We all know that when it comes to marketing, loyalty programs, buying clubs and the like are great tools, but only if you use them right. Like any other tool, these things can prove very useful or they can do a lot of unintended damage. While perusing one of my favorite sites, consumerist.com, I ran across a couple of stories that illustrate just how not to manage your company’s loyalty program, an object lesson in the need to keep the corporate chaos to a minimum.

Loyalty in the Reward Zone

It begins with Best Buy. This big-box behemoth offers a rewards program called “Reward Zone Premiere Silver,” a bigger and more rewards-intensive version of its original free Rewards Zone program; and as if to demonstrate that they take the concept of “customer rewards” very seriously, they restrict membership to those who spend at least $2,500 each calendar year. Your reward for supporting Best Buy like that? It essentially boils down to good customer service and a reasonably generous return policy. There are other aspects, like point-banking for special deals and exclusive member’s only special events, but the most important parts are in the customer service area. In other words, essentially everything that the run-of-the-mill, off-the-curb Best Buy customer has long been denied and everything that you, the successful small business owner, understand to be essential to success and basic to the customer-business relationship.

Now, as if incentivizing decent customer service is not bad enough, we learn that there will soon be another level—an elite level—to reach for in the heady world of the Reward Zone called “Reward Zone Premiere Black.”

Just mouthing the words makes one think of Jaguar sports cars, private jets and supermodels sporting diamonds and clingy black dresses—a real high-end elite lifestyle—and that is the idea. There is nothing blue and yellow here, it is the zone for those who like their martinis shaken, not stirred. The rewards accumulate faster, exclusive shopping services are on the table and Premiere Black members enjoy the services of the exclusive Premiere Black Concierge. Yet, with all that, there is a problem.

Decisions in the Reward Zone

Best Buy showed its hand too soon, however, and they did it in perhaps the worst way they could, they announced to thousands of silver members that they had been upgraded. Now, realizing their mistake, the folks in Best Buy corporate faced a choice that must have taken up moments of heated discussion over one of their three-martini (shaken, not stirred) lunches somewhere between looking at the menu and an earnestly heated discussion of the president’s new putter. The choice: Either accept the fact that many silver members were upgraded when they should not have been and let them enjoy the benefits of the mistake; or correct the mistake, rescind the admittedly mistaken upgrade, and let the customer relationship chips fall where they may.

Anyone with even a nodding familiarity with the way big-box retail executives operate will know what the suits at corporate came up with over their bleu cheese and arugula salads. Yes, they decided to let the chips fall where they may. This is the notice they sent out to the folks who were all excited about being declared “elite:”

We're Sorry!

The Best Buy Reward Zone program is always looking at ways to make our program even better for our members. You have inadvertently and inaccurately received this e-mail during an initial testing process. We sincerely apologize for any inconvenience or confusion. You continue to maintain your current membership status. If you are eligible for the Reward Zone program Premier Black pilot that will be run in a limited number of select areas, we will notify you by a separate email. If you have any questions about this or the Reward Zone program, please view our Program Overview page or contact our CustomerServiceCenter at 1-888-237-8289. Thank you.

In other words, you are not as elite as we led you to believe, but we still value your money enough to keep you at your current reward level. If, at some point in the future, our sales department determines that you have, through the regular and systematic transfer of a sufficient quantity of your personal wealth to our coffers, really become elite, we will let you know.

The Bottom Line: Consequences in the Reward Zone

By doing this, Best Buy led their best customers to think that they were appreciated even more, that the company was really interested in keeping their business and that, at least in eyes of the corporate executives, they were elite. The company got its already loyal customer base all warm and fuzzy and then it threw cold water on their excitement and showed these customers the kind of indifference and arrogance that the rest of us have come to expect.

Call it short-sightedness, arrogance, stupidity—call it what you will—but I call it a customer relations disaster and a prime example of what not to do with a rewards program.

A customer rewards program is meant to encourage customer loyalty by making customers that enroll feel special through various means. Best Buy got that part of the equation right, in spite of the fact that one of the incentives was real customer service and a reasonable return policy. Even sending out the mistaken announcements of new, elite status really wasn’t that big an issue. No, where they went wrong was with the way they handled that mistake. They forgot that their reward program is in place to make their customers want to continue buying from them. It is not there to make them feel had.

So, what is the lesson? Mistakes with your loyalty program have to be handled very carefully and in a way that makes your customers feel as if they are coming out ahead, getting a good deal. This may seem like a no-brainer, but as you can see, it happens.