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Starbucks Risks Losing Loyal Customers Through Rewards Program Changes

Earlier this year, Starbucks announced some sweeping changes to its My Rewards program, namely a change in how rewards are calculated for its members. The backlash has been semi significant, forcing many to consider whether the coffee giant has taken its loyalty programs (and customers) for granted after years of driving additional sales and tech innovations through the My Rewards Program.

On the face of it, few marketers would disagree with the premise of a customer loyalty program adding to the success of broader marketing initiatives. As I sit in a Starbucks writing this very blog, the effects of their own loyalty program on me become quite obvious. The added benefits of retention and overall brand loyalty are but a handful of the effects retail establishments can see when they maintain loyalty programs for their customers.

When marketers want to quote enterprises with the strongest brand loyalty, the case studies of Starbucks are ever present. Starbucks with its “third space” strategy and retail empire is well positioned to cash in on benefits delivered by a loyalty program:

Keep Customers Happy

Consumer happiness is hard to quantify, but easiest to understand. As consumers, we want to be feel rewarded by choosing to spend our money with a brand. By taking action on this psychological connection with a consumer, brands can reinforce the positive feelings that accrue when we have a good in-store experience.

Put simply, good experiences via rewards programs and digital interactions amplify the in store experience and reduce the lag time between those feelings. The resulting benefits to the brand are secondary (but brilliant) side effects.

Vital Market Research

Every time you walk into a grocery store, the market research feature set of retail loyalty programs should figuratively smack you in the face. Each loyalty card provisioned by the grocer in question gives unparalleled data detailing purchase habits. The value exchange? Consumers are offered varying degrees of price discounts and specials at a cost of less privacy surrounding their purchase habits.

Benefits can be physical or digital

Many SaaS providers have already figured this trick out. Foursquare brought the practice of digital rewards mainstream, introducing gamification as a means of competition and continued engagement in their geolocation-centered business model. While perhaps less applicable for retailers, those brands who have the capability of producing digital assets that are exclusive or of high interest to their audience are in the unique position of being able to ‘print money’ in the form of digital rewards.

Increase Sales

The obvious benefit that most marketers will look for in a loyalty program is the ability to drive sales. This benefit is readily apparent, but fragile. With a robust enough database, marketers are able to command a host of communications – customizable to consumer demographics and personal habits. However offers communicated too often, or at a level of invasive personal detail could risk alienating that very same customer

A (Less) Loyal Program?

And yet, Starbucks seems embroiled in a customer relations debacle of its own making (just sample of a few of the comments on the announcement for a taste).

The announcement seems a smack in the face to some loyal Starbucks goers who fall below the spend threshold for the new program. In a nutshell, if you spend less than $5 during a visit, it will take you longer to earn a free reward. If you spend more, you come out on top. For those budget-conscious customers who tend to buy cheaper items at Starbucks, you can quickly see why they feel left in the cold.

Loyalty program managers seem to think it’s a good move from a revenue perspective, as the program change (once accepted by the customer base) makes a more direct appeal to buying more product, rather than just ringing up transactions. In the meantime, daily brewed coffee drinkers at the chain will have to spend more to get the same rewards.

 

The Bigger Picture

Moving past the customer blowback at the change, Starbucks is investing heavily in April to getting more people in the program. They’re offering free Gold status for anyone who makes a purchase during the month, and are pushing more people toward email notifications for added ways to earn stars. Combined with rumored plans to launch a credit card product alongside My Rewards later this year, all of the changes seem to be infrastructure for more partnerships and tertiary products that align with the program.

In the end, we should look for Starbucks to continue to build on their rewards program with additional brand touchpoints. It’s likely too soon to tell if the policy changes will be outweighed by the benefits, but all signs point to the fact that the bean counters at Starbucks weighed this one pretty carefully before pulling the trigger.

For other rewards program managers the Starbucks case may be a lesson for some to reconsider program changes, especially for those with a less rockstar brand experience.