American wallets are stacked with a number of loyalty program cards. Be it a bookstore, or a coffee shop or a shoe store or a medical store, companies want to track your purchases. Until recently, I have never stopped to think about how different the programs are. The thought-process started from a discussion about the Barnes and Noble’s loyalty program I had with an executive.
B&N loyalty program is a pay to play scheme, i.e., you pay an annual fee of some $25 and get 10% discount on purchases (I don’t remember the exact numbers). So, essentially, if you spent more than $250 per year, you are better off. B&N has designed it such that even if you did not have your card handy, the cashier will be able to give you discounts because he/she only requires your phone number. They have made it easy because it relieves me from carrying around the loyalty card. The cashiers do not bother to check any form of id either — I think it is their company policy. The question that struck me was: would the patrons be freely sharing the card, or would they care about the company and not share it? I own a B&N card but I have never shared it with anyone (except for my wife, of course). But I was reasonably sure that these cards are shared by others. Unsurprisingly, I found a number of people who shared their cards. They often referred to the card as a “discount” card rather than a “loyalty” card. The adjective that they used possibly describes how they instinctually related to the card.
B&N did not change the existing processes but started gamifying the loyalty program and rewarded people based on how extensively they used the loyalty program cards. I would expect the perverse incentives to more likely kick in that could lead to worse outcomes for the company. I don’t have any measure of how successful this gamification venture was but I had an opportunity to chat with a local B&N store cashier soon after their roll out. Apparently, on the weekend before my visit, a customer generously shared the loyalty card details — i.e., her phone number — so that everyone in the line behind her could get discounts also. Perhaps, the customer did so to win in the gamified engagement.
The question from a “design for instinct” standpoint is: how would you change B&N’s loyalty program so that it still offers the benefit of its customers not carrying the card or id but at the same time limit free-riding?
A colleague of mine, Mohit Tawarmalani, and I discussed this issue and we came up with the following answer. Anytime someone uses the phone number in order to take advantage of the reward, why not just charge the customer full amount (without discount) but keep track of the discount amount separately? The only way someone can redeem the discounts is by showing some form of ID or by showing the loyalty program card. This simple change will naturally limit the use of shared cards.