Starbucks Rewards Change Signals Strategy Shift

Starbucks' decision to merge its year-old, $25-per-year Gold rewards card and its lower-level card into a single, frequency-driven rewards program signals a shift to a more customer-centric corporate strategy.

That's the assessment of Dennis Armbruster, managing partner for LoyaltyOne Consulting and contributing editor to Colloquy magazine.

In My Starbucks Rewards, to launch Dec. 26, customers use a single registered card (any Starbucks card), and rewards are tiered based on frequency of purchases. Customers earn "stars" each time they pay with a card.

Starbucks Gold's biggest incremental benefit over the original Starbucks Card Rewards program was a 10% discount on most purchases. CEO Howard Schultz reported that more than 750,000 Gold cards were sold between last November and March of this year, and according to bnet.com's Ann Marsh, the cards generated $17.5 million by the end of this year's first quarter.

Maybe not huge bucks for a company with $10.4 billion in sales in 2008 -- but why give up the additional revenue, particularly faced with mounting competition from McDonald's and Dunkin' Donuts in a brutal economy?

Armbruster believes that -- as was true when he worked with Best Buy to move a fee-based rewards program to a free one -- Starbucks has now decided that it wants to get deeper information on as much of its customer base as possible, to move from a proximity-based strategy to a customer-centric one.

"Their growth was based on having a Starbucks on every corner, but as we've seen, [Wall] Street isn't responding to that," Armbruster tells Marketing Daily. "Now, they're moving to a program that will incentivize people not for how much they're spending, but how often they come in. That indicates a desire to capture deep transactional data across its broad customer base. The data could be used to inform product development, test new experiential in-store strategies and create customer panels, among other things. Certainly, it will be used for more one-on-one marketing."

In announcing the new rewards program, Starbucks SVP of Marketing Terry Davenport said that the dual rewards programs were successful, but that the members had asked for a simpler program that rewarded them for the frequency of visits.

Under My Starbucks Rewards, registering a card entitles the user to a free birthday beverage. Use of a card five times takes the user to "green" level, where benefits include free brewed refills, free flavor syrups and soy, a free tall drink of choice with purchase of a pound of whole bean coffee, up to two continuous hours of free Wi-Fi daily, and special offers. The gold level, reached by visiting Starbucks at least 30 times per year, entitles the user to a free drink after every 15 purchases and an exclusive, personalized card.

The coffee giant actually has a third rewards program, the Starbucks Duetto Visa card. That card, which can be used like a standard Visa card, offers both Starbucks rewards and the ability to accumulate "Duetto Dollars" usable toward purchases at Starbucks.

The Duetto card has not been rolled into My Starbucks Rewards. "This may cost them a little confusion among Duetto participants, who may be among their most loyal customers," notes Armbruster. However, this is probably unavoidable, as deals with card issuers generally involve long contracts, he says.