Let Them Eat (Coffee) Cake

Starbucks customers are steaming over its recent rewards program changes, but the bean-roaster backlash isn’t surprising. In fact, it’s the direct result of a program that focused on transaction volume benefits — a method that reduces loyalty to number of visits and leaves savvy customers the opportunity to “work the system” and gain rewards. 

That's not to say transaction-based rewards should be snubbed. But successful loyalty programs tend to focus on creating a memorable customer experience (rather than freebies and discounts), which fosters affinity for the brand rather than the benefit. Starbucks is now steering its program in this direction, setting a course to reward true brand enthusiasts. 

The changes show how Starbucks defines its Most Valuable Customers (MVCs): big spenders. Pay $3 a visit, even if it’s every day? You’ll have to work harder to get Gold status and rewards. Pay $7 on an average visit? You’ll reach Gold status faster and see rewards sooner.



The move is a nod toward the loyalists that built the brand from the beginning. Before there was a café on every corner, Starbucks fans were willing to drive farther and spend more than they would at the convenience store down the street — all for the sake of consuming a “hand-crafted” cappuccino or buying exotic whole beans. 

Once it became widely available, the transaction-based rewards program turned into an easy target for freebie fanatics. Of course, there are plenty of regular coffee drinkers who are understandably upset, feeling their loyalty is less valuable, literally, than other customers’. 

But for die-hard fans, the changes mean better, more exclusive recognition of their loyalty. Let’s say you buy morning coffee for yourself and your spouse, and juice boxes for the kids. In the former model, that’s one transaction — one star for spend that would be well over $10, only 8% of the way to a reward after 12 stars. In the new model, line items are considered, and that same order counts for more than 20 stars, 16% of the way to a reward after 125 stars. By incentivizing high-value transactions with expedited rewards, Starbucks is motivating its MVCs to continue purchasing.

The story serves as a case study of why it's critical for the strategy, design, structure, and execution of a loyalty program to align with a brand’s marketing objectives and corporate goals. At some point, “My Starbucks Rewards” stopped serving its purpose, tilting in favor of the customer and leaving the brand in a one-sided relationship. To correct this, Starbucks identified the desirable behavior and corresponding KPIs to balance the program, redesigning it to align behavior and rewards with its goals.

Identifying its high-spend MVCs also gives the brand an option to target and incentivize these customers to try new offerings, like the “Starbucks Evenings” dinner and alcohol test menu that launched in New York, Miami, Denver, and Northern California late last summer. 

It’s tough to please every customer, especially when you’ve previously established a different set of expectations. There’s also an argument to be made for the value of low-spend, high-frequency customers (but that’s another story for another time). Given the struggles of the coffee and fast food industries, we’re likely to see more brands expanding menus and rewarding customers who expand their wallets. In 2016, more brands will ask you to super-size it — not your sandwich, but your spend.

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