In 2014, Boloco, a New England chain of 11 burrito joints, moved to a mobile-only rewards program. Company executives say they intended the switch as a tech-savvy upgrade for customers. But it was also a cost-saving strategy, as the company tried to reduce the discounts it was giving out. Now burrito fans would receive $2.50 for every $50 spent--instead of what had once been a free burrito at that threshold.

"We gave our tens of thousands of loyalty-card users just 30 days to make the switch, and they revolted," says co-founder and CEO John Pepper. Boloco's blog was inundated with angry comments, and the brand was raked over the coals on social media. Once-loyal customers swore off the chain indefinitely. "The goal had been to reduce the discounts, and we accomplished that--along with sales and profits," jokes Pepper, who had reinstated the old rewards program by early 2016.

Give Them What They Want
Change for change's sake is a waste of time. Make sure any tweak to your rewards program still meets a customer's desire ...
71%
of loyalty program members want rewards that aren't available to everyone--yet fewer than half of programs offer such special offers.
69%
of consumers are more likely to use a retailer's loyalty program if they can store the rewards on their smartphone.
79%
of loyalty program participants want to have a choice in what they can redeem points for.
68%
of female and 60% of male loyalty program members are interested in earning rewards for nonpurchase activities, such as mentioning the brand on social media or checking in to a store's location.
60%
say a tiered program--with unique rewards for customers who achieve certain milestones, like money spent or friends referred--is appealing.
Sources: Forrester, Nielsen, Bond, Urban Airship

Boloco is hardly the only company that's encountered the dangers of meddling with customer loyalty programs, which have been around since at least the 1930s, according to David Robinson, a marketing lecturer at University of California, Berkeley. He points to the airline industry, where rewards programs are often in flux depending on the economy and passenger volume. "Everyone gives points, then double points, then triple points--then the whole thing collapses and starts again," he says.

But rewards reinvention can be met with plenty of backlash. Last year, after Starbucks announced it would change its loyalty program, caffeine fiends took to social media and threatened to get their fix elsewhere. The stock dipped and, according to one survey, brand perception nosedived by 50 percent. And last year, both Staples and JPMorgan Chase agreed to pay out $2 million to settle customer lawsuits over rewards complaints.

The backlash can be even more dire for smaller companies: Last summer, Four Corners Tavern Group, a collection of 11 Chicago bars and restaurants, was hit by a class-action lawsuit for an unspecified amount, alleging that many customers were left hanging with no way to redeem their old credits after the company moved to a new system.

So are you stuck with whatever rewards system you start with ... forever? Nope. Founders and rewards experts share the best ways to make a change--without infuriating your customers.

Avoid Surprises

Break the news of a program change well before your current program expires, to give customers ample time to redeem their current points, says Sunil Saha, co-founder and CEO of Perkville, an Oakland, California-based rewards platform that works with many small businesses in the health and wellness industry. Don't just hit Send on an email and consider your job done. Train employees to mention it at the register, include reminders in the company e-newsletter, and share the info on your site and social channels. "As a small business, your customer service is everything," says Anne Pezalla, co-owner of Oak Park, Illinois, retailer Lively Athletics, which last year switched its third-party rewards provider.

Highlight the Good

If you want to cut back on what you're spending on rewards, make sure your new system has some advantages for customers. For example, give customers more points for mentioning your business on social media. Or, if a Perkville client needs to scale back, "we might advise it to reduce points for a loyalty member checking into the gym but to increase points for a referral," says Saha.

Proactively Combat Complaints

Thomas Fisher, founder and CEO of Chicago e-cigarette shop Cloud Vapor Lounge, informed his customers 60 days before he switched from one third-party loyalty platform to another. He also sent several reminders closer to the expiration date. "We were thoughtful about giving notice, but people still came in who were oblivious," he says. Rather than argue with enthusiastic patrons, Fisher's staff gave carryover points to anyone annoyed by the switch. "If you're going to make changes, you have to empower your staff to make decisions to keep customers happy," he says.

Start With the Right Rewards

Whatever changes you make to an existing loyalty program, you'll likely have at least a few miffed customers on your hands. The easiest way to avoid that? Don't make changes. Pick a program you can live with long term. When business owners ask rewards platform Perkville to help them goose sales by offering big rewards, co-founder Sunil Saha warns them to think twice.

"We frequently see businesses want to be aggressive and give out really rich rewards with a new program," he says. "But that means you'll have to reduce the value down the line and run the risk of upsetting people."

If offering generous monetary rewards will obliterate your margin, try weaving in nonfinancial perks--especially memorable ones. Some fitness studios offer free personal training sessions or classes, while restaurants and other food businesses might allow their most loyal customers to create new menu items. For example, Chicago-based rewards platform Belly works with a hot dog shop that lets its most loyal customers permanently add new creations to its menu.

"Experiential rewards are crucial when you're trying to differentiate yourself," says Dan Gloede, Belly's CEO.

FROM THE MAY 2017 ISSUE OF INC. MAGAZINE