I am surprised. I’m not surprised that they’re investing in a membership to drive greater engagement among their existing customers.
They saw a big drop in net income in the first quarter of 2020 (down 54.7% to $14.4 million). In this new Covid-19 reality, Wendy’s needs to build new consumer behaviors, such as mobile orders and increased drive-thru activity. They’re also late to the party in terms of being able to track individual customer behavior, and memberships drive great analytics.
But I am surprised that they’re going with a #loyaltypoints program when it seems like everyone else is moving toward more of a premium, paid, loyalty program (think Amazon Prime, Costco Wholesale but also more recent entrants like Restoration Hardware‘s RH Member program or CVS Health‘s Carepass.)
Over the past few years, there has been a burst of innovation around business models that optimize customer engagement and loyalty. Many of these models include subscription pricing. For businesses that are mostly transactional and unpredictable in nature, like retail, hospitality, fast food, and travel, the free points-based loyalty programs had been the norm, but even these industries are moving to new kinds of membership models.
Many have been inspired by Amazon, CVS, Costco and others, whose memberships go beyond financial incentives for frequency and depth of purchase. These new paid programs focus on improving customer experience, providing emotional connection, and expanding the range of benefits. Some of the features they have offered include free shipping, access to a dedicated concierge or advisor, insider “status” and permanent discounts.
These organizations use paid memberships to help their best customers achieve their goals, and reduce the ongoing problems they face, deepening relationships with key segments through more than discounts. For example, in the case of Restoration Hardware, I don’t go there because I want a sofa–I go because I want my house to look great and feel comfortable. So while a sofa is helpful, there is room for the company to layer in other (non-furniture) services and products that I will need, such as the ability to borrow fabric swatches before committing to a purchase or access to a decorator familiar with the product line who can also suggest layout and products not available at the store.
A great example of this is Burger King. They’re in the same space as Wendy’s but took a different approach. For $5/month, members get unlimited coffee. This model is interesting for several reasons. First, the member needs to proactively pay to join, meaning it’s not just another loyalty or punch card in their wallet. The fact that someone has invested in this membership impacts future decisions, as there’s a sunk cost. Coffee is more of a morning drink, which is likely to help Burger King’s breakfast business and to compete against Starbucks and other coffee houses. For many people, coffee is an every day habit, and likely to make Burger King a habit as well. And we all know that when we stop in for a coffee, it can be tempting to buy some food to go with it and/or to bring a friend along!
It’s important to note that the features and benefits of these premium loyalty programs differ by objective and by company. The benefits, experiences, and emotional connection to each of these brands are highly varied and customized to the organization. This is not about “checking the box”. Burger King’s approach focuses on breakfast and building a new habit. Wendy’s could choose to focus on families or on vegetarians. However, the goal is the same—to better align the goals of a particular customer segment with those of the organization, and build trusted relationships and preference along the way.
Free memberships do have a place. Free and premium models can live together–hence “freemium”. Free offerings are great ways to build a light connection with a broad range of customers, and to learn about their behaviors and preferences. It’s an excellent starting point for many organizations. Maybe that’s what Wendy’s is doing.
However, I would have expected Wendy’s to take a bolder approach.
According to Tom Caporaso, CEO of Clarus Commerce, a company focused on the loyalty space, “Wendy’s used to only compete with a few fast-food chains, but now with delivery services working with a larger pool of companies, their competition has exploded. By not offering a premium loyalty program with enhanced benefits and going with more of a “me too” traditional points program, Wendy’s is missing out on a big opportunity to differentiate itself from competitors.”
My guess is that they will evolve the offering, and layer in deeper benefits for specific segments to support their customers on their journey toward engagement with the brand. With so much changing in the restaurant and food landscape more generally, Wendy’s has a chance to create something really special for the people who love their Spicy Nuggs, Baconators, and Frosty-ccinos.