Can a loyalty program work if it doesn’t exhibit loyalty itself? That’s the question observers are asking about the Australian grocery chain Woolworths, which has substantially altered the terms and conditions for its customer loyalty program for the third time in less than a year.

Historically, the loyalty program was relatively straightforward: Shoppers who collected points by purchasing at the store could earn frequent flyer points on Australia’s Quantas Airways, then redeem them for flight vouchers or upgrades through the airline. But in October of last year, Woolworths decided to try something new and keep the rewards in house, by introducing Woolworths Dollars. However, shoppers could only earn the Dollars on selected items, and then they could only redeem them for discounts on products sold in Woolworths stores. Faced with stringent consumer backlash, especially on social media, Woolworths quickly backtracked and promised that shoppers could trade in their Dollars for frequent flyer points too, at an exchange rate of 10 Woolworths Dollars for 870 Quantas points.

But customer dissatisfaction has already set in, such that a recent survey showed that nearly 60 percent of the respondents did not believe the loyalty program offered good value. So Woolworths decided to try again, this time introducing Woolworths Points. In this case, each dollar spent on anything in the store earns customers a point. Once they reach certain thresholds, shoppers can trade in those points for either in-store discounts or additional Quantas points. It also has expanded the qualifying purchase locations, to include two partners: a gas station chain and a liquor retailer.

With this revision, the program slightly shifts what it is rewarding. Rather than encouraging people to make large purchases, the Points program emphasizes the benefits of accumulating a lot of spending with the grocery store chain. In this sense, different customers might benefit more or less from the revised loyalty program.

Discussion Question:

1. What was wrong with Woolworth’s loyalty program?
2. Do you believe the new loyalty program will be successful? Why or why not?

 Source: Matthew Stern, Retail Wire, August 23, 2016