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US: Do Domino's stock rewards build loyalty?

Late last year, US pizza chain Domino's Inc. made news with a revamped reward program that rewards best customers with shares of the company's stock. The move garnered the company a copious amount of press that pointed out the program's novelty - but analysts now question whether the move will actually move the needle on customer loyalty.

By Rick Ferguson
 
Marketwatch reports that 25 winners in Domino's Piece of the Pie rewards now own 10 shares each of Domino's stock as a result of the sweepstakes drawing. The company will give away shares to 25 winners a month through the end of this year; Domino's insists that the 3,000 shares distributed won't dilute the company's overall stock price.
 
The move is an obviously clever marketing tactic - but will it result in increased customer loyalty? Money quotes from a pair of consultants cast a skeptical eye. Here's Radials' Stefan Weitz:
 
"While the issuance of stock in theory could engender winners to become more loyal to Domino's (as their portfolio is tied to the growth of Domino’s profits), the practical impact on loyalty of a couple hundred new stockholders likely is minimal."
And here's Vivaldi's Jenifer Ekstein:
 
"Loyalty programs should build customer loyalty while also increasing customer retention. Only giving away limited shares a month to a small portion of the customer base makes this type of loyalty program unscalable unless Domino's intends to offer more stock, which would dilute the current shareholders' stocks."
Due respect to Ekstein and Weitz, but these quotes kind of miss the point. We may safely assume that Domino's understands that giving away a few thousand shares of stock to select customers as part of a promotion isn't going to move the needle on customer loyalty. The stock givaway is a promotion designed to draw attention to the program - and it's worked. To build on the promotion, Domino's will also give 50 rewards members $10,000 each. Cash and stock giveaways are a surefire way to draw attention.
 
While these promotions will only impact a small number of customers, they do serve to build excitement and interest in joining. It's the program itself that will build loyalty. And while the Piece of the Pie program is nothing more than a simple frequency program, it is a generous one: every $10 in online orders earns you 10 points, and every 60 points rewards you with a free medium two-topper. With average online orders somewhere around $20, customers can earn a free pie with every three online orders.
 
That's a generous funding rate that will no doubt steal customer share from Domino's competitors. That's the real loyalty play - stock and cash promotions are merely the toppings on the pizza. Kudos to Domino's for bringing a little flash and excitement to their loyalty efforts.
 
Rick Ferguson is CEO and Editor in Chief of the Wise Marketer Group.
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