Companies are changing their customer rewards program, here’s why

WASHINGTON –

Rewards programs, including birthday gifts and discounts, have long been a way for brands to build loyalty and drive spending. But now some companies are getting stingier — and customers are taking notice.

Last fall, for example, there were many opponents of Dunkin’s decision to stop offering them a free drink on their birthday and instead give them triple loyalty points with their purchase. On June 1, Sephora began requiring a $25 minimum purchase for online customers who wanted to claim a free gift and 250 loyalty points during their birthday month. And Red Robin added a dine-in only and US$4.99 minimum purchase requirement for customers to get their free birthday burger.

Changes to birthday rewards or redemption requirements are not new. Starbucks, which gives its rewards members a free drink or food for their birthday, has gradually reduced the time period for redeeming that gift over the years — from 30 days to a week, to four days, and finally to just the date of your birthday in 2018.

Some experts say the cost of maintaining loyalty programs, as well as the recent fallout from inflation and changes in consumer behavior since the start of the COVID-19 pandemic, are some of the reasons companies are pulling back.

“As we assess our own personal spending, so do companies,” Marshal Cohen, Circana’s chief industry advisor and retail expert, told The Associated Press. “Companies need to look and say, ‘Are these programs working? Are they operating at full capacity? … (And) is there another way to do this that wouldn’t cost us so much money?'”

For example, for Sephora customers enrolled in the Beauty Insider Birthday Rewards, they can still claim their free gift in person with no minimum purchase. But it costs the company money to ship products sold online, noted Leora Lanz, assistant dean of academic affairs and assistant professor of practice at Boston University’s School of Hospitality Administration.

Sephora did not immediately respond to The Associated Press’s request for comment.

Despite consumer pushback, some chains have argued that adjustments to rewards programs simply reflect how customers behave. In a statement to The Associated Press, Starbucks said it “felt the vast majority of members used their birthday rewards on their actual birthday.”

Dunkin’ argued that its new rewards program would give its customers more flexibility and a greater variety of food and drink options — and in a statement to The Associated Press last week, the company said the new program “allows members to celebrate their birthdays even longer.” . ,” pointing to the three-day window within which customers can triple their loyalty points on birthday purchases.

Still, the announcement felt off-putting to many Dunkin’ customers, who shared their frustrations online. In the months following Dunkin’s announcement, dozens of Twitter users expressed disappointment that the free birthday drink was gone. Some joked that they “no longer run Dunkin,” a digression on the chain’s tagline, and others suggested that they should look elsewhere for their future business.

Experts say how companies communicate changes to rewards programs is critical.

“What (brands) need to do is not make too many changes too often — because you’re going to rub your audience the wrong way and it can backfire — and you need to think about it,” Lanz said. “They have to communicate it so it’s not a complete surprise.”

Others say drawing attention to what is “lost” can also lead to backlash — and it’s better to provide clear alternatives so that consumers feel rewarded.

Red Robin, which said it started with dine-in only and a $4.99 minimum purchase for its free birthday burger “to maintain the integrity of the promotion” and give guests “the best possible experience” by celebrating at restaurants – also introduced a half birthday treat in 2023 “as an extra gesture of appreciation.”

Consumers will likely continue to see changes in birthday rewards and customer loyalty programs going forward, Cohen noted.

“The pie is shrinking for many of these discretionary items,” he said, pointing to the continued high cost of living faced by consumers and increased competition among companies vying for those limited dollars. “You’ll see a lot of[companies]reviewing their programs to figure out how to boost their business in a more profitable way.”

It’s possible that this could mean a phasing out of more rewards programs. But there could also be the opposite effect, said Julie Ramhold, a consumer analyst at DealNews.com, noting that some retailers “could potentially offer better birthday rewards to encourage a return to spending on frivolous items.”