Starbucks Expected to Play Loyalty Card
About the biggest news that could come out of Starbucks’ annual shareholders’ meeting today would be if the company didn’t introduce a new loyalty program using its prepaid Starbucks Card.
Analysts, including Howard Penney with Friedman Billings Ramsey, widely believe that Howard Schultz, Starbucks’ CEO, will announce a program that rewards customers for their repeat business with free coffee, discounts or other perks. The intent is to keep Starbucks’ customers in its cafes and not off at some other foodservice alternative.
“Clearly the Starbucks Card is going to be an important component to getting people in the store and keeping them coming back,” Mr. Penney told Bloomberg in a phone interview last week. “You want your most loyal customers to come back more often.”
A formal loyalty program with the Starbucks prepaid card seems to many to be a logical next step for the chain. The company, the Bloomberg report noted, has used it to offer special deals to customers including a recent promotion that gave two hours of free AT&T wireless internet access to card holders.
Discussion Questions: What are the keys for Starbucks or any other company to make a loyalty card program work? How do you think Starbucks could best use its card to create a more meaningful relationship with the company’s customers?
A customer loyalty program is simple…after 10 cups of coffee you get one free. We offer a free manicure after your tenth and people love it. We wear a button that says Free Manicure? Ask me how. It works and customers are loyal!
The discussion question is misleading. “Best in class” loyalty programs (like Tesco or Harrahs) can be enormously successful. But they are exceedingly rare. Nothing against Starbucks, per se, but there is no reason to believe that they will achieve such status. More likely, they will end up adding a lot of overhead, and will basically give discounts to customers who would have paid higher prices anyway.
Their primary goal (like pretty much any retailer) should be to build the size of the customer base, and a loyalty program doesn’t help much in this regard.
That doesn’t mean they shouldn’t institute such a program–the resulting data (if they analyze it properly) can offer great value. But beyond these data-driven insights, the program itself won’t change customer behavior very much.
Loyalty programs are often viewed as marketing schemes to trick customers to come to you more (note: loyalty programs are not geared to acquisition but rather increase frequency to you vs competition).
Loyalty is earned every day through superior value in the basics–quality and assortment, pricing (which includes promotion), service…and convenience (location). All of this can be done without a loyalty program but can be done better with more knowledge of customers.
I think a good loyalty program for Starbucks would consist of (great ideas listed above by today’s other RetailWire contributors):
1. Rewards structure (and gives the customer a reason to join)
a. Continuity program – 10th cup free. This would be affordable to Starbucks due to their high margins (airline and hotels can afford due to their low variable costs and empty seats/vacant rooms).
b. Better service (available to all customers on day one)
— ordering efficiency – “the usual”
— cashless payment
— faster service (operational efficiencies)
— targeted awareness (via targeted medias like a kiosk, LCD screen, e-mail, text to mobile phone, etc) of products/services that would likely of interest to them (based on their past purchases, time of day shopping, payment type, etc)
c. Preferred service to better customers (and thanks to the airlines for teaching customers to recognize and accept the practice of treating better customers better is OK!)
— Skip lines, preferred checkout
— Free WiFi
2. Improved decisions through better customer knowledge.
a. Drive company strategy – attracting more customers who are also more profitable. Conduct a Customer Segmentation, identify the total market for each segment, your own capabilities to satisfy them vs your competitors’ capabilities; and adjust your product or service to better meet the target segment needs.
b. Execute more effective and efficient marketing and advertising through improved targeting methods and improved media selection.
Supermarkets launched loyalty cards in the mid-90s on the promise that loyalty data would allow for great insights. While it has taken many years for this to become reality for the low-margin sector, the diminished value of old medias for new targetable medias combined with new analytics, multi-channel and supply chain capabilities have created opportunities for sustainable performance advantages for those companies willing to open those doors!
If they keep the program simple (free coffee after 10 purchased, or free iTunes download with every x dollars in product purchases) then the value from data capture should make the costs worthwhile. Just don’t create big discounts for customers that are willing to pay full price. I do like the comment about a kiosk at the front where you could scan your card and get your regular order into the system right away. On a personal note, my wife is a Starbucks Mocha (decaf, non-fat, no-whip mocha, thank you very much) junkie and providing a loyalty incentive will guarantee more of our earnings going to Starbucks!
Part of the purchase of a Starbucks product is cachet and a feeling of “insider-ness.” A loyalty program should reflect that to keep its heavy users loyal–not straying to other food service providers.
I think Starbucks could model a loyalty program on the airlines frequent flyer programs. One of the distinguishing factors in airline programs is the silver, gold, platinum medallion levels. Gold level flyers definitely get desirable perks. Platinum folks are treated like royalty. What if some Starbucks drinkers were gold level members? Platinum? Could they skip the morning line & get their drink quicker? Have their own check-out line? Get free WiFi in-store?
Unlike Dunkin’ Donuts, Starbucks is not a populist place. Some loyal users were complaining recently over Starbucks moving to a more mainstream music selection. This is a crowd that craves exclusivity. Give it to them.
A successful loyalty program has low requirements for entry, opportunities to earn prizes for moderate levels of participation and some higher level aspirational prizes.
Loyalty programs also come with significant costs to create and administer the program. They are easy to start and not so easy to stop.
I’d like to know Starbucks’ goals in introducing this program. Is the goal to get heavy users to come in one more time per week, to collect data on users that can be used to test promotional programs, to get more consumers to carry Starbucks cards, or to reward all users?
I would like to see a loyalty card that was managed properly, not one that held you hostage to carrying around another slab of plastic (I already have 50 or so of those). My grocer has a unique system. You fill out a loyalty card application and put in your phone number or any series of 7 numbers you can easily remember. Then, when you check out you simply tell the cashier your number and you receive all your loyalty benefits. You don’t have to keep the card, just remember the number.
