Chipotle just released the details of Chiptopia, their customer rewards program. While it's laudable that Chipotle is venturing into the world of customer retention, this program is more "mild" than "hot" when it comes to creating long-term loyalty.
Chipotle is doing the thing they said they'd never do: they've created a customer loyalty program.
In the past, Chipotle’s Chief Creative and Development Officer, Mark Crumpacker, was staunchly anti-rewards, going as far as to say, “We don’t believe the general supposition that loyalty will make less-frequent customers more frequent." However, things changed for the ubiquitous burrito chain after foodborne illness outbreaks ravaged sales — Chipotle recently reported a 30% sales decline, with stock prices falling 36% over the past 6 months.
In an attempt to bolster sales figures — and realizing that their free burrito giveaway didn't do much to accomplish that — Chipotle has built a temporary rewards program that will run from July through September. Chiptopia Summer Rewards uses a combination of plastic cards, QR codes, and complex rewards redemption logic.
See if you can figure this out:
Confused? Me too.
People on the internet tried to make sense of the complex scheme, but failed to provide much clarity.
Here's a video explaining how the loyalty program works:
If we had to summarize their program in one sentence (a great usability test for rewards programs!) it would read something like this: Buy 11, get 3 free, as long as you only buy one per day within 30 days... oh and no alcohol... oh, and there are tiered rewards. Despite the complexity, this is a good deal for people who want free burritos and don't mind carrying an extra card in their wallets. However, a loyalty program should be more than a mass giveaway (which Chipotle already tried, lest we forget). It should be a way to connect with existing customers and build relationships — without impeding the flow of the customer experience.
Wait... is it a plastic card, or an app? When do I scan the QR code?
From a business perspective, there are a few reasons why Chiptopia, as it exists currently, is not optimal.
1. It's your basic, uninspired plastic card-based program.
I believe that plenty of customers will jump through hoops for free burritos (or any free food, for that matter). However, this doesn't mean restaurants should actively create hoops for their customers to jump through.
For every one customer willing to (A.) get a plastic card, (B) register it online when they get home, and (C) carry it around in their wallet at all times, 4 customers will fail to complete this process. That's why plastic card programs have such abysmal retention rates - the data show that only 18% of plastic card-based users remained active after 3 months (vs. 83% for a card-linked loyalty program).
Happy to carry around a monster burrito, NOT stoked about having to carry around this card everywhere I go.
Brands we've worked with have deliberately moved AWAY from plastic cards because of the high cost (creating thousands of plastic cards, integrating with the POS, and paying to analyze your own data), the poor program retention (people take home plastic cards and never register them, forget them at home, etc), and the bad customer experience (making customers carry around a card everywhere). This seems like a huge misstep for a company that prides itself on innovation and experience. Earning rewards should be seamless, easy, and fun — loyalty should be an enhanced experience, not a hindered one.
2. Chiptopia rewards frequent customers, but not necessarily high-spend customers.
Chipotle chose to make their program frequency-based vs. spend-based in order to reward Chipotle enthusiasts, no matter how much they spend. However, there's a reason why Starbucks moved away from this loyalty model: it fails to reward high-spend VIP customers differentially.
Let's do the math: A mother of 3 buys Chipotle for her family twice per week. Her average spend is $50 (5 entrees plus chips), so $100 per week or $400/month. For her loyalty, Chipotle rewards her with one free entree per month.
However, someone who does the bare minimum to get Chiptopia rewards could end up scoring 3 free entrees per month for purchasing 9 entrees @ $8/visit (~$72/month). This means that on average, the customer gets a free entree for every $24 spent, while our high-spend customer has to fork out $400 to get a free burrito.
Chipotle: Is that really the way you want to treat your high spend customers?
3. A 3-month long program is no way to build long-term loyalty
Chipotle is testing this program out during the summer months in order to gather some data on engagement, drive summer sales, and ultimately see if this is something they want to do long-term. However, the whole thing feels like a desperate attempt to drum up revenue numbers for the summer, and doesn't look like an investment in customer loyalty.
True customer loyalty requires long-term investment: it's about trust built over many interactions, and meaningful communication between a customer and a brand. Customers know this inherently, and are more likely to frequent brands with whom the've built a substantial relationship (especially millennials). With the duration of Chiptopia being only three months, Chipotle is essentially admitting that they don't plan on rewarding their customers long-term.
In Chipotle's investor relations press release for Chiptopia, they proclaim "Chiptopia is not your typical rewards program." However, with the use of plastic loyalty cards, complicated redemption schemes, and opaque long-term value, Chipotle seems to have taken all of the major downsides of an old-school, traditional loyalty scheme and rolled them into one experimental program. But hey — at least there's guac.
Hey, you! We published “6 Critical Stats for Customer Loyalty," a study designed to help merchants better understand customer behavior and make more money with customer loyalty.
We dug through more than 20 million transactions to understand how customers make decisions... and we're making it available to Thanx Blog readers for free. Check out the eBook here:
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PS: still reading? were you just trying to figure out how the Chiptopia Rewards Program works? Here's my breakdown:
1. There are three levels: mild, medium, and hot.
2. Customers start earning rewards by picking up a plastic card at their local Chipotle. They use that card, in addition to their normal form of payment, whenever they purchase Chipotle for the next three months.
3. After four visits, which must happen within the same month and must be over $6 pre-tax (excluding alcohol), a free entree is earned and "mild" status is achieved. Only one transaction per day is counted per card.
4. After their next four visits, another free entree is earned and "medium" status is achieved.
5. Three more entree purchases and "hot" status is achieved, which earns another free entree.
6. Earn "hot" status for all three months of the program and get $240 worth of catering.