Why the New Starbucks Loyalty Program Won’t Work, and How to Fix It

by Grace Miller |

I have to side with the angry masses on this one: the new Starbucks loyalty program won’t give the company the results it wants.

First, a bit of background: Starbucks launched their “My Rewards” program in 2009, and it’s done incredibly well. Three years ago, when mobile payments were a nascent concept, as much as 11% of Starbucks’s orders were coming from its loyalty app. Six months ago, the number of active users stood at over 10 million. In a much-lauded move, this July the coffee chain announced that they’d be partnering with Lyft, the New York Times, and Spotify to enhance their “digital loyalty ecosystem.” As of late, their profits have been record-breaking, and mobile orders-ahead have reached 6 million per month.

The phrase, “If it ain’t broke don’t fix it” comes to mind. In reality, though, everyone wants to top their past achievements. Starbucks, however, seems to have gone about doing so in a misguided way. They just announced that they’re overhauling their loyalty program by switching from a points-per-visit model to a points-for-dollars one. For customers who tend to only purchase less expensive drinks or food, this amounts to a big loss. Those who shell out $7 for a customized latte or who adore Starbucks’s line of travel mugs will get more for their money.

In addition to renaming the program “Starbucks Rewards,” they’re reducing their famous three-tier system down to two. Starbucks says that the changes are in response to customer demand, but judging from the tweetstorms, that sounds dubious.

Customers are up in arms about the new Starbucks loyalty program.
Customers are up in arms about the new Starbucks loyalty program.

Especially in light of that second tweet, it sounds like the new Starbucks loyalty program isn’t treating people as, well, people. Perhaps excepting billionaires, no one wants to be told that their worth as a person, or even as a loyal customer, is directly tied to their bank account. Despite that, 97% of rewards programs rely on transactional rewards–that is, points, discounts, or freebies in exchange for purchases. Unsurprisingly, though, 77% of transactional loyalty programs fail within the first two years.

What would I recommend instead? First of all, the company needs to apologize to customers and switch back to the old Starbucks Rewards model. As a gesture, they should probably do a double points day or some other sort of gift to customers within their own loyalty ecosystem.

In addition to reverting to the visits-for-points model, I’d say that Starbucks should go even further in rewarding customers for engagement. We call this approach to rewards programs advocate loyalty or social loyalty. Starbucks could, for example, start rewarding customers for checking into their locations on Facebook, Instagram, Yelp, and so on. They could give points to those who hashtag photos on Instagram, or who send gift cards to friends.

The business should launch more creative contests like its White Cup Contest, during which customers were asked to come up with their own designs for a Starbucks white cup, and its counterpart for employees, the Partner Cup Design Contest. Starbucks could grant points to entrants or to those who share about the contests on social media.

All of this said, the new Starbucks loyalty program isn’t going to pull the company under, but it’ll be shocking if it actually results in increased repeat purchase rates and bigger average order values.

And it’s hard to not suggest a more multifaceted approach to loyalty when there are so many ways to do it. Such a strategy takes a more holistic view of customers, instead of just treating them as dollar signs. Think it’s not profitable? Well, when you treat shoppers like real people, they’ll be much more likely to patronize your business.

We’ve seen it work. A Annex Cloud client who started out with a points-for-purchase loyalty program and then switched to an advocate marketing-enhanced program saw a 370% increase in revenue from loyalty in one year. Another client of ours who began with a traditional loyalty program and then switched to a socially-engaged one had its loyalty program revenue increase by 300% in 2 months.

Starbucks is a brand with a strong enough identity and presence that people are always engaging with it all the time. Why not reward them for that?





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