Loyalty programs have surged in popularity, with virtually every quick-service restaurant now offering its own rewards system, loyalty program, or app.
However, the growing number of loyalty programs available doesn’t necessarily translate to a rise in quality or effectiveness. In fact, several chains are scaling back benefits and increasing the number of points required to redeem items—a phenomenon known as loyalty program inflation.
For instance, Starbucks recently doubled the number of stars (the chain’s term for points) required to redeem a free hot coffee, tea, or baked goods. The changes have not gone unnoticed by customers, who have pushed back with widespread criticism on social media and even calls for boycotts.
Ironically, the devaluation of loyalty points demonstrates a lack of loyalty to quick-service restaurants’ customer base. Watering down loyalty points represents just one of many pain points when it comes to consumer experience and engagement—and if brands aren’t careful, they risk alienating consumers rather than enticing them.
Why are brands cutting back on rewards?
One of the reasons brands devalue loyalty points involves the current economic environment. Like any currency, loyalty points are impacted by high inflation, which means benefits or points don’t pay for as much as they once did.
Moreover, as customers return to in-person dining and use loyalty programs to save money, brands feel emboldened to adjust the value of loyalty points to maximize their profitability. Brands realize that earn-and-burn loyalty programs are not as profitable as they once thought—and as a result, they’ve modified the value of loyalty points to compensate.
It’s no surprise that these changes have sparked major discontent among customers, especially at a time when many are feeling pressure from persistent inflation and the uncertain economic landscape. Customers, after all, are the true loyalty experts—and they know when they aren’t getting the best bang for their buck.
Consumers have also grown increasingly savvy about loyalty programs. On YouTube, TikTok and other social media platforms, consumers who can identify the mechanics behind redemption processes are “gaming the system” and sharing tips and tricks about how to exploit loyalty programs to their advantage.
The travel-based website The Points Guy is a great example. The site provides a deep-dive into every major travel-based rewards program, from credit card cash-back offers to airline frequent flier programs to hotel deals. It’s an updated version of the extreme couponing shows that were once popular on cable TV.
Although these consumer hacks demonstrate creativity and ingenuity, they also represent a major red flag for brands. Instead of fostering loyalty and saving customers money, watered-down loyalty programs are breeding distrust and disillusionment—and consumers are more than willing to take matters into their own hands.
Minimizing pain points, maximizing pleasure points
Loyalty programs are more than just redeemable points; they are an opportunity to foster meaningful connections with customers, strengthen brand loyalty, and drive business growth. In fact, brands with loyalty programs grow revenues 2.5x faster than other companies.
But in order for your loyalty programs to be effective, they need to be incorporated into a broader strategy that maximizes consumer engagement and trust, while minimizing friction and frustrations. The following pain points and pleasure points are a few trends that can enhance—or diminish—loyalty programs.
Pain point: Inflexible redemption techniques
Some loyalty programs make it difficult to use accumulated points by manufacturing “fake” achievements that are hidden in the small print or are downplayed within the system. Others set rigid expiration cliffs and hard deadlines for redeeming earned points and rewards, or force consumers to keep spending in order to keep points from expiring. These practices try to force customers back into the store to spend more money, rather than cultivating connections and saving consumers money.
Pleasure point: Personalized touchpoints
Brands create loyal customers by understanding and meeting their needs—and personalized experiences are crucial to ensure consumers connect with brands and sustain engagement over time. But brands appear to have a long way to go when it comes to personalization, with just 22 percent of customers happy with the level of personalization they receive.
Fortunately, AI is making it easier for brands to create highly personalized consumer experiences and engagement. For example, AI-powered predictive analytics tools can identify, record, and categorize specific interactions consumers have on your website or app, such as what they previously ordered and whether they left online reviews, to create a more complete consumer profile and offer more relevant rewards. Likewise, AI can analyze real-time feedback on consumer behavior to offer more personalized interactions, such as personalized reminders about available rewards, awareness of promotional events, and more.
Pain point: Bad user experience
Certain brands attempt to squeeze money out of customers and decrease the value of reward points, by introducing points of friction and inconvenience throughout loyalty programs. Essentially brands create bad UX designs that complicate the process, making points a hassle rather than a reward. For example, Best Buy recently changed its rewards program to no longer require a minimum purchase amount to receive free standard shipping. However, now the only way to receive award points for purchases is to use Best Buy’s credit card, which has a very high interest rate.
Pleasure point: Seamless digital journey
Creating a frictionless journey and seamless digital touchpoints enhances customer satisfaction, drives engagement, and fosters lasting loyalty. To start, you can reduce common customer anxieties—like fumbling with their phone or quickly searching for a reward at the counter—by guiding consumers through the redemption process and making it effortless for them to access and apply their rewards.
Integrating loyalty benefits throughout the consumer journey is another way to reduce friction and save time for customers. By preloading personalized orders or suggesting additional items that qualify for rewards, for example, brands can create a more efficient and convenient experience for loyal customers, while encouraging increased spending and repeat visits. Understanding the customer journey and proactively identifying and eliminating points of friction allows you to differentiate your loyalty programs from competitors.
Pain point: Duping customers
When Dunkin’ announced a revamp to their loyalty program last October, they made it easier to earn points, but the redemption amounts increased at a greater rate. For example, instead of spending $40 to earn a free drink with the previous reward system, consumers now need to spend somewhere in the range of $60–70. In addition, customers no longer receive a free drink on their birthday, instead receiving a point multiplier for one day. Dunkin’ has claimed they are giving their customers more benefits, but in reality, redemption is more expensive and there are just as many conditions as before. Customers aren’t oblivious to the bait-and-switch, with only 5 percent saying the change was “great news” compared to 90 percent who expressed disappointment.
Pleasure point: Building mutual trust
Your loyalty program should focus on building mutual trust between your brand and customers. Loyalty programs that are designed with the customer front and center foster emotional responses that go beyond simple discounts.
Trust forms the foundation of a strong and enduring relationship between your brand and your customers. When customers trust your loyalty program, they are more likely to actively engage with it, use its benefits, and become loyal advocates. By offering true rewards for their loyalty, you can create emotional connections that lead to better engagement and long-lasting relationships—and it helps that customers will end up spending more in the long run, too.
It’s important to think twice before scaling back your loyalty program—and enraging your customer base. Rather than taking away rewards or making consumers follow a convoluted, complicated process to redeem, focus on building seamless, personalized digital experiences and creating mutual trust that will last long beyond the current economic environment.
When it comes down to it, loyalty programs are about rewarding customers for their trust and their money—and that relationship should go both ways.
Mike Welsh is the Chief Creative Officer at Hexaware Mobiquity, leading a team of experienced architects, experience designers, and conversational designers to deliver engaging and compelling solutions in collaboration with engineers who bring these solutions to life.
