For many of us who hail from the Northeast, Dunkin’ Donuts is regarded as a sacred regional treasure. Just as Californians can often be found proselytizing in the name of In-N-Out Burger, and those in the South tend to light up when the name Waffle House is mentioned, Northeasterners delight in proclaiming that the Boston-based coffee-and-donut chain “began here”. In fact, it’s much like watching a proud parent talk about their child after the kid has finally made it big.
But while love between kin is often unconditional, that’s not to say there are never bumps in the road. And such is the case for our beloved Dunkin’ these days, as the company has recently made waves with its loyal customers for all the wrong reasons.
What egregious action has Dunkin’ taken to upset the proverbial donut cart? The brand has revised its nearly decade-old loyalty program, increasing the number of points needed to earn loyalty freebies—and attracting the ire of thousands of faithful Dunkinites in the process. In fact, if you follow a certain Dunkin’ subreddit group (nearly 18,000 strong, believe it or not), the move has been nothing short of a PR disaster.
So why did Dunkin’ feel the need to “update” its traditional loyalty program? According to a press release, the new structure improves on “flexibility, variety, and recognition.” However, according to customers, it also makes it harder and costlier now to earn a coveted free coffee. So what gives? What appears to be left unsaid by the popular (or at this time, not-so-popular) brand is that costs are higher now than they have been for some time. This is namely the result of that dirty word that’s been making the rounds on news channels and across airwaves for the better part of the past year: inflation.
Inflation and Rewards
First, why is inflation rearing its ugly head right now? There’s never a simple answer to the question of inflation, but I think our friends over at Prokeep do a good job of providing context on the issue. They highlight the supply-demand dynamics that cause inflation to snowball, and they do a deep dive into what they consider to be the three key drivers currently at play: COVID-19, the war in Ukraine, and the housing crisis.
But rather than repeat what’s already been said, I want to narrow the focus here on the impact that inflation can have on rewards and incentive programs. There are a few dynamic effects on both the participant and organizational sides of the equation, so let’s take a look at these one by one.
1) Time to use those points
Loyalty program members are going to be more likely to use their points and redeem for those rewards because of inflation. If the sponsoring organization doesn’t want to follow in Dunkin’s footsteps, and decides to keep the redemption thresholds the same, then participants will wisely see that the points they’ve already earned are now more valuable than ever. In this case, organizations can expect to see an increase in redemptions in the coming months.
This is bearing out in real-time, as a recent Bankrate survey reveals that 22% of travelers expect to use accumulated points, miles, or other loyalty program rewards to fund their next vacation. Especially when it comes to travel rewards, this would seem to make sense, as the past two years likely have led to an accumulation of points and a lack of spending on account of the pandemic. Furthermore, if costs are going up, people may be looking for alternative ways to fund that non-essential (but highly needed) trip or vacation.
2) If Cash is Trash, Look for the Buried Treasure
At the moment, employers find themselves in a bit of a bind. In the current environment it’s becoming ever-more challenging to find good workers to fill key roles, as unemployment is low and yet job openings remain stubbornly high. Obviously, this disparity has created an increase in demand for labor, and as a result, the cost of talent is higher than in past years—and will likely continue to be.
Now, add to this the fact that employers have been trying to keep up with this demand by increasing wages—and cutting into margins in the process. However, with inflation running so hot, it seems that this battle is an uphill one at best, as wage growth continues to trail rising costs of living. So, if inflation continues to eat into the value of a dollar today, and wages continue to fall short of rising costs, it makes sense that both workers and employers may be on the lookout for other means of finding and manufacturing value, respectively.
Enter non-cash rewards. On the one hand, non-cash rewards such as merchandise, experiences, and travel are likely to be more favorably received as compensation versus cash or cash-like rewards, a sentiment echoed by the Incentive Research Foundation (IRF). That’s because employees, customers, channel partners, and other program participants are well aware of the depreciating value of cash. On the flip side, organizations may find that leaning into these rewards programs can be an effective way of keeping their participants satisfied without having to cut into margins even more with further wage increases.
3) To Move or Not to Move the Goalposts?
There’s an additional wrinkle here when it comes to inflation and incentive programs. Consider the Dunkin’ dilemma. If the cost of a traditional cup of coffee goes up, and people continue to buy it, then that’s great—they’re subsidizing the rising costs in the supply chain and helping Dunkin’ avoid margin loss. However, if these same customers are spending more, that also means they’re earning more points, which means it’s easier for them to earn that free cup of coffee, introducing yet another pressure point on margins. Hence Dunkin’s desire to “move the goalposts” on their program thresholds.
Let’s look at it another way. If you have a $100k goal threshold, in 2019 it may have taken you 4 jobs, or 4 sales to hit that goal. But now, because costs are rising, you’re able to hit that goal with just 3 jobs/sales, which means you’re doing less business even though you’re spending/selling the same amount. The devaluing of the dollar runs parallel to the revaluing of your program’s points.
So, the question becomes: should you follow Dunkin’s lead and move the goalposts on your program’s rewards structure? Or do you leave it as is, anticipating that inflation ends up being (relatively) transitory, and in the meantime, hope that your participants outperform their previous production—while resigning yourself to eating the added costs if they don’t?
Solutions
Perhaps there’s a third door. Now, of course nobody wants to continue having uncomfortable conversations about price increases. And I’m sure we’re all tired of hearing the word “unprecedented” used when it comes to describing the current times—even if the truth is, for many businesses, the combination of rising inflation and an incoming recession is creating a perfect storm up and down the supply chain.
But this is all the more reason why we need to be looking for alternative ways to smooth out the increasingly rough edges created by the current environment. Incentive programs have always been one of the great mitigators of economic headwinds, but as we’ve learned, even these are not immune from macro events if handled incorrectly.
So, we have to be strategic. We can certainly “update” the program’s existing goals, but as with Dunkin’, savvy customers may not take kindly to this change. Another solution is to work this into a “goal choice” rewards structure, whereby program participants have the opportunity to choose their own goals from a tiered selection that you provide. These can be modified in the same way that a regular rewards structure might be, but the added impression of choice may help to smooth out any negative perception that might develop. On the other hand, if you’re not already implementing goal choice, maybe now is a good time to consider starting.
Another way to think strategically about your incentive program is to reconsider the time frames you’re using. With so much uncertainty baked into 12- and 18-month projections, it could be challenging to identify a reliable base case for how much something will cost to buy, sell, or move in the future. In this case, it might be a good idea to shorten your program time frames. With a more limited window, you could help to limit that uncertainty. Short-term promotions can also work to hedge against this uncertainty.
Lastly, it might seem counterintuitive, but if you have existing programs, now is the time to double-down on personalization and integrated marketing. Those businesses that can find even more ways personalize their goal structures and reward offerings will be the ones who are most insulated from external factors. This is perhaps the number one way to “future-proof” your program.
Conclusion
In the end, it’s never been more important to be realistic with your growth goals. While it may be true that “a rising tide lifts all boats”, unfortunately the opposite can also be true if you’re not prepared, or if your expectations are misaligned with the economic reality. Perhaps that’s why Warren Buffet says about economic down-cycles, “It’s only when the tide goes out that you learn who has been swimming naked.” However, with the right incentive strategy and the right approach to your program, you may just be able to keep from losing your shirt.
