How Starbucks could engineer their rewards program for success

Recently — Starbucks announced sweeping changes to their rewards program — which according to Reddit users — is a fatal devaluation of a program that could have been otherwise been made perfect with some minor tweaks to the existing offer.

Most industry experts agree the existing Starbucks rewards program needed a few tweaks to cut widespread abuse of the stars earning system — and to further drive up the revenue per customer on each transaction. Unfortunately Starbucks seems to have taken a page out of the airline loyalty play-book and botched the revamp — and their customers are not happy.

Breaking it down:

Generally speaking there are two main goals in any reward program that wants the best of both worlds by being a discount and loyalty program at the same time. A hybrid loyalty model of rewards can be powerful to certain audience segments; however it’s important to structure the rewards in a way that keeps the program simple and easy to understand — while keeping the perception of mystery loyalty alive for the consumer.

Goal 1): To increase the average revenue per customer

The backbone for every loyalty marketing program is to drive more sales; increased engagement and a stronger customer affinity to the brand; this in turn creates a more tightly controlled customer loop of sales and brand affinity.

Goal 2) Recognition of high value customers / Gold Members

The ‘tragics’ and high value customers have innate needs to feel important; These audience segments crave attention; are huge brand ambassadors and will tell more people about your brand than any other type of customer; plus — they spend more and visit more regularly than other customers and it’s natural to want to look after these important customers.

Starbucks appears to have gone down the discount program road even further by not adding any gaming mechanics or easy rewards for customers to achieve; In fact — at first glance it now looks more difficult than ever to realize any kind of value unless you’re a high spender. David Feldman breaks down the true underlying cost in his recent publication.

So how could Starbucks have innovated and created a more rewarding program that both achieved business objectives and increased customer loyalty in the process?

1) Gold Members want recognition — In China Starbucks is a status symbol — and customers will keep a Starbucks cup all day (and even re-use it day to day) so their peers perceive them as one of the cool kids. It’s a club — and p2p recognition is an extreme driver — especially for millennials.

One simple way to achieve this is put a gold sticker/gold cup holder on each coffee ordered by a gold member — something subtle; yet shows other people around them they are a gold customer and therefore superior to everyone else.

2) Make rewards a game that drives sales of items customers don’t usually purchase; Buy 5 coffees; get x% off the next single item food purchase type deal; Most people buy drinks but not everyone grabs a snack — and this is a simple way to give a benefit that aligns with product sales and perceived customer benefits in the one hit.

3) Make stars a status currency; 100 stars for Gold; but you can cash in 10 stars at any time for a free coffee; At 100 stars — they can be ‘redeemed’ for gold status; this satisfies two customer segments in one hit — discount seekers can still use stars for discounts/free coffees — and the status driven customers will save up the stars to redeem for Gold Status and will show off their shiny gold sticker on each coffee they order while still shelling out full price for a drink.

4) Purchase a beverage every day for 30 days in a row — and become Platinum customer for the next 60 days which entitles you to a free size upgrade on each purchase while Platinum. Not only does this engage ultra-frequent customers but would also gamify the experience. The small opportunity cost in providing free upgrades (where the customer may have purchased the larger size anyway) would be more than offset by new customers jumping on the addiction train for 30 days — and of course most won’t reach the full 30 days and this increase in revenue would make the exercise financially viable.

5) Listen to customer feedback and do exactly what the people have been asking for — 1 star per drink, then ramp up marketing offers to the database so key objectives are satisfied.

Of course — if Starbucks went down the affinity program road this would open up even greater levels of opportunity to turn the program into a revenue generating platform.