Managing Changes to Customer Loyalty Programs

Photo: Starbucks.com

The prolonged economic slump has businesses of all shapes and sizes rethinking, and retooling, customer loyalty programs.

I recently stopped into a nearby Starbucks for coffee. Admittedly, it had been a while since my last visit but, in my prime, I was feeding a pretty heavy caffeine habit. I asked the barrista for a seasonal syrup and soy milk, whipped out my gold card and got ready to pay.

It was only then that I found out that Starbucks had dropped free soy milk and syrups from its reward program. I stood there open mouthed (figuratively), let out a sigh and walked to the other side of the counter to pick up my considerably higher priced beverage. It was a small hit in the grand scheme of things, but it got me thinking about how to effectively manage customer loyalty.

Starbucks did officially announce the change, though it did so in a rather ill-advised way. In a September blog post, the company touted how it was "revamping" the rewards program. But the emphasis was clearly on what the coffee giant was adding ... the subtractions seemed a mere afterthought.

In fact, I went home and went online to double check the change. One of the first hits on Google was another blog post, but this one clearly singled out the company's deletions. There was even talk about the retracted benefit equating to a "tax on vegans." Yikes!

This isn't the first time I have found out (too late) that a business has ended a customer benefit. There is a winery that I enjoy visiting from time to time. It has a great view, decent wines and a now-defunct enticement to keep coming back - a free tasting if you brought your branded wine glass with you.

I showed up at the winery a couple of weekends ago, glass in hand, and walked up to the counter, only to be told that the promotion was longer in effect. I never asked why, but I would surmise that the increasing need to lathe expenses had to factor into the decision.

So here are a few suggestions to companies that are considering starting, or changing, their loyalty programs.

• When you are developing a program, try to come up with incentives that you can offer regardless of where the country is in the economic cycle. Forecast the cost of the program over years of promotion.  Picking your reward wisely could keep you from taking them away if times get tough.
• Make sure you clearly communicate changes well in advance of the effective date. Starbucks made its announcement one month before it ended free syrups and soy (the company also axed a reward where customers got a free coffee if they bought beans). Make sure people sign up for email notices and make sure both additions and subtractions are clearly outlined.
• If you issued rewards cards, punch cards, etc., consider a grandfather provision that lets people complete the card they are working on but stop handing out new cards. This allows for a phase out approach that lets you eliminate an incentive over time.
• Get feedback in advance. Planning to take away a reward? Ask people well in advance to choose from a list of potential replacements. Getting consumer participation could help you in the psychological battle of keeping them happy!

I am certainly interested to hear what other people have to say on this issue. Businesses rely on loyal customers, and word of mouth, to grow, so managing these programs is a very critical component for success!