Loyalty Revamp Serves Who?

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When a company revamps a loyalty program, is it really in order to "make it easier to reward our customers and give them more options so they can get rewarded faster"?  See Dunkin' in 2022 for a cautionary example of when a redesign clearly makes it harder to earn rewards (Why Dunkin’s Revamped Rewards Program Has Angered So Many Customers). 

But according to Domino's VP of digital experience and loyalty, that is exactly what the recent relaunch of Domino's Rewards is intended to do. If true, that would make Domino's somewhat unique - besides Dunkin', you might think about Starbucks as another example of a program change that angered members (in 2016, 2019, 2023...), although those two brands drive habitual purchases and changing the rewards incentive is unlikely to have much impact on long-term behavior.  

What are some other potential drivers of change?  Things like:

a) the existing program is financially unsustainable for the company and/or franchisees, meaning they realized the cost to fulfill rewards far outpaced the incremental benefit

b) consumers have lost interest in the current program, driving concern as new enrollments are declining and "inactives" are increasing, or engagement has decreased

c) benefits/points aren't being redeemed frequently enough, meaning the company is building up a balance sheet liability

That can happen when the structure is built around "industry best practices" or me-too programs or some other design approach that is not unique to that category and that brand.  You end up with a mis-match between company expectations and consumer behaviors that makes the program seem like it isn't hitting the mark.  This has been exacerbated over the past few years as loyalty has become part of the "digital experience" and enrollment is made an inherent component of app install, when the consumer may simply want to enable mobile ordering.  That's a topic for another time.

In the meantime, not to pick on Domino's but simply to use it as an example to explore since it is topical, let's consider how their program has changed, what that means for members, and what might be driving the change.

We'll start with some interesting pizza consumption stats (The Most Surprising Pizza Consumption Statistics And Trends in 2023 • Gitnux and 29 Great Pizza Consumption Statistics).  The average American consumes 46 slices of pizza per year, so we'll figure that means 15 pizza occasions with 3 slices per occasion.  And that means ordering every 3.5 weeks on average. Domino's previous program, "Piece of the Pie Rewards" awarded 10 points for each purchase exceeding $10, and allowed a redemption for a free two-topping medium pizza at 60 points.  For the sake of argument, and since Domino's is not in the business of selling slices but rather whole pizzas, let's assume the average purchase is $15 and the cost of a two-topping pizza is $7.99, that means a consumer spends $90 or more to achieve a reward, with a giveback-ratio of 8/90 = 8.89%.  A little lower than the usual "Buy 10 Get 1 Free" but close (and if you assume average purchase is $10, the ratio is more favorable).  At 50% margin on food, the cost to fulfill is 4/90 = 4.49%. And it requires 6 pizza occasions, since this is not a spend-based program, equating to 18 weeks to earn a reward, or about 4.5 months.  Ugh. That's a long time to hold a consumer's interest without reward. The new "Domino’s Rewards" allows members to earn 10 points on every order of $5 or more.  Does lowering the spend threshold from $10 to $5 make a difference in earning?  Probably not, but it sounds like it is a perceived benefit for members.  And there are now three tiers for redemption: 20 pts (dip cup, 16-piece parmesan bites, or 20 oz drink), 40 pts (bread twists of stuffed cheesy bread) or 60 pts (2-topping pizza, pasta, sandwich, or 3-piece chocolate lava crunch cake).  Based on menu pricing, that means 20 pts can deliver up to 5/30 = 16.67% giveback, 40 pts can deliver 8/60 = 13.33% giveback, and 60 pts can deliver the same 8.89% giveback as before. And rewards can be earned as quickly as 3 weeks between two orders. So it seems the Domino's VP is giving it to us straight - the new program does give members more rewards options and allows them to be rewarded faster. That still begs the question of why it is important for Domino's itself to want to give consumers more options and be rewarded faster.  The most logical reason would be that engagement is down and shortening the time to earn a reward is viewed as one potential way to keep members active - and ordering.  If the new structure is based on an analysis of ordering frequency and item order incidence, that would make this a really smart program revamp that offers a win-win for consumers and the sponsoring company.  And as a bonus, it probably even lowers cost to fulfill for Domino's at the same time. 

Bravo, Domino's.

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