Dunkin' Donuts CMO Discusses the Risky Move to Mobile Loyalty

Q&A with John Costello: 'Mobile is Devouring the World'

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It's not often that a company with locations on street corners throughout much of the U.S. takes a big risk by changing the status quo when the status quo ain't broke. But that's exactly what Dunkin' Donuts did when it shelved its web- and paper-based loyalty program like so many day-old crullers.

"We decided to go all-in on a mobile-based loyalty program," said the company's Chief Global Customer and Marketing Officer John Costello.

The result was a re-launched version of the DD Perks Rewards program, which focused on tying together the mobile and in-store experiences for customers, introduced in January 2014. The original program launched in 2011, and its mobile-centric iteration includes around 3 million members.

"Mobile is devouring the world," said Mr. Costello, who helped Dunkin' come to the decision to shift its loyalty program to become mobile-centric. Mr. Costello is also chairman of the Mobile Marketing Association's global board of directors.

Ad Age discussed the motives behind the move to mobile loyalty, and the challenges that lie ahead for the 65-year-old Massachusetts-based morning fuel hub.

Ad Age: When Dunkin' Donuts decided to put its paper- and web-based loyalty program on hold in order to revamp it as a mobile-centric program, what factors went into making that decision? Were some executives concerned it was too big a risk to take?

Mr. Costello: We decided to re-focus the loyalty program as a mobile-centric program because the world is changing rapidly and mobile devices are evolving from smartphones to a remote control for your life. The key factors that drove the decision to focus our efforts on developing a mobile-centric program were ensuring that the DD Perks loyalty program was customer-focused, fast and enhanced the in-store environment.

It was a big risk to invest millions of dollars to develop a world-class mobile app, which is the foundation of our successful DD Perks program. Even though our business was doing well, we forced ourselves to change and adopt new technologies without knowing if it would work. This was a cross-functional decision that included members from marketing, IT, operations and our franchisees.

Ad Age: Connecting a branded app experience to the in-store experience in a relevant and relatively seamless way is easier said than done. How has Dunkin' Donuts done that and what does it need to work on?

Mr. Costello: "America Runs on Dunkin'" is more than a slogan; it's really our brand purpose which is to help get you running in the morning and keep you running all day long. As a result, speed of service is very important to the Dunkin' customer, particularly in the morning. We needed to build a loyalty program that is very fast both in-store and at the drive-thru because a significant portion of our business is at the drive-thru. We did a lot of operational testing at the store level with our franchisees to make sure that the DD Perks program is customer friendly, very fast and did not overcomplicate in-store operations. The second thing we did is form a cross-functional task force that included members from marketing, IT, operations, training and franchisees to make sure that we had the right training in place for our store employees and ongoing training as we introduce new features.

Both DD Perks and the Dunkin' Mobile App are easy to use and fit seamlessly into our guests' Dunkin' Donuts experience and daily routine. We made it simple for guests to enroll cards already in their DD Mobile App into the loyalty program.The combination of customer focus, constant learning and the close tie to the in-store environment all contribute to the success we are seeing, and the program will continue to evolve as we receive consumer and franchisee feedback.

Ad Age: You seem to believe mobile is really important from a data standpoint. Why?

Mr. Costello: We actually make efforts to minimize how much data we collect from customers, and use it only for the purpose of improving our customer service experience. For this purpose, the data we collect is extremely important and beneficial. For example, we've been able to use data to promote localized offers through the Dunkin' Mobile App. Consumers have responded very well to these localized offers and when we launched the DD Perks program, we started to target our guests with valuable offers right away to drive incremental spend and visits. This targeting will become more refined as we continue to test new methods and analyze the data looking at how each guest is behaving.

As a result of our investment in technology initiatives, today we have more robust data on our guests' transactions than we have ever had in the past and we're using it to change guests' behavior. We are able to track our guests' behavior and engage with them on a one-to-one, individualized basis. We have created members segments for our DD Perks members and we are now targeting our members with offers relevant to both their segmentation and their individual behavior.

Ad Age: Nearly 3 million people are members of the DD Perks program but 11 million have downloaded the app. Surely you'd like all of the people who have downloaded the app to join the loyalty program. Where's the disconnect and how do you plan to change that?

Mr. Costello: We recognize that there is zero barrier to download the Dunkin' Mobile App and to enroll in the DD Perks loyalty program you must purchase a DD Card. This is the barrier and we do look to close the gap. The DD Perks program will be an important driver of long-term growth for Dunkin' Donuts and we are pleased with our current progress.