When Customers Exploit Reward Point Programs

August 22, 2017
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If the past several years have taught us anything, it’s that customers in 2017 are savvier than ever.  When it comes to finding deals or taking advantage of promotions, shoppers will stop at nothing to make sure they’re getting the most out of every purchase.  

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This opportunistic approach to shopping has resulted in a number of forums and websites solely dedicated to hacking brand offerings - including loyalty point programs.

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If you look hard enough, it seems that you can find a “hack guide” for everything - from travel to fashion and everything in between. Savvy opportunists have found quite a bit of success in their quest to take advantage of the value that brands offer their loyal customers, and continue to leave no stone unturned.

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Since prevention is the first step towards abolishing loyalty fraud, it’s important to understand how customers have duped brands in the past.  In order to protect your program from the same fate, let’s take a look at some of the reward programs that have been taken advantage of in the past and what you can do to prevent it from happening to yours!

 

 

The Starbucks Free $54.75 Drink

How a Competitive Customer Exploited My Starbucks Rewards

In 2014, a Starbucks customer in Texas broke the record for the most expensive free drink ever earned by ordering a frappuccino concoction with a retail price of $54.75.  The monster drink was ordered in accordance with the My Starbucks Rewards program, which promised customers a free drink of their choice on their birthday or after they had earned 12 Gold Stars.

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With no restrictions on the type or size of beverage that could be ordered, this savvy opportunist took it upon himself to beat the prior record of $47.30 just for the fun of it.  Consisting of 60 espresso shots, chocolate and white chocolate syrup, protein powder, whipped cream, caramel and hazelnut drizzles, and a variety of toppings, the drink was worth way more than a typical birthday reward and prompted a string of other customers to order similar drinks in the weeks that followed.  

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These orders were not only costly for Starbucks to fulfill, but also diluted the quality of their brand experience by turning what should have been a friendly reward into unhealthy (both literally and figuratively) competition to see who could order the most expensive drink.

How the My Starbucks Rewards Exploitation Could Have Been Prevented

While it’s important for customers to be motivated to participate in your reward point program, it’s equally as important to ensure that they’re getting both the best value and best experience with every transaction.  In the case of Starbucks, leaving their reward offering so open-ended meant that customers were given the opportunity to abuse the reward experience, jeopardizing the quality of the reward and their membership in the program at the same time.  

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A great way to combat this type of customer behavior is to promote clear parameters around what your loyalty rewards can be redeemed for.  This is a concept Starbucks actually put into practice in 2015: now, customers can only redeem their Star and birthday rewards for beverages on their predetermined menu. 

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Although this might seem like a poor change for customers, it actually protects the value they receive from the program by ensuring they receive the same quality of reward each time they redeem Stars.  

The same thinking applies to your rewards program!  When customers know they can take advantage of the rewards you offer, it lessens their face value to the point where it will no longer feel valuable.  Whether you choose to reward your customers with one type of gift or a variety of valuable offerings, predetermined rewards will ensure both you and your customer are getting a high value experience every time they redeem.

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"The Pudding Guy" Who Earned 1.2 Million Air Miles

How a Crafty Customer Exploited a Healthy Choice Promotion

Did you ever think that purchasing pudding could earn you a vacation?  Clearly David Phillips did, as he purchased 12,000 pudding cups in order to earn 1.2 million air travel miles through a Healthy Choice promotion.  

 

 

In 1999,  the frozen food company offered customers the chance to earn 1,000 travel miles for every 10 product barcodes submitted.  In order to take full advantage of this promotion, Phillips bought thousands of individual pudding snacks at 25 cents a piece, unlocking $25,000 worth of rewards miles for only $3,140.  With this ridiculous rewards hack, Phillips was able to travel the world for free, and as a result became known on the internet as “The Pudding Guy”.  

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Although this loyalty hack was highly effective for the customer, Healthy Choice found themselves rewarding customers with benefits that vastly exceeded the purchases customers had made to earn them.  This imbalance between action and reward is highly unsustainable, robbing other customers of the chance to participate.

