The loyalty dilemma: the perils of changing a popular loyalty programme

Businesses create loyalty programmes as a way to reward customers for their repeated custom.

That may sound simple, but once a loyalty programme is launched it becomes far more complicated.

A loyalty programme is another kind of transactional agreement between business and consumer. The consumer becomes a frequent customer of the business, and in exchange they can earn points and other rewards.

Trust is implicit in this agreement, and if the business is seen to act dishonourably, it can do great damage to its relationship with the individual customer (and create a bad reputation through word-of-mouth).  

In January 2018, Tesco announced that it was making immediate changes to its loyalty programme, specifically to the way customers could spend points at reward partners.

Spend enough money with Tesco, and they would send you vouchers which you could redeem for money off your shopping, or spend at reward partners – like Pizza Express or London Zoo.

The problem was that the vouchers held differing values with different partners. Some provided a discount at four times the value of the vouchers; others only gave two times the value.

To make the programme easier to use, Tesco decided to make all reward partner vouchers three times the value of reward points. It also announced that it would be removing 57 partners from the programme.

However, after a consumer backlash and negative media coverage, Tesco delayed the rollout of the new scheme until June, giving the programme members a chance to spend their points at the value they had expected.

Why was this an issue?

From a business standpoint, simplifying a reward scheme sounds like a good idea, both for the business and the programme member. But when you’re working on a long-established programme you need to consider the impact that these changes will have on its members.

People decide to shop with a retailer because they know that they will be able to afford a discounted day out with their family, or because they can spend their points on that TV in the reward store by the end of the year. They start to build the scheme into their budgets. They trust the retailer to provide the reward that they depend on.

Changing a popular loyalty programme isn’t just a matter of creating a more efficient programme, or saving the business money. It’s about knowing your customers. It’s about having insight into how and why they use their points.

When you’re working on a long-established programme you need to consider the impact that these changes will have on its members.

Why would a business want to change its loyalty programme?

In Tesco’s case, the June points changes were made to simplify the rewards programme. Members that would usually need to check whether their vouchers were two, three or four times the value of their points would now know that they would be worth three times the value.

Several credit card companies have reduced or eliminated their reward programmes due to the EU ruling capping interchange fees. The ruling limits the amount card companies can charge retailers for processing payments, and the card companies need to recoup their losses from somewhere – some loyalty schemes have suffered because of it.

Some retailers have decided to switch to rewarding customers based on their behaviour, rather than the amount they spend. Loyalty schemes have needed to be restructured as a result. For example, a family may not be able to spend a lot on the supermarket shop, but they are still weekly customers and their loyalty should be rewarded.

The problem doesn’t lie in changing a loyalty programme, but in doing so in a way that alienates those who use it.

Changing a popular loyalty programme

Successful loyalty programmes are a partnership between the brand and the programme’s members. They are entering into an agreement – “you keep buying from us, and we’ll reward your loyalty.”

When changing a popular loyalty programme, the business running it needs to get four elements right:  

• Personalisation – this isn’t just about using data to understand what customers want or to analyse how they use their points. It’s about understanding basic motivations and emotions. Yes, this customer frequently redeems points at a pizza restaurant, but why do they do that? Is it just because they have the points, so why not get some money off? Or, is it because it is the only way they can afford a meal out with their family? Is it part of something much more significant for them? Without this understanding, the business will find it hard to form a real connection with the people who use their loyalty programme.
• Choice – if the loyalty programme gives people points to spend elsewhere, it becomes more complex. People aren’t just loyal to the brand giving them the points, but the one they spend the points with. By unilaterally deciding to remove partners from the programme, the brand risks alienating those who want to access that brand at a discounted price.
• Flexibility – while the brand may believe that making certain changes increases the flexibility of the programme, these changes won’t affect everyone in the same way. Changing the distribution of points to be more equal will mean that some people see an increase in the value of their points, while others will lose out. Should a brand choose to eliminate loyalty cards and switch to a mobile app, it risks making the scheme inaccessible to customers that don’t own a smartphone. Flexibility for the brand isn’t always the same as flexibility for the customer.
• Communication – how are these changes communicated? Is there a consultation period? Or is the change simply announced? While loyalty programmes are run at the discretion of the business, they remain a compact between brand and customer. By changing the rules of the game while it’s in progress, the business risks undermining the trust loyalty members have in the brand and its word. Why should I spend my money with you and earn all of these points, when you can change the value of them overnight?

Businesses can add any terms and conditions that they choose, but it won’t stop customers from using loyalty programmes in ways that suit their circumstances the most.

Without careful consideration and management, even simple changes to loyalty programmes can undo years of relationship building and put the customer’s relationship with the brand at real risk.

As we have seen, there are good reasons why a business would want – or need – to make changes to a loyalty programme. They just need to ensure that they make the changes with the customer’s interest in mind (and that they clearly communicate the thinking behind the changes they are making).

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