Starbucks’ New Loyalty Program: Good, Bad, or Blah

February 24, 2016
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On Monday February 22nd Starbucks made a big announcement about their loyalty program. Coffee drinkers have been enjoying the “My Starbucks Rewards” program since it was conceived in 2009. It has always been one of my favorite examples of an effective loyalty program, but what about after these changes?

Have these changes made Starbucks’ loyalty program better, worse, or does the change matter at all? Let me start off by saying, as a consumer I do not like these changes. However, I can see why the changes were made from a business perspective. Let me break down what I think into digestible thoughts.

 

What is Happening With My Starbucks Rewards?

The program that has stayed relatively the same since its launch in 2009, but that is all changing in April 2016. Currently, you earn one star for every purchase at Starbucks. You need 30 stars to reach “gold status”, and every 12 stars after that gets you a free drink/food item.

The proposed changes will be a massive change! In the new system, customers will be given two stars for every $1 spent. These new stars can be redeemed for a free drink once you have accumulated 125 stars. The stated reason for the change is to reward customers who spend more per visit.

 

The Good,The Bad, and The Blah

Reading into the changes, I have categorized my feelings into three categories: the good, the bad, and the blah. There are a few changes I really like, a few that make little sense to me, and a few things that are just … blah.

The Good

Double Star Days

Starbucks has announced that under the new structure they will be running special point events. These events will come in the form of “double star  days” and special promotions. The double star days will be monthly events where shoppers are given twice as many stars on each purchase (4 per dollar).

starbucks new loyalty program special point events

This type of event was not possible before, because customers were awarded for each visit. The new structure allows for these types of events which is a win in my books. Extra point events are an amazing way to drive program participation and engagement.

Points Tied to Value Created

I am going to step into Starbucks shoes for this one, because from a business perspective this change really does make sense. If you own a store you don’t want to give value away to anyone who is not providing value in return.

Loyalty is a two way relationship. If customers are getting a ton of value from the company without driving much value in return, well then why would the company run a loyalty program? Under the old system a customer ordering a $2 coffee was given the same amount of stars as a customer ordering a specialty beverage and food.

starbucks new loyalty program old system

By tying stars to dollars spent you are giving more to your highest value customers. If you spend $20 a day you get more out of the program than someone who spends $2. That just makes sense! I understand the casual coffee drinker is essentially punished as @RPPJester is quick to point out.

starbucks new loyalty program tweet 1

He is not alone in his thoughts as a quick look through Twitter right now will point out. I understand the frustration, but I think this makes sense for Starbucks. It provides more value to power users. The cost, a few disgruntled casual program members. I hate to see people unhappy, but I do think this makes sense for Starbucks.

The Bad

Two Loyalty Tiers

If you have read my previous evaluations of Starbucks’ program, you will know that I am not a fan of how they use tiers. In the old system there were three tiers: welcome, green, and gold.

In my opinion, these tiers were not an effective motivator. It was really easy to move through each level. When tiers are used effectively they can establish a strong feeling of exclusivity, and motivate customers to strive for more and be recognized as better than their peers.

In the new structure there are only 2 tier levels (I have seen 3 tiers work best). The earning required to reach each tier has also been accelerated. This means that people will be reaching gold status even faster than they were in the past. With 50% of members already having gold status this will make the upper tier even more common, essentially removing most of its motivating power.

Big Change in Point Value

No one wants to see something they own be less valuable. Imagine you wake up and all of a sudden your money in the bank is worth 50% less. You would likely be pretty pissed! That is why I can sympathize with the people who would normally buy single coffees.

starbucks new loyalty program tweet 2

Let’s take Erik’s example and #dothemath. In his example he is paying $4 per coffee, and in the old system he would have spent $48 to get a free reward. With the new 2 stars per dollar system, he needs 125 stars for that reward. 125 stars equates (125/2= $62.50) to spending $62.50 at Starbucks for the same reward.

starbucks new loyalty program comparison

In Erik’s case the points he is receiving are now essentially worth 30% less to him than they were before. He now needs to spend 30% more at Starbucks than he did in the past. I can see why some people are very publically upset.

That being said it actually helps a lot of people as well. If you were always buying a specialty drink at $8 a visit, you are now getting more value out of your points. You used to get a reward every $96, and now you are getting one every $62.50. This person actually has to spend 35% less to get a reward.

starbucks new loyalty program comparison

To summarize, I do not think that the change of the program as a whole was bad. Some people are hurt, and some people benefit. What I don’t like is the drastic change in point or star value. That being said, what is Starbucks to do? I don’t see an easy way to roll this particular change out in stages, which is what I generally recommend.

The Blah

These are things that just seem like fluff and PR spun facts, that don’t contribute to the new program at all.

Customers Wanted to Have More Stars

Starbucks has said that the change has come at the request of its customers. They say that program members wanted to be able to earn more stars, and earn them faster.

starbucks new loyalty program tweet 3

That is an interesting claim, considering all the benefits the change has to the bottom line. As one customer was quick to point out:

I personally think the changes were a smart corporate decision, but don’t try to say that it was requested by the members. Maybe a select group of people that spent $20 an order would have been actively lobbying for this change, but not the average member.

11x Star Conversion

According to CNN Money, Starbucks will multiply existing balances by 11x to compensate for the changes. This may seem incredibly generous on the surface, but let’s take a closer look.

starbucks new loyalty program change over

You used to need 12 stars for a free reward, you will need 125 in the new system. If you take your existing 12 stars and multiply them by 11x, you get 132 stars. This means that you are getting an extra 7 stars for every reward you currently have or a 6% bonus when they convert over.

This is another blah component for me. This is basically giving fair value to your existing customers for sticking with the change. If I were leading this new program I would be giving a slightly better conversion to ease people into the changes.

 

My Thoughts

In short, I can see why people are upset with these changes. However, I see why Starbucks would want to do this. They want to be sure that the most loyal/valuable customers are able to maximize value in the program. They also want to encourage spending, not just visits.

I personally like this move from a loyalty strategy perspective, but change is always tough. These loyalty changes are going to be rough to transition over, as they have already started to see.

Change is always going to be met with criticism, but it will pass. The people who are complaining now will still be using their gold cards in a few months. They will complain at first, just like I do when Facebook changes, but in the end all will be good.