Bill Hanifin
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A small firestorm over the efficacy of Loyalty Marketing programs broke out over this past weekend thanks in large part to an article 
written by Joanne Kaufman for the Wall Street Journal.
Ms. Kaufman recounts a telling tale of how her own household purchase behavior adapted to take advantage of rewards programs from Duane Reade to Starbucks to the local pizzeria and shoe store, only to be thoroughly disillusioned by an in-store experience at Duane Reade.
It seems that her son was shopping at the store and had his rewards card rejected with a less than satisfactory explanation from the cashier that Duane Reade was in a “blackout” period prior to launching a new and improved customer loyalty program. According to Ms. Kaufman, worse than the blackout message was the discovery that points previously earned in Duane Reade’s Dollar Rewards™ program would not be honored in the new program.
There are several lessons to be learned here and a few questions raised as well.
First, some background: On Jan. 15, Duane Reade announced it was launching FlexRewards™, a replacement program to Dollar Rewards™, the Company’s previous customer rewards program. The new program was to be in effect on Jan. 16. On Feb. 17, Walgreens announced that it was acquiring Duane Reade, the largest drug store chain in New York City.
The Questions:
- What influenced the timing of Duane Reade’s launch of a new program when they were (presumably) deep into the final negotiations of the sale?
- Regardless of the answer to #1, how could someone within Duane Reade, a company recently complimented for its customer facing marketing efforts, have been lulled into allowing the “your old points don’t count” feature to come into play? Have a look at the message on the graphic here “The old card works (just not in our store). I clicked everywhere I could on the program website and could not find an explanation for this disconcerting message.
- Could Duane Reade have found a better way to communicate the program transition to its members? Why, oh why, does business place the burden of communications on cashiers at the point of sale? It’s an unfair burden on the position with highest turnover in the store and one that does not serve the corporation well.
- Walgreens has a lightly advertised rewards program “Walgreens Rewards“. Will they do away with this program or will they launch something that allows consumers to earn and accumulate points at any Walgreens-owned property?
Some answers are easier to guess at than others.
The announcement by Walgreens regarding Duane Reade mentioned specifically that it would allow the chain to continue to operate under its own name. That said, launching an upgraded program might have seemed business as usual to Duane Reade marketers. Needless to say, there needs to be some damage control from Duane Reade as an operational faux pas of this nature intensifies consumer ire towards consumer rewards programs.
The most interesting question to speculate about has to do with the future of the Walgreens customer strategy.
The current program “Walgreens Rewards” offers rewards on specified products purchased using a Walgreens Card®. The value proposition does not seem clear or particularly strong and there are many product restrictions which limit earning power for members. One strong program feature is the ability to pass the Walgreens Card at the point-of-sale and instantly be credited for rewards.
As far the new Duane Reade program itself, it seems that the earning power from its predecessor has been reduced. The current offer is for customers to spend $250 to receive a $5 cash back offer. This equates to a 2% earn rate, less than the 5% offered by the previous plan according to the WSJ.
FlexRewards™ offers members lower prices on many items and rewards that can be spent on the spot at point-of-sale or can be saved up for larger rewards. Clumsy paper coupons which could be easily lost by consumers have been traded in for electronic points tracking online. Points issued never expire provided a purchase is made every 26 weeks, a generous definition of an “active” customer in the pharmacy space to be sure.
According to Joe Jackman, Acting Chief Marketing Officer, Duane Reade “customers had spoken and wanted more easily attainable rewards”, adding “half of customers in our old program didn’t even redeem their reward coupons because there were too many restrictions”.
It certainly seems that the strategy cooked up by Duane Reade is headed in the right direction and had increased customer engagement as a key objective. The company even introduced a new “Super Saver” tier to reward higher spending customers at a faster pace and with more flexible rewards.
Contrast the two programs at Walgreens and Duane Reade and you should not be surprised to see either the Duane Reade program extended (in structure if not by name) to include Walgreens stores or some new program from Walgreens that would at least improve upon the current offer. The more inclusive, the better as customers will respond well to a program that allows points accumulation at both Duane Reade and Walgreens stores.
Lessons:
1. Execution nearly trumps strategy these days. My old boss, Pat LaPointe, coined the phrase “Technology enables, but imagination wins”. Based on what clients are telling me today, I have modified the mantra this way: “Technology enables, imagination wins, but flawless execution will save your job!”.
2. Expectations for Customer Communication are higher than ever. Consumers have access to more information than ever and expect clear, transparent messaging. Anything less sets you up for what Ms. Kaufman called “Loyalty Betrayal”.
3. Staff training and incentives will trigger better program results. Turnover at the point-of-sale is difficult to control but an effort can be made to provide front line personnel with sales aids, inexpensive “take-me’s” and similar POS material to make the job easier for overburdened staff. Offering incentives for those that learn and deliver the message would help also.
