Changing Your Loyalty Program? Be Prepared for a Potentially Brutal Impact on Your Brand

A lesson for brands thinking about overhauling their loyalty programs to save some money or boost sales: You could be doing more harm than good.

The most recent brand to prove this point is Starbucks, which just saw a dramatic drop in consumer perception after overhauling its rewards platform.

On Feb. 22, Starbucks announced that, starting in April, it would change its loyalty program from rewarding customers based on number of visits to instead rewarding the amount of money spent. Predictably, the idea of having to spend $62.50 to earn a free item, instead of as little as $24, didn't thrill regulars, who reacted negatively and vocally on social media.

Starbucks' brand perception plummeted as a result, dropping by 50 percent, according to YouGov. Starbucks' "buzz" score, which asks respondents whether they've heard positive or negative statements about the brand, dropped from 60 to 29 in the week following the change.

@Starbucks Disappointed. I'm currently a loyal customer who will not be feeling my loyalty rewarded anymore.

— Michelle (@BluebirdNerd) February 24, 2016

On Feb. 24, 80 percent of Starbucks' customers said they would consider making their next purchase there, but that number also decreased to 71 percent, according to YouGov. (Starbucks did not respond to Adweek's requests for comment.)

"Starbucks thinks they've enhanced their loyalty program, but our data suggests that there's a disconnect between the message that Starbucks is trying to put out there about the loyalty program and what consumers believe," said Ted Marzilli, CEO of YouGov BrandIndex.

"Current customers who say they would consider the brand the next time they're in the market to make a purchase is quite high, but it's gone down since the announcement," he said. "That suggests that some people are thinking it's an event that's going to make them walk an extra block and try another coffee place."

Meanwhile, the shift is also opening up an opportunity for Dunkin Donuts, which is already moving to intercept wavering Starbucks loyalists by offering a $5 gift card and a free drink when you sign up for the doughnut chain's rewards program. While the competitor isn't naming Starbucks, it's not hard to spot the motivation behind the new offer, given the promo code listed in this tweet:

Get $5 and a Free Beverage when you enroll in #DDPerks through 2/29! Use promo code STARS. https://t.co/Is7uLvTrsO pic.twitter.com/gTpvLDsQ7O

— Dunkin' Donuts (@DunkinDonuts) February 29, 2016

In 2011, Southwest Airlines similarly revamped its Rapid Rewards program, changing its model from rewarding customers with free flights based on number of trips taken to a point system based on the price of fares. Last year, it changed the program again to let fliers earn points based on destination, time and day of travel. In 2015, Delta and United switched their rewards systems from basing them on miles flown to total dollars spent.

Changes such as these actually could make your loyal customers less loyal, said Susan Cantor, president of Red Peak Branding: "It erodes good will. If you make a change, it needs to be more in line with previous customer expectations."

Katie Hooper, managing director and vice president of strategy at HZDG, agreed: "As soon as you say you're changing your loyalty program, an instant skepticism emerges. When you make the reward harder to realize, it feels like something that's just helping the companies improve their revenue streams. We recommend telling customers how this is going to improve their daily life. Before, Starbucks was doing it really well by rewarding them based on frequency. It said they valued the customer no matter what."

Allen Adamson, founder of Brand Simple Consulting, suggested "grandfathering in" current members to new loyalty programs, so that new restrictions don't apply to longtime participants—or at least giving them a choice.

"You're playing with fire if you change any program targeted at loyal customers. They're the least open to change because they're creatures of habit," he said. "Letting your loyal customers stick with the current program for a few years would make them feel more special." 

"Or, you could sweeten the pot," Adamson said. "You could say, 'I know this is a change, and because of that, we're going to give you a free shot of espresso every week.' You have to give them something else. You can't build loyalty by taking things away from customers. If you keep taking things away from customers, they'll punish you, and you deserve it."