Welcome to the big time, Starbucks. The US-based coffee chain, which this past week announced major changes to its loyalty programme, has now joined the rarified ranks of the airlines, hotels, and other retailers that have come before them: operating a loyalty programme so successful that their customers have come to view it as an entitlement. Making any changes to such a successful and entrenched programme is always difficult—never more so than when members can immediately crash Twitter with their collective complaints about the changes. If Starbucks can weather the storm, however, then the evolution of Starbucks Rewards will position the programme to evolve into an even more valuable one for both the retailer and its 11 million active members.
In essence, Starbucks is following in the footsteps of the major airlines and the recent evolution of their frequent-flyer programmes: the retailer is changing its reward programme from a mileage-based (or in this case, a frequency-based) programme to one based on customer spend. Instead of earning one “star” for each transaction, members will now earn two stars per dollar spent. From the company’s perspective, the move solves two problems: it speeds up the checkout process, as members will no longer ask cashiers to ring up one item at a time to accumulate more transactions; and it reduces programme cost in the form of fewer transaction fees.
As for customers, the changes are, as they always are, a mixed blessing: members who typically only stop in for a cup of coffee will now wait longer for their free cup, while members who buy food products, multiple drinks, or otherwise rack up big tickets will earn as fast or faster. In addition, the retailer is adding new ways to earn stars—at the grocery store and at the company’s Teavana stores—and is eliminating the programme’s Welcome level, which means that all members now earn Green-level soft benefits.
Those members who stand to lose most, of course, grumbled the loudest, with social media exploding and mainstream news outlets reporting on customer dissatisfaction. The changes also prompted a few competitive pot-shots, with Dunkin Donuts offering Starbucks customers a free cup of coffee for joining its Perks programme.
Does the media backlash mean that Starbucks erred in changing its programme? Far from it. Making any substantial changes to a large, established programme is a lot like ending the programme altogether, and successful execution means following a carefully-crafted exit strategy.
In this case, Starbucks exhibited many exit-strategy best practices: the retailer explained the changes clearly; it didn’t apologize; it over-communicated the changes; and it gave members ample time to adjust to them. The only trick the retailer arguably missed is the opportunity to practice targeted generosity by allowing members to “round up” to a reward before the changes go into effect—but with 11 million members, such a move might be cost-prohibitive.
Far from damaging the brand, in fact, Starbucks’ move has positioned the programme for continued long-term success. Rewards will now go primarily to the retailer’s most valuable customers. Adding bonus days allows Starbucks to motivate customers along temporal and store variables, which will add to programme ROI. Starbucks executives continue to cite the programme as a key factor in their earnings. And pilot tests with such earn partners as Spotify and Lyft reveal that the retailer has designs to expand Starbucks Rewards into a true multi-merchant partner programme.
All of these changes ultimately mean more benefits for Starbucks’ most valuable customers, and bigger returns for Starbucks’ shareholders. That’s the definition of a symbiotic value exchange. If, in the short term, the retailer loses a few low-spending customers to Dunkin Donuts—well, sometimes that’s the price we pay for greatness.
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