Category: Loyalty Programs

Earn Back the Love of Demoted Customers

Posted on

If your business offers a tiered loyalty program with an annual cycle, beginning of the year may be a “heartbreaking” time for customers who failed to earn enough and was demoted from their previous premium tier status. Some argue that this is one of the downsides of a hierarchical loyalty program. What can you expect from these customers? What can you possibly do to earn back the love (or at least not lose the respect) of these demoted customers? I looked into research in this area to find some answers.

Negative Impact from Demotion

Just like anyone who have flown first class may feel quite miserable going back to the economy cabin, losing one’s premier tier status in a loyalty program is likely to have some damaging impact. This negative impact can have a more “rational” source and a more emotional source. On the rational side, getting demoted means the loss of important benefits such as higher point earning ratio and free perks. So objectively speaking, consumers lose something concrete when they get demoted. But that objective loss is only part of the story. The most important impact comes from the emotional effect of demotion. It is common for demoted customers to feel frustrated, disappointed, uncomfortable, or even angry.

Whether the demoted customer is driven by rational loss or by an emotional response, the ultimate outcome is higher dissatisfaction, lower loyalty toward the company, and a higher likelihood to switch brands. Not surprising? Here comes the kicker. Not only is demotion bad, the damage from demotion (e.g., silver to base tier) is much stronger than the positive effect from an equivalent promotion in the opposite direction (e.g., base tier to silver). In one study, researchers found that even after a demoted customer is restored to the lost premier tier at a later point, the overall loyalty level is still lower than before the customer was demoted. This is quite a serious issue. Unless most of your customers are on an upward trajectory in terms of how much they spend with your business, your gain from rewarding customers with premium tiers may never quite compensate for the loss you will suffer when consumers lose their premium tiers.

Who Suffer the Most?

The negative impact from demotion is not the same across customers though. Knowing which customers tend to respond more strongly can help you take proactive measures to avoid really negative consequences, e.g., keeping some customers in the old tier even if they have not quite spent that much last year. Below are some factors suggested by previous research, many of which should be fairly intuitive. Continue reading “Earn Back the Love of Demoted Customers”

Loyalty Program Review: Chipotle Rewards

Posted on

Chipotle, the fast-casual restaurant chain specializing in Mexican food, has launched a new loyalty program called Chipotle Rewards. The company is currently beta testing the program in three markets: Phoenix, AZ; Kansas City, MO/KS; and Columbus, OH, and plans to roll out nationwide in 2019. For this week’s blog, I thought it would be fun to do a professional review of the new program using the five criteria for assessing loyalty program value I wrote about previously.

First, a few details about Chipotle Rewards. The program is free to join. Members earn 10 points per $1 spent at its restaurants or through catering orders, and 15 points per $1 for orders placed via its website or mobile app. There will be bonus actions consumers can complete to earn additional points. Once a member accumulates 1250 points, those points can be redeemed for a free regular-priced entrée item. Rewards expire after 60 days. Till Nov. 21, 2018, the program is offering a joining incentive of a free order of Chips & Guac after the new member makes the first purchase under the program. Let’s take a look at how this design stacks up against the five value criteria.

Criterion #1: Cash Value

In my geographic area, a typical entrée on the Chipotle menu costs about $7~$8. Together with the point earning ratio of 10 points per $1 and a reward threshold of 1250 points, we can calculate the reward ratio to be ($7~$8/1250)*10 = $0.056~$0.064 per dollar spent (or 5.6%~6.4%). This reward ratio is pretty high compared with a typical credit card reward program, but how does it compare with other restaurant loyalty programs? Chipotle’s direct competitor, QDOBA, also runs a loyalty program called QDOBA Rewards. The program requires 3000 points for a free entrée priced at the $8 range, with lower thresholds for cheaper items. The earning ratio for QDOBA Rewards is the same 10 points per $1 at the two lower tiers (Recruit and Apprentice), and goes up to 15 points per $1 for the Pro tier and 20 points per $1 for the highest Champ tier. Putting these numbers together, it appears QDOBA Rewards has a base reward ratio of about 2.67% for the two lower tiers, and 4% and 5.33% for the two higher tiers. Comparatively speaking, Chipotle Rewards offers a higher cash value. However, considering the bonus points per visit offered to higher-tier members of QDOBA Rewards, the two programs are more comparable in cash value at the higher tiers. Continue reading “Loyalty Program Review: Chipotle Rewards”

Measuring Loyalty Program Performance and ROI Part 3

Posted on

I hope you have enjoyed reading Part 1 and Part 2 of the loyalty program performance measurement series. In this last portion, let’s look at what your metrics should be for the last two types of program goals: to attract new customers, and to gain customer insight.

Metrics When New Customer Acquisition is the Goal

The obvious metric for measuring new customer acquisition is the number of new customers acquired as a result of the loyalty program. Although it seems rather straightforward, it is necessary to note a few things about this. One, depending on the nature of your business, determining who are new customers may not be so easy. An online retail business typically has customers’ name and contact information. So identifying and determining the number of new customers is pretty straightforward. Without such information, a new loyalty program member may simply be an existing customer who decided to sign up for the program. Therefore, it is generally not a good idea to count sign-ups for the loyalty program as a metric for customer acquisition.

Instead, you may want to leverage POS data to identify new credit cards that have not previously been used at your business. This is not 100% accurate either obviously, as existing customers may simply be using a different credit card. But it is likely to be closer to the true number of new customers. Measurement of foot traffic or sales and then excluding frequency+spending growth by existing members can be another crude measure of new business. Finally, it is also possible to draw a random sample of your visiting customers and ask the simple question of whether it is the first time that they are buying from your store. Whichever approach you use, it’ll be best to have some baseline customer acquisition numbers before the program was established to compare the new numbers to. Continue reading “Measuring Loyalty Program Performance and ROI Part 3”