Evolving a Booming Rewards Program
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What McDonald's has done is a tremendous accomplishment -- there may be justifiable reasons for some elements that may be confusing but generally speaking, the program is crushing the competition and seems to be resonating in its first year.
According to a McDonald's press release, in the first six months since launching their mobile app in July 2021 their rewards member base is roughly 21M users. To put things in perspective, this is roughly half of the some of the largest restaurant loyalty programs that have been around for decades. Additionally, according to Apptopia, the McDonald's mobile app was the top installed QSR app in 2021 with 24M downloads -- the second most was Starbucks with just half of that, 12M.
We previously shared thoughts and initial reactions that highlight the ways in which McDonald's has exceeded our expectations on the launch of their rewards program. The following is the second half of our analysis -- less about what they are doing incorrectly, but instead some areas we believe they should be focused in order to continue their meteoric growth. Admittedly our expectations are pretty high, so take this with a grain of salt.
Lack of pronounced personalization
After their blockbuster acquisition of an AI/ML based company in 2019, the assumption was that the hundreds of millions of dollars would start to manifest in tailored offers for the customer with the new program. After being a 3x weekly active user for the first month, I intentionally lapsed to see how their offer engine would respond – I was surprised that I did not receive a single bounce-back or retention offer in over 2 weeks. Additionally, while engaging with the associate and the ordering experience through the drive thru lane, not once was I presented with an up-sell offer that deviated from their standard selling script. I would have expected that their personalization engine recognize my previous purchase pattern (eg. 6 McFlurrys every week for a month) and know to that I might want a McFlurry.
All that said, perhaps the personalization is actually working hard in the background but I may just not know it. But the bigger miss is that nowhere does the My McDonald's Rewards program present a promotion or offer that makes me believe that it was tailored for me, and not just one of the dozen deals that are available to the masses.
Kiosk UX and program integration
While there is much to admire about how they have integrated the drive thru and digital ordering experience, the in-store kiosk seems to have been largely neglected. At around half of the McDonald's locations that we visited, the kiosks were either shut off completely or the store associates intercepted us during the ordering process and encouraged us to abandon the kiosk entirely.
In the few cases where we did use the kiosk to place our order, we found the QR code scanner to be challenging, the menu hard to navigate and the payment process confusing. Most notably, if I have a stored payment method on my account why could I not use that same electronic payment from the kiosk, instead of having to dip my credit card?
Finally, unlike other QSRs that use NFC communicators to track the customer and order number, the McDonald's kiosk uses physical table stands and relies on the customer to input the placard number into their order during the checkout flow. This process is fraught with challenges and unintentional errors, which leads to a breakdown in operations and consumer experience friction.
Stagnant deals and mysterious bonus program
Fundamentally the program is a points-based earn and redeemables program, with additional offers designed to grow cart size and drive consideration across menu categories. While the basic structure is well executed and seems to cover all their bases, there are few elements that make this rather confusing:
- Deals: These never seem to change, so therefore I come to expect that I will always have access to these discounts regardless of my loyalty. I should be presented with new and different offers over time based on my past purchase behavior. For the casual (new or lapsed) McDonald's customer, these deals likely contribute to optimized conversion rates; however, for the high-volume customer it just feels like 20% revenue cannibalization.
- Bonuses: They have created the opportunity to earn additional points, which include 2x points for the breakfast orders and for sharing your birthday. I have tried various ways to unlock additional bonuses, but it has not changed since the launch of the program. Based on our experience consulting on loyalty across QSR and grocery, not activating behind the bonus program seems like a huge missed opportunity.
Absence of gift card compatibility
Gift cards are an important, albeit complex aspect to a retail business, and likely McDonald's has a great deal of their addressable market in the form of gift cards. Our basic observation is that the My McDonald's program has essentially no linkage to their gift card program – You cannot use a gift card for payment, nor can you purchase a gift card using the digital ordering experience.
It's important to delineate between the different gift card concepts:
- Stored value/gift cards – A form of payment that can be swiped and depleted, but not reloaded. Most commonly administered by a 3rd party, these can be purchased with set denominations across a wide array of retail locations. These are also commonly referred to as "closed loop" cards in the gift card industry.
- Reloadable account cards – More akin to a debit card, these require a merchant bank who provides the underlying accounting and carries the financial liability. Holders of the cards can reload account balance, and most of the major credit companies have an "open loop" equivalent since they are widely accepted like a conventional debit card. These are less common in QSR, but the McDonald's Arch Cards program happens to be a hybrid: closed loop, reloadable card.
- Digital stored value accounts – Affiliated with a user's profile, consumers carry a balance that lives within their branded rewards/loyalty account. This approach is what Starbucks is known for and has been widely copied including brands like Chick-Fil-A
McDonald's currently has two different offerings deployed in the US today – Stored Value and Reloadable Account Cards. Creating an intuitive payment experience that handles both types of payments in addition to conventional credit cards, would be very challenging to implement and likely drive pretty low adoption. Furthermore, looking outside the US market where digital wallets are far more popular, it was probably a strategic decision not to over-invest in payment methods that would not have scalable value. This is yet another example where they had to make some strategic feature compromises in the interest of creating a truly global rewards experience.
At the end of the day, it was long overdue for McDonalds to rollout a Rewards program; however, it probably stands to reason given their prominent store footprint and brand recognition, their long-standing reputation for consistency and convenience was enough to drive recurring business. Looking at how they have crafted the program and their outstanding digital and physical execution, I would hypothesize that McDonalds is not just looking at the program as a channel for growing revenue but rather the underpinning of a much broader digital ecosystem that they had to get right in order to set themselves up for the next decade.
A rewards program that does not evolve is one that is doomed to fail. Consumers expect brands of this size to be continuously innovate and create new and exciting ways to re-engage with the brand through a rewards program. With the My McDonald's program well on its way to global rollout, we expect there will be > 21M users waiting with bated breath to see what comes next.