best practices for in-market releases in weeks.

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