Why Starbucks Is Overhauling its Loyalty Rewards Program
Starbucks (SBUX) has one of the most successful loyalty programs in the world of retail and restaurants, with over 11 million active members.
But the coffee chain is overhauling its “Starbucks Rewards” program in part to fix a problem that has bedeviled it for years: slow service at the cash register.
Under the current program, Starbucks awards members one star per visit regardless of how much is purchased on a given transaction. (Twelve stars gets you a free drink at Starbucks.) But as of April, members will get 2 stars per dollar spent, irrespective of the number of transactions, granting members what Starbucks said was their biggest complaint with the program. (The scale will change so that customers will get the same payout in terms of freebies, the company said.)
Starbucks was finding that many customers were asking baristas to ring up one item at a time to collect more points for a given transaction, creating delays at check out.
“That is challenging for customers who are forced to wait and to our baristas who have to perform extra work,” said Chief Strategy Officer Matthew Ryan said on a media call with reporters.
That adds costs by extending the transaction time. Ryan estimated that 1% of total Starbucks transactions are from customers “splitting” transactions to get two or three stars for a transaction, rather than one. “This new program will remove this distraction from our store operations,” he said.
There is a lot at stake for Starbucks—about one customer in six is a loyalty program member, and such members spending three times more at Starbucks than the average. (Starbucks has 75 million customers per month in the United States in all.) And Starbucks Rewards fosters store visits and allows the company to personalize offers.
“We know that our loyalty program continues to add to the overall momentum of our U.S. business,” Chief Financial Officer Scott Maw said on a media call with reporters. He said that the new program, combined with its new mobile ordering feature are two reasons why Starbucks’ sales growth forecast this year is above its long-term projections.
Maw and Ryan said that the payout would remain about the same for customers. For instance, a gold member will need to spend $62.50 (or 125 stars) to get a free coffee under the new program, introduced Monday. Under the old program, it was twelve transactions that did the trick—and the average transaction at Starbucks is $5. The program how ever is likely to penalize customers who come in frequently for small ticket items, news that sparked some grumbling on social media.
Starbucks is betting heavily on the program to generate store traffic so it is being careful not to irritate customers or make them feel the new program is less generous. The company is extending the ways in which members can earns stars, including for instance buying Starbucks Coffee at a supermarket or a drink at Teavana, its tea chain. And it is making tweaks like giving members a chance once a month to get quadruple points.