Monday 14 December 2015

5 Lessons to learn from Woolworths loyalty meltdown


What a difference a month makes in the world of loyalty.

Back in October, Australian grocery retailer Woolworths announced the relaunch of their loyalty program and its transformation from the points based “Everyday Rewards” scheme to a new cash back scheme called “Woolworths Rewards”.

The press latched on the the headline grabbing earn rates with the Daily Telegraph reporting that "typical members spending $108 per week will earn $10 off their shopping in just over seven weeks” and citing Woolworths research that stated that "68 per cent of customers wanted money off their shopping compared with just nine per cent who preferred a traditional points-based scheme"

The Sydney Morning Herald was reporting that “a typical shopper will save about $1.25 for every they $100 spend under the new scheme"

Then came the program launch.

Within days, customers were providing their real thoughts about the scheme and they weren't quite as rosey.  Social media was buzzing with customers reportedly saying :-

“As a family we would spend roughly $500 a week with you, the frequent flyer points would cover a couple of trips to Brisbane a year to see family and specialists.  Please don’t tell me this new system is going to benefit me because it is not true” [Kate Rogers - Twitter]

“Well done Woolies, you are about to lose yet another loyal customer…… your new “rewards” program is rubbish!!!” [Anthea Kinsman - Twitter]

Facebook user Scott Mate posted his thoughts on the scheme and clearly struck a cord as the post went viral on Facebook, attracting over 58,000 likes and over 5,000 shares.  Scott described his experience saying:-

"I've had the new upgraded "REWARDS" for now a few weeks and have earned a whopping accumulation saving of $4.80 on an amount of shopping in excess of $1000.00.... ( previous returns of 80+ dollars.).  Sadly your little orange tag sales items ( That the new card now totally depends on .) just don't cut it, cause they're now less common than hens teeth, unicorn horns and rocking horse poop" 

Not only was this post shared by other Facebook users, but it was then picked up by the media with reporting "Woolworths Rewards card rant goes viral” and the Sydney Morning Herald saying "Don't like: Woolworths Rewards card fails the social media test”.  Scott even got interviewed on the Today program about his feelings on the new Woolies loyalty scheme.



Keen to control the fallout from this, Woolworths are now reportedly looking to re-introduce Qantas frequent flyer points as a reward option and provide more stickered product to give customers a fighting chance of actually earning some value on their shop.  

This could be a very expensive mistake for Woolworths, not only because of the lost customer engagement but also because analysts are estimating that this new scheme could cost up to $500m per year to run compared to an estimated $60m-$80m for the previous scheme.

Despite the obvious challenges this is causing for Woolworths presently, there are actually some interesting lessons to learn from this for loyalty marketers. 

1. You need to deliver on the promise - The Woolworths program launch materials were very slick and they had a great customer proposition.  You can argue as to whether cash back and discounts are as motivating as points, but compared to other schemes in market, the Woolworths proposition was clean and simple with the strap line “Money off your shopping? How refreshingly simple.”.

The issue here though was in the delivery of the scheme and how what the marketers had designed on paper wasn’t being executed in practice operationally.  Customers could only earn cash back on products with an orange sticker but these stickers were hard to find with one article saying:-

A trip to a full-format Woolworths supermarket in Sydney on Sunday found fewer than 20 products marked with orange Woolworths Rewards tickets – well below the 500 products Woolworths claims are participating in the program

Quite literally like “hens teeth, unicorn horns and rocking horse poop” - the scheme failed to deliver on the promise.

2. You need to link customer actions -  I’ve previously written about how to build a better mousetrap when it comes to loyalty - about how a loyalty program needs to tap into reinforcement schedules to create sticky, repeat behaviours.  In this respect, the Woolworths loyalty program falls at the first hurdle.  The most basic reinforcement schedule is that of continuous reinforcement which is defined as the constant delivery of reinforcement for an action; every time a specific action is performed, the subject instantly and always receives a reinforcement.

Due to the nature of the Woolies program design, not every purchase counts and in many cases, not every visit counts.  Customers don’t get that constant reinforcement and so quickly become “extinct” in the scheme.  This is basic loyalty 101 in program design, that customers need to have one action linked to another and in this respect the Woolworths scheme really doesn’t deliver.

3. Good loyalty design is about reducing friction - The point of a loyalty program is to get to know your customers and the point of getting to know your customers is to help reduce friction in the relationship - to make it easier for the customer to do business with you than with your competitors.  For the Woolworths scheme, they’ve actually managed to dial up the friction and make it harder for customers to do business with them.  

By creating a scheme relying on stickered product, Woolworths are making customers search out the deals in-store; they are making the customer work hard to get a reward.  Worse still, the orange loyalty stickers are not the only game in town - Woolworths have a number of product shelf stickers which makes the whole experience even more visually challenging.

4. Rewards need to be emotional, not transactional - Many of the comments from disgruntled Woolies customers talk about the “value” of the reward they had previously such as how the program enabled a "couple of trips to Brisbane a year to see family…”.  This link between their mundane shopping - something that has to be done - and the more emotional and aspirational aspects of visiting family in far flung corners cannot so easily be quantified.

As a recent article from pre-paid card specialist Blackhawk entitled “Want More Customer Loyalty? Let Them Savor Your Rewards”  points out, “as a general rule, cash costs more and does less to motivate consumer behavior than non-cash rewards”.

Wharton marketing professor Xavier Druze, having researched different types of loyalty rewards concludes “You would think that if people were offered money and miles, they would always take the money, but a lot of people want the miles instead. [..] Their feeling is, ‘Money is only money, and if I take money instead of miles, I’ll just use the money to pay a bill.’ There’s nothing special about paying a bill. But when they take frequent-filer miles as a reward instead of cash, they will use them to take trips, and that gives them memories. That makes the miles special."

Within a loyalty program, we’re not looking for the logical choice, we’re looking for the emotional one - the one that connects with the customer.  A reward program needs to feel like a reward and not a discount and needs to tap into the emotional and not the transactional.

5. Need to put the customer at the heart -  The Woolworths scheme is clearly personalised around Woolworths needs and not the customers.  

As there is no "always on” earn mechanic - no continuous reinforcement - the customer must find the products that Woolworths wants them to buy.  These products are personalised to Woolworths needs such as products they want to shift or where the manufacturer is funding the offer and so this means the offer has little to no resonance with the customer.  Sure Woolworths can send individualised offers to a member for specific bonus earn on products they may actually want to buy, but these offers will only work if the customer is bought into the currency in the beginning.

By not putting the customer at the heart of the core scheme, Woolworths have simply lost the customer engagement and worse still, have triggered their ire.


I’m quite sure Woolworths will ride out this storm and the program will evolve into something a little more engaging and a little more rewarding.  However the price Woolworths have paid for poor loyalty design could have a lasting impact on both their brand and customer engagement.



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