In a conference call with stock analysts yesterday to discuss quarterly earnings, Borders CEO Ron Marshall said that the perks offered to Borders Rewards members have not been very rewarding to the company, and that changes were being made.
“The nearly 32 million members of our Borders Rewards loyalty program increasingly [sic] we have relied on discount offers to entice them to shop and over time these offers have lost effectiveness. We are focused now on improving gross margins through being smarter and controlling promotional offers and in store discounts.
In fact, we did a test late last year removing many of the ongoing in store discounts in a control group of stores. Customers didn’t miss these discounts and we saw an appreciable up tick in margin. Now we’ve rolled this out to all stores and are pleased with the results. We’re also researching and experimenting with a variety of offer types and combinations of offers to be more effective and hit the right sales margin balance in our future promotional spending.”
He went on to say that they predicted “continued negative sales trends due to the economy,” which I’m sure is impacting their decision to scale back on promotions. He talked about “moving beyond preaching to the choir,” and reaching out to bring in new customers.
What the hell good’s a rewards program with no rewards? The best answer Borders could muster was provided by Mark Bierly, the company’s CFO, who said that they had categorized customers into 18 segments and that “we want to get to being able to communicate more on the content side, talk about authors that they may like as well as other value or content messages versus just a discount.” Yay! My reward is that you’re going to try to figure out what I like and then sell me that!
Marshall followed up by saying that they would provide deep discounts for in-store purchases on occasions where they wanted to drive traffic because of in-store activities going on at the time. (Lure us in with a coupon to try to sell us other stuff, basically.)
Okay, I’m going to go off on a rant here.
The economy is troubled, yeah yeah, we all know that. People are thinking twice before they spend money. Do you want to tick off 32 million people by reducing the benefits in your rewards program right now? What do you think the net effect of THAT is going to be to your bottom line?
I’m a member of Borders Rewards, and it has certainly not escaped me that those member discount coupons are getting more rare. You know what that’s made me do? Seek out cheaper alternatives. If you value my continued business, you’re not going to eliminate the benefits of your program right now — you’re going to supplement them in some way. It can be the soft-sell you suggest, in sticking me in a segment and marketing directly to me with touchy-feely “We saw you bought this book, maybe you’d like this author, too” kinda crap. If your margins are suffering, work on increasing our order size. But taking things away when consumers are already pinched for extra spending money to blow on non-necessities like books is going to do one thing and one thing only: create DISLOYALTY.
Take what happened last week with Royal Caribbean. They announced they were reducing the benefits offered to members of its loyalty program, the Crown & Anchor Society (of which I am a member, of course). Royal Caribbean emailed to tell Diamond level members (those with at least 10 cruises on RCL) that they were no longer welcome in the ships’ Concierge Lounge, a perk now reserved only for Diamond Plus level members (those with 15 or more cruises on RCL). People are TICKED OFF — among other things, the Concierge Lounge offers free nightly cocktails. Hey, you don’t mess with people’s free booze.
RCL said that this was due to capacity problems, with so many members at the Diamond level now. Yeah, I’m sure it has to do with that, but not because it’s standing room only at the Concierge Lounge — it’s because it costs a lot of money to give all those people free drinks. Duh.
Like the situation with Borders Rewards, though, this is the WORST time for a company that sells non-necessities to be cutting back on perks. Members of the Royal Caribbean forum on CruiseCritic.com have posted over 2,200 responses in under a week to this post discussing the changes. To say that they’re in an uproar would be an understatement.
Borders, Royal Caribbean, and any other companies considering cutting back on your rewards program benefits, listen up: You need me a LOT more than I need you. Asking for my loyalty while taking away my perks is doing one thing and one thing only: sending me to your competition. Give it some thought before you make any changes. Hell hath no fury like a loyalty program member scorned.
Many thanks to SeekingAlpha for the transcript of the Borders call.
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Just as an aside — InternetRetailer.com notes that the current Borders Rewards membership of 32 million is an increase of 23% over the reported membership just one year ago, just before Borders.com was relaunched. (Prior to late May 2008, Borders only sold online through its affiliation with Amazon.)
How active these members are in the program is another matter altogether. There’s no need for people to cancel their accounts in a free program, but with benefits being reduced, it’s doubtful that members are becoming MORE loyal to Borders.
Here’s that article from InternetRetailer.com:
http://www.internetretailer.com/dailyNews.asp?id=30360