How the Healthy Choice Exploitation Could Have Been Prevented

Much like the Starbucks reward fiasco, the root of the Healthy Choice hack lies in unclear (or missing) restrictions.  By making it possible for customers to earn the same reward no matter what type of product they purchased, Healthy Choice opened the door for customers like Phillips to purchase obscene amounts of low-cost items and reap the same benefits.

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This type of inequality creates a very poor customer experience for those customers who chose to participate “properly”.  While no one specifically stated that customers needed to make “real” purchases to participate, the majority of shoppers wouldn’t try to cheat the system.  As a result, those customers who spent significantly more money to earn the same type of reward would inevitably feel cheated.

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Restricting the way customers can earn rewards in your program is the easiest way to make sure all of your customers are earning rewards equitably.  You could do that by selecting certain items that customers could earn rewards on, or breaking customers out into distinct customer tiers - each of which have access to different rewards.

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No matter how you choose to set up your earning model, requiring groups of customers to earn rewards in the same way ensures all of your shoppers feel like they’re on equal ground.

 

 

Man Gets a $60,000 Emirates Flight for $300

How a High-Flying Customer Got the Most From Alaska Airlines

It seems that people will go to great lengths to fly first class.  When Alaska Airlines offered their customers the chance to fly first class by redeeming their reward miles, Sam Huang took it seriously.  By signing up for a number of credit cards affiliated with the airline, he was able to earn enough bonus points to purchase a first-class ticket that treated him to an in-flight personal shower, unlimited Dom Perignon, and caviar for only $300.

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Valued at $60,000, this VIP experience from Emirates Airline was the ultimate travel reward, meant to be reserved for those customers who flew often.  However, by allowing travelers to earn and transfer miles from a number of credit card accounts, they made it possible for savvy opportunists like Huang to hijack (no pun intended) a reward that was meant to benefit only the most loyal fliers.  This gamified approach to rewards earning illuminated a fatal flaw in the Alaska Airlines program.  

How the Alaska Airlines Exploitation Could Have Been Prevented

While the Starbucks and Healthy Choice issues were with either earning or spending, this one has to do with both.  As I mentioned, the reason Huang could afford this reward was because he was able to earn and spend points from signing up for a number of different credit cards.  In other words, he transferred points between affiliated credit cards in order to consolidate them into one larger reward.  

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In order to stop this behavior, you need to set limitations for how customers can spend the bonus points they earn.  Specifically, it's recommended that customers not be allowed to transfer their rewards from one account to another or combine preexisting accounts. 

This type of functionality is actually built into Smile.io, along with many other tools you need to prevent loyalty fraud in your own reward point program!  While that was a relatively shameless plug, the heart of the matter remains the same: the best way to avoid reward exploitation is to make it difficult (if not impossible) to achieve, no matter how wily your customers are.

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What to Do Before You Unleash Your Reward Point Program

Each of these examples give us a good idea of what can happen when customers want to take advantage of your rewards program.  So now that we know what could happen, let’s make it impossible!

In order to prevent reward exploitation with your program, ask yourself the following questions:

1. Do we have strict rules and infrastructure in place?

Establishing how customers can earn and redeem rewards sets your reward point program up for success in a way that guarantees value for every single customer, no matter how they choose to shop with you.  By making it clear which actions are valuable and enforcing that structure, you can begin to dictate customer behavior in a way that profits both you and them.

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2. Are there any loopholes?

This is directly related to the previous question.  Think critically about how your program is structured and look at it through a savvy opportunist’s eyes.  Are there ways customers can skirt around your program’s infrastructure?  Think back to the Starbucks, Healthy Choice, and Alaska Airlines examples discussed in this article and put yourself in those brand’s shoes.  Ask yourself “could this be avoided?” and work backwards from there to close any gaps you might have missed.

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3. How can we monitor suspicious activity?

An effective way to keep a finger on the pulse of your program is by automating it wherever possible.  Not only does this create less work for you, but it also creates a more seamless experience for your customers.  

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At the end of the day, it’s important to remember that loyalty fraud and exploitation are very rare.  By keeping these three examples and prevention methods in mind, you’re setting your point program (and rewards members) up for success!  

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