The Starbucks loyalty program is incredibly popular (with 11.1 million active program members as of January 2016), and it’s frequently referenced as the mobile payments success story for brands (the mobile ordering app accounts for 6 million orders a month).
Based on the program’s success and popularity, it came as quite a surprise when the multi-billion dollar coffee chain announced sweeping changes to its widely acclaimed My Starbucks Rewards loyalty program.
Change is always difficult, but especially in this case where a change in the Starbucks points mechanism will lower rates of reward earning for a large group of customers – customers who made their displeasure very visible on social media. But no business ever gets to this scale by blindly messing with a winning formula. While their program changes may be starting fires all over Twitter, there are actually some very sound strategic reasons why Starbucks made this decision , and some valuable lessons about long term growth strategy here:
Align Rewards with Strategic Goals
My Starbucks Rewards is moving from rewarding customer visits to rewarding customer’s based on their spend. The original program strategy likely made sense in the past, as customers tend to find visit-based systems easier to understand (which helps to boost adoption).
However, the old rewards system also encouraged undesirable behavior. Customers would ask baristas to ring up each of their purchases separately in order to get more stars or would order the cheapest menu items (fun fact: a banana). This resulted in longer wait times, slower service, and also skewed customer data – all significant issues for a quick service business. In a recent call with analysts, Matt Ryan, Starbucks global chief strategy officer, estimated that about 1% of loyalty transactions involved such “strategic” gaming of the loyalty system.
By moving to spend-based rewards, Starbucks will shift the incentives towards increasing average check value – a wise decision now that their loyalty program has scaled. However, the old method of counting visits took the focus away from prices, an important consideration for a business with a premium-priced product like Starbucks.
Recently, the airline industry moved from counting miles flown to customer spend as well, which could be indication of a broader trend as businesses begin tying rewards more closely to measurable ROI in the wake of a weakened economy.
Focus on your Target Market
Previously, customers would get 1 star per visit and need 30 stars to reach Gold level where they would earn 1 free menu item for every 24 stars.
By contrast, under the new reward system, customers earn 2 stars per $1 spent and need 300 stars for Gold level (where they would only earn 1 free menu item with every 125 stars, or $62.50).
This change greatly affects the many members who earned their stars with a $2 drip coffee each morning – they’ll see their reward rate plummet and will need to increase spending to maintain their gold rewards level.
In comparison, the new program changes actually benefit Starbucks’ big spenders (and target demographic) who would now earn their rewards faster than before – as spending anything greater than 5$ per visit will earn rewards at an equal or faster rate.
On the other side of the spectrum, competing coffee chain Dunkin’ Donuts runs its own loyalty program. DDPerks members earn 5 points per dollar spent and only need 200 points (or $40) to get their free beverage, appealing to the lower price-points of their menu.
Setting your rewards strategy can be an ideal tool to reinforce and cultivate your target customers, and drive the behavior that most directly affects your bottom line.
Create Room for Growth
This pivot for My Starbucks Rewards also creates more opportunities for further development of the program, such as earning stars for buying Starbucks coffee from a grocery store or more flexible bonus reward options.
In recent years, Starbucks has partnered with other brands such as Lyft and expanded its business beyond the coffee chain concept with new products such as VIA instant coffee and the Teavana chain of teahouses. Unshackling its loyalty program from visits allows it to expand across other arms of the Starbucks empire.
Use Data to Deal with Criticism
While Starbucks will surely weather the storm in the press and social media, any business drastically changing a deeply entrenched loyalty program will need a well-developed communications plan to minimize the fallout.
One approach, which Starbucks made use of, is to make sure the data is on your side and to be open to sharing it publicly (you should have run the numbers already as part of justifying the ROI for a program change). Being able to produce statistics like what percentage of members will now earn rewards faster, or how much more the average customer will receive, are great ways to defuse customer concerns and support your decision. Without any evidence like statistics to put your program changes into context, the conversation is much more easily dominated by the loudest negative voices.
If your loyalty program no longer serves your needs or is starting to feel like it’s holding you back, don’t be afraid to reassess. The backlash may be inevitable, especially if you’ve built up a base of passionate and engaged customers, but your long term growth will make the case to your stakeholders.
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