Everyone would like more Ideal Clients, and hopefully increase your long-term Customer Value at the same time. Companies offer all sorts of new loyalty and incentive programs, bonuses and guarantees, some good, some so-so. All programs inherently have an element of “breakage,” but some have been gamed so that a significant percentage of customers never get to take advantage of their rewards (like points expiring if they’re not used in six months or a year).
These programs offer apparently wonderful benefits, but are built with carefully-added traps along the way that tend to ensnare customers. These “breakage points” may depend on your customer…
- Making mistakes (ie, not filling in some form exactly right, not going through certain steps in the right order, or failing to print out a coupon that their own system sent you),
- Simply “forgetting” to use their rewards in time (think of short-fuse expiration dates)
- Not getting points you deserve (such as not having your membership card on them (and not allowing retroactive credits)
- Or simply choosing an easier path (like paying full airfare instead of changing your travel dates and using points)
This kind of breakage is ultimately about not simply NOT fulfilling marketing promises (“Look at the money we saved!”), but being able to smugly blame it on the customer.
To one degree or another all fulfillment includes some element of breakage (such as lifetime guarantees, knowing people will sooner or later just forget), but many programs’ core success depends on people NOT being able to realize the promises made… in other words, if everyone redeemed, the program would collapse.
Ultimately, is the intent of your program to provide a benefit to the customer, or is it only to appear to give a wonderful benefit but depends heavily on breakage (customers who DON’T get the benefits) to make it work? You be the judge. Now let’s go from theory to practice.
I’m going to use a major grocery brand in the southeastern United States, Winn-Dixie. Please note, this series of posts is not meant to disparage Winn-Dixie or their parent corporation Southeastern Grocers, their people or their loyalty program or partners in any way. I’m simply relaying my personal experiences, which may be different from their average customer. Also, these represent my personal opinion as to how a well-meaning loyalty-rewards program can go awry, and serve to foster disloyalty and dissatisfaction in the process. I do not have insider information on their program, and I have not attempted to discuss these points with the company other than where indicated. When a program appears to be designed to be difficult for customers to utilize or redeem, and has multiple points where breakage can occur, I believe it’s bigger objectives (to create loyalty and increase sales) have either been intentionally or inadvertently subverted to save money through breakage.
Winn-Dixie’s rewards program used to simply monitor your spend, giving cardholders special pricing discounts for future visits (like coupons printed on your checkout receipt for $10 off the next $50, etc.). It was similar to many other programs out there, but you knew what you were getting all the time. A few years ago Winn-Dixie changed their rewards program, incorporating gasoline discounts based on how much customers spent each month.
Of course, Winn-Dixie doesn’t sell gasoline, but it takes gas to get to their stores so giving discounts on gasoline is a great idea. Their new program required some gas partners, and in my county it was the Shell stations that stepped up to the pump (!)
Years ago I used Shell almost exclusively, based on their number of stations, having a Shell card and other factors. However, circumstances change, and I rarely go into a Shell station anymore. So you could say I’m NOT a Shell customer. The Winn-Dixie program took me into a Shell for the first time in years… but only because I am a Winn-Dixie customer. So Shell is servicing Winn-Dixie customers in this equation and they are getting new customers in the process. Seems like a win-win so far.
Winn-Dixie issued new rewards cards for this program. One of the features I noticed immediately missing was that while I could use my phone number at checkout if I forgot my card under the old program (which I always do), I couldn’t with the new program (even though I was in their system)! This meant that half the time I didn’t get credit for my purchases…all my fault, of course. Can you see how this one small change created “breakage?”
In dollars and cents it is more advantageous for the company when customers simply forgot their cards, and don’t get all of the points they deserve. A first-day customer service rep could see how this isn’t adding value, but taking it away, creating breakage. Make no mistake! However confusing loyalty programs may be, each point represents some dollar cost for the company. BTW, I don’t think it’s a stretch to assume all of their customers’ historical sales and redemption numbers were crunched into deciding what features the new program would offer, including this one, and how much it would cost (or save) the company.
In our next post, we’ll walk through more landmines built into this one loyalty program!
