With the launch of DD perks, Dunkin’ Donuts set out to fix customer retention. Does the program succeed?

With recent announcements about new strategic moves for DD Perks, time to check in on the status of the widely-covered Dunkin’ Donuts loyalty program. Here’s what’s working, what’s not, and key opportunities for the company going forward.

Background on DD Perks

Dunkin’ Donuts announced its new loyalty program DD Perks in at the very end of January in 2014. Given the size of the brand, industry, and nature of the customer base, the company set out to design a program that would reward customers in the right way.

According to John Costello, Dunkin’ Brands President, Global Marketing and Innovation, Dunkin’ wanted to reward loyal guests in a fast and convenient manner, and provide an overall superior customer experience. Very similar to the goals that Whole Foods had in mind when launching its own loyalty program.

Interestingly, Dunkin chose a points-based system. For every $1 customers spend, they receive 5 points. Every 200 points, customers receive a free medium beverage. So, some quick math tells us that Dunkin’ wanted to reward customers for every $40 spent by giving them ~$2 back (a DD medium coffee retails for $1.80) – essentially a 5% discount. Assuming customers only buy a coffee and donut on average, Dunkin’ wants to reward customers every 10-20 visits they make to a Dunkin’ location.

Considering the reward value and the reward threshold, Dunkin’ Donuts certainly seems focused on high-frequency customers as the basis for its loyalty program. A program built to increase average spend would have much higher dollar thresholds.

Nuances of the DD Perks Program

In addition to the basic points structure, Dunkin’ also included features to drive more sign-ups. Customers get a free reward when they join and on their birthday, as well as other fast rewards accumulation incentives and bonus points.

From an implementation perspective, Dunkin’ chose a program very similar to Starbucks (not really a surprise given the success of the Starbucks program). Customers must pay with a registered DD card at participating locations, which means customers have to add value to a DD-issued payment card. Fortunately, customers can connect their DD cards to their phone, which enables mobile payments and gets more customers (hopefully) to download the Dunkin’ mobile app.

One last benefit of the program is that customers can share rewards with friends, which is high on many customers’ lists as a desirable loyalty program feature.

Recent Developments For the Dunkin’ Donuts Loyalty Program

In late 2014, with the onset of Apple Pay, Dunkin announced a move into new loyalty technologies. For one, Dunkin’ wants to enable mobile ordering through its app. Thus, customers on their way to Dunkin’ can get their order in quicker, and Dunkin’ can ostensibly speed up its line. In addition, Dunkin’ also announced interest in Apple Pay as a way to make payments easier for consumers (NB – even though Starbucks says that it works with Apple Pay, you can only load more value onto your Starbucks loyalty card with Apple Pay – there’s no way to actually pay with Apple Pay. Dunkin’ seems like it would have to follow the same implementation).

Within a few weeks of the Pats winning the Super Bowl, Dunkin’ Donuts announced a partnership with the New England Patriots. Essentially, DD Perks members can earn 15% on every qualifying Dunkin’ purchase, which they can then credit toward their 2016 season ticket invoice. Interesting considering Dunkin’ just announced the one year anniversary of its loyalty program and the given customer overlap between two representative New England brands.

3 Key Takeaways From the Dunkin’ Donuts Loyalty Program

After 8 months, the DD Perks rewards program had surpassed had surpassed 1.3 million members and 8.6 million consumers had downloaded the DD app. Here’s are three key takeaways for marketers considering how they should implement a loyalty program of their own:

1) Choose whether to impact frequency or spending

Every loyalty program attempts to do one of two things: increase the frequency or spend. The best are those that focus on doing one really well. Dunkin’ shows how to design a program that’s built to get customers to come in more often (even though they aren’t necessarily spending more money).

To find out which one to focus on, measure the contributions of your most valuable customers by monthly revenue. If your most valuable customers (i.e. the ones that spend the most at your business every month) have markedly higher frequency than average, focus on frequency. If average check drives the majority of revenue, focus on that.

Verdict for DD Perks: Win

2) Unify the experience across locations

One piece that Dunkin’ doesn’t manage so well is that the company does not (and probably cannot) offer DD perks at each location. For a brand the size of Dunkin’, the negative impact of not standardizing may be somewhat mitigated. However, for other brands, every location should be a program participant.

Reason being – there’s too much valuable insight that will be overlooked if some locations don’t participate. For example, not knowing whether customers shop at one or multiple locations significantly weakens one’s ability to calculate true brand loyalty (i.e. customers may be visiting out of convenience, not loyalty). Not being able to compare program success across locations inhibits a brand from identifying and sharing best practices that dramatically increase overall revenue.

For brands without franchises, standardizing across locations is made much simpler, as there are fewer decision makers. But significant revenue is at stake for those companies that cannot standardize, so brands with franchises should double their efforts to coordinate across the entire location portfolio (it is one brand, after all).

Verdict for DD Perks: Area For Improvement

3) Make It Simple

Customers demand fewer steps at checkout, not more. Dunkin’ seems to have done a solid job of making the value proposition fairly straightforward – 200 points, get a medium coffee. Sign up – get a coffee. It’s your birthday – get a coffee.

However, point systems run the risk of being overdone. Forcing customers to keep track of tons of different reward options (e.g. 10 points for X, 100 points for Y, 500 points for Z, etc.) causes program fatigue to set in. Make sure to communicate with customers throughout the loyalty program process so that they know exactly where they stand and do not get confused by the process. Also – for those brands that want to offer higher-end rewards, create a VIP program. By giving high-value customers a unique experience, they will be more inclined to continue spending at elevated levels.

On the merchant side, note that a branded payment card + branded app loyalty program is ENORMOUSLY expensive. From an implementation standpoint, the type of program that Dunkin’ has chosen does not embody the “keep it simple” adage. But again, it’s Dunkin’ Donuts and the company has the scale, manpower, and financial resources needed to properly deploy such an intricate implementation.

All in all, jury still out. For starters, Dunkin’ has done a solid job of making its program simple. As the company keeps adding nuances, this is one to keep on the radar – especially as it thinks about moving to less loyal markets.