Shoppers are turning to loyalty points to bridge their budgets. Retailers, don’t burn your bridges.
By: Jenn McMillen
It’s hard enough on shoppers that the cost of goods is up 8.2% over 2021 – heck, the cost of food we bring home has risen by 13%, CNBC reports. But now some of the most popular loyalty program operators, including Dunkin’ Donuts and Chipotle, have raised the number of points required to get free food, according to NBC. (“I hate the new Dunkin’ Rewards,” one member tweeted. Ouch.)
This could mean a regular customer who tries to redeem her rewards points for a cup of coffee, something she did so every two weeks based on her spending, is told at the register, “Sorry, we changed the rules, and you’re a little short.”
Is that customer feeling loyal to that brand, or lousy about it?
Can You Afford To Lose Loyalty Members?
Customers spend more money with the merchants whose loyalty programs they belong to – up to 10% more, studies show.
That number is likely escalating this minute, during record inflation, because more people are turning to their loyalty programs and using points that heretofore would have been left for dead (read: not redeemed). According to The Street, 55% of restaurant loyalty members alone have upped their check sizes by more than the price of items they bought. Translation: reward members are buying more stuff at their loyalty-program places.
Further translation: Reward programs, ubiquitous and at risk of being taken for granted, have gained status as very important budgeting tools.
Meaning: Loyalty programs are having a moment!
This Is Not The Time To Get Miserly With Points
If loyalty programs are having a moment – and even if they are not – then retailers should be leaning into the opportunities with generosity, not belt-tightening. Here are five ways to do it, based on common sense, and dollars and cents.
- In hard times, detergent can be lucrative. Yeah, in good times a reward-redeemer may opt for a hoverboard over household goods, but inflation brain is guiding more members to redeem points for everyday essentials and to offset expenses. Supermarkets have long benefitted from such reward alliances through fuel station partnerships, like those between KrogerKR -1.6% and Shell. But these partnerships can extend much further than the pump. TargetTGT -1% and Ulta are proving this is true through their lucrative, points-earning partnership. Just like that, Ulta members could redeem their points for household cleaners. And then, maybe lipstick.
- Mondays (or Tuesdays) are the New Black. WalmartWMT +0.6% has gotten a creative jump on Black Friday by dropping online bargains every Monday that favor Walmart+ members with a seven-hour head start. A reward platform can do something similar – alert members to holiday gift deals that exist for just one day each week. Kind of like those T-Mobile Tuesdays offers the wireless provider sends its customers. (Worth noting: T-Mobile Tuesday isn’t even linked to a loyalty program; it’s just a “thanks for your loyalty” gesture.) Pro tip: 40% of consumers said they’d more likely make a purchase if a text alerted them to when a sale expires.
- Give their credit some points. Consumers tend to turn to cash-back reward programs during times of high inflation to cover expenses, American Banker reports. It’s why some reward programs, like Disney Premier Visa, issue statement credits after the user spends a certain amount of money. And members of Chase Ultimate Rewards can link their programs to bank accounts and transfer cash, according to The Points Guy. Retailers can sweeten these options by further inviting members to pay down outstanding balances with reward points. Bonus: this helps customers stretch their bucks a bit further, so they use the cards more often.
- Or trade their points for fees. People are twice as likely to spend money with a paid rewards program than with a free one, McKinsey has found. This is probably because paid loyalty and subscription programs tend to offer better perks and higher earnings opportunities. Just look at the benefits offered by P.F. Chang’s new paid subscription tier, including 1.5-times more points for each dollar spent and unlimited free delivery. However, for many people, those fees elicit a big “Nope” – 31% have said high fees are the top reason they’ve cancelled a program. If those shoppers could pay down that fee with points, maybe a share of them wouldn’t cancel. Or, if members could obtain a subscription using points (at least as the initial period) that membership could become a recurring revenue stream for the business, because many people put their subscriptions on autopilot. Will you bite, P.F. Chang’s?
- Put them on the card. If a retailer can send its reward members limited-time offers for puffy jackets or stuffed turkeys, it can do the same by pushing gift cards – with added financial benefits. This is particularly the case during the holidays, when a points-earned gift card can become a customer-earning gift itself. If I use my Sephora points for a gift card that I then gift to a friend, say, then Sephora could land a new, repeat customer without any acquisition investment. And because gift cards typically require more points for purchases than do material goods, BankRate.com reports, the issuer can burn more reward liabilities (points) off its balance sheet – without disappointing members.
Points Taken In Hard Times Will Burn Bridges
There is never a good time to disappoint members, truly, but there are times when bad experiences will burn more deeply into their memories than others. This is one of them. Just look at the backlash Dunkin’ is dealing with because of disappointed members. (Dunkin’ president Scott Murphy told Yahoo! Finance that the company is “for sure” thinking about bringing back the free birthday gift.)
Don’t get stingy with your rewards programs, retailers. You might find that for many of your best customers, that would be a bridge too far.
I have been building and sharing expertise in the retail industry for 20+ years. My wheelhouse includes customer relationship management, shopper experience, retail marketing, loyalty programs and data analytics. My perspective is unique because I have both extensive retail/client and agency/consultant experience.
In 2015 I founded Incendio, a firm that builds and fixes marketing, consumer engagement, loyalty and CRM programs. Incendio is a trusted partner of some of the biggest brands in the U.S., including Chipotle, GNC, PetSmart, NASCAR and Godiva.
Before Incendio, I honed my retail expertise filling executive roles at GameStop, Michaels, Tuesday Morning, Jo-Ann Stores, AT&T and Blockbuster. I’m also an award-winning instructor at Southern Methodist University, where I’m helping train the next generation of business leaders.
I frequently speak at retail and marketing conferences around the world and have been quoted in global news outlets including Forbes, Barron’s, MSN, QSR and CPG Matters.