The cost of loyalty: Why brands should be cautious about changes in rewards programs

Increasing the cost to save can have several effects.

As early as January, the international coffee brand Starbucks decided to change its rewards program, doubling what it takes for customers to be rewarded for their loyalty.

The chain’s loyalty program allows customers who continuously buy from them to earn stars which are then used to redeem products. Starbucks increased the redemption cost for its base coffee to 100 stars from the previous 50 stars. This means 200 stars will get customers a latte or a Frappuccino or a hot breakfast item, up from 150 stars.

Meanwhile, the coffee chain previously raised the prices of its coffee in October 2021 and again in January 2022, with more hikes expected this year. This is reminiscent of what Dunkin’ Donuts did after it increased the cost of redeeming a free latte and even went as far as removing its free birthday drinks reward.

Another brand that followed in its footsteps and made headlines is the friend chicken brand Chik-fil-A. An email from the restaurant chain announced the points value “for some rewards will increase.” The brand however added that it will also be adding changes based on feedback from customers and would soon see entire meals and more menu items in its rewards store.

The cost of loyalty

In a report published by the Bank of America, Starbucks’ move will insulate the company in the event of a macro slowdown.

But what could be the impact of increasing reward costs?

In a chat with QSR Media, Taylor Blackburn, a personal finance specialist at Finder, said increasing the cost of redeeming rewards is ostensibly making accumulated points worth less for customers.

"If the offer was to buy nine coffees and get the 10th one free, this is like saying – how about buy 18 coffees and get the 19th one free? A certain amount of inflation relative to rewards is fair in some circumstances, but this move underscores the lever that companies can pull to control incentives,” Taylor said. Taylor adds that this also sends a message to consumers that prices and rewards for customer loyalty are all subject to change.

“Many customers are oblivious to reward points while others plan their budget around them. For those who are the most invested – especially if they've been saving up points for a larger prize – this change can feel like having the rug pulled out from under you,” Taylor said.

Meanwhile, Future Food Insights founder Gavin Rothwell has a different opinion. Rothwell said what he sees is a growing number of operators putting more focus on developing loyalty and then stretching the potential of what this can deliver.

“Traditionally, personalised loyalty is more something associated with major grocery retailers, but actually, from the US for example, I see initiatives from convenience/ food-to-go hybrids like Foxtrot and Choice, as well as from purer food-to-go / QSRs like Sweetgreen, that is very much moving in this direction. The idea as well of tiered loyalty is growing in our sector. Starbucks has had this for some time, but Foxtrot for example is developing this as well,” Gavin said.

A rewarding rewards program

Ideally, loyalty programs are not only created to show appreciation and encourage customers to come back but to help restaurants increase their profits.

In a survey published in the Global Customer Loyalty Report 2023 by loyalty tech expert Antavo, 88.5% of restaurant owners and operators believe customer loyalty will help them overcome the inflation crisis and potential recession.

One such example is the Asian QSR brand Motto Motto’s loyalty program.

The MyMotto Membership platform is designed to target and acquire new guests, increase the frequency of visitation, increase sales per guest and reward loyal guests. The platform also has several uses aside from earning points and redeeming rewards such as ordering ahead in their local Motto Motto branch, promotional announcements, and exclusive in-app offers.

Talking with QSR Media, Matt Fickling, Chief Operating Officer of Motto Motto Group said that they monitor the cost of loyalty point redemption and its impact on the company’s bottom line through their sophisticated data ecosystem, which includes systems such as our Point of Sale, Inventory Software, Scheduling Software, loyalty and more. 

“Our data analytics and reporting strategy involves using our power BI reporting platform named SOKUDO, which means ‘velocity’ in Japanese. I launched this at the Group a short time after our MyMotto Membership platform,” Matt said.

With SOKUDO, Motto Motto can track each MyMotto benefit on a daily, weekly, and monthly basis to see how it contributes as a discount at the brand level and how it has contributed to the fast-food chain’s top-line sales. 

“We also have a whole section on membership within SOKUDO, which allows us to analyse sales, new member acquisitions, and member visits and sales. By analysing the data from our MyMotto Membership program through SOKUDO, we can deep dive into discounts and the value the program delivers, allowing us to optimize our loyalty program to ensure that it remains a viable and profitable part of our business while providing our customers with an exceptional experience,” Matt said.

In addition to their data ecosystem and power BI reporting platform, Matt said they also have stock and COGS (cost of goods sold) reporting on a weekly and monthly basis to manage our ACOGS performance and any food cost variances by the gram and ml to ensure stock costs are within their unit model expectations. 

The MyMotto Membership program makes up around 10.5% of the total revenue of Motto Motto restaurants.

“Despite having over 10% of sales driven by the MyMotto Membership program, we are still able to maintain a firm grip on our food cost variances and keep our ACOS performance in check, even after points redemptions and offers. Of course, there is more that goes into this – like pricing strategy and our procurement strategy.  Our commitment to continuously improving our data analytics and reporting capabilities enables us to make informed decisions and optimize our operations for maximum profitability. Ultimately, our business is a sum of all its parts and I have designed the program to enhance the performance of our unit model and network model – not eat into our Owner Operator profit,” Matt explained