I have no idea why so many retailers want you to tote their plastic. The idea of it somehow building a wall that keeps you in their store is [crazy]. In my neighborhood we have a Starbucks and an independent. The Starbucks is nice but very corporate. The independent is better because internet is entirely free, you can actually get a real sandwich and none of the employees has anything pierced. I don’t have to have a “special card” to watch the big screen, or check my email. Starbucks is living in a Seattle cocoon. Coffee just isn’t that important!
From the Bloomberg article it seems to me like a loyalty program may be off the mark. With a loss of clientele to McDonald’s and Dunkin’ Donuts, maybe Starbucks needs to realize that people don’t want to spend their lunch money on a cup of coffee, regardless of how much they get rewarded for it.
Instead of rewarding the loyal customers who are continuing to come in regularly anyway, maybe they should be rewarding all their customers by offering bundled deals, better pricing and perhaps more creative products.
There’s no reason why they can’t have a lower priced “house special” aimed at those who just want a cup of coffee while catering to the high end coffee drinkers. I highly doubt this would weaken their brand.
If they were smart they would be amongst the first to get on the coalition loyalty program bandwagon which is prevalent almost everywhere but the USA. They would find a gas, grocery, airline, cellphone, restaurants and some other niche retail partner’s and create one card that could be used at a multiple places.
If they were really smart they would figure out a way to not be tied to an existing credit card, have the full functionality of a debit/gift card, and leverage “Cause Marketing” to help answer the above questions regarding a way to keep and gain new clients.
I know of such programs but for some reason they have not yet taken hold. I believe it is only a matter of time and having the first heavyweights to throw their hats into the ring!
Any retailer should be thinking of leveraging their loyalty card to make it easier for the customer to get what they want at their store. It’s not just about discounts or rewards, it’s also about customer service. So how can Starbucks make it easier for their customers to get their favorite coffee drink?
Start by having a system where the customer’s order is “remembered” the way it would be at a favorite hangout. When the customer scans their card, the system orders “the usual” for the customer unless they override it.
To make it really easy, and provide a unique benefit for loyal shoppers, how about having an Express Kiosk at the entrance where cardholders ordering their regular drink can scan their card and immediately get their order into the system. With payment handled on the card, they can totally avoid waiting in line.
A properly designed loyalty program could be a huge thing for them and even a mediocre one should help. I think that Starbucks is an ideal business for loyalty cards and could be quite easy and inexpensive to implement. Free coffee or drinks is a no-brainer for their card but if they could find a way to streamline redemption it would be really big.
I love Panera Bread’s coffee card (and their coffee) but wish that I could redeem my free coffee without having to wait in line. The biggest difference is that you don’t have to have a person prepare your coffee at Panera like you do at Starbucks. Panera’s card helps prevent me from going to Starbucks but with a Starbucks card, who knows?
How about a loyalty card that attaches to your keyring that can be scanned to pay for your purchase and track it at the same time? Like the little keyring fob I use to pay for gas at Mobil? I wouldn’t even need the free 10th cup of coffee for that, if it just eliminated the hassle of getting out the cash and having the clerk dump my change atop the bills in my hand, and then onto the floor. Of course such a payment system might really hurt the ‘take’ of the tip jar that’s left out there on the counter for the baristas or matadors or whatever they call themselves these days. But for tightwads like me, so much the better.
I’m surprised that Starbucks hasn’t implemented a loyalty program years ago. With the amount of traffic they see and the technical savvy of their typical customer, it only makes sense to have a points program. The marketing possibilities are endless! Email, in-store pop, direct mail campaigns, even selling to laptop coffee drinkers who use the store’s WiFi system are ways of communicating with their best customers. Starbucks has some great merchandise that customers want and would collect points for. Good direction for Starbucks and I think their customers will really appreciate it.
I am always apprehensive talking about loyalty programs. I think we tend to have it backwards. Customers do not have to be loyal to a company. We can be loyal to our family, church and country without the need to be loyal to Starbucks or any other marketer. What companies need to do is to be loyal to their customers. How is this achieved? Simply stated, deliver on its promise.
It appears that most loyalty programs are really continuity of purchase programs. That is okay given that the cost of administering these programs is reasonable. However, a real loyalty program finds the needs of its heavy users and attempts to fill these unique needs in ways other than a variety of price concessions.
If Starbucks has determined what these needs are and develops a commensurate program, then there is the possibility that its loyalty program can become more than simply another discount card in your wallet.
The best “loyalty card” Starbucks will probably ever have may have already been established in its loyal pilgrims who religiously take their daily devotion in the pews of a Starbucks church.
As Peter said, the primary goal of a loyalty card is to increase the size of the customer base. But the number of potential new customers for Starbucks may be dwindling today due to the current economic uncertainty, i.e., a delightful caffeinated coffee for $4 accompanied by anxiety does not easily bring new bucks into Starbucks’ sanctuary. Starbucks needs to focus any loyal card program on maintaining their vast army of already committed coffee commandos with ample money for their morning honey.
Having consulted for both of Starbucks’ largest competitors and having managed 70 consumer-facing loyalty programs, I can say pretty confidently that Starbucks will, with a compelling consumer value-proposition, realize a 25% lift from sales of its ‘next-best’ clients with the introduction of a program. The only reason they have waited this long has to do with their relationship with Chase Bank and the Duetto credit card, which never really took off.
I am not exactly sure what a “Next best client” is but I will bet you a hundred bucks right now that Starbucks won’t experience a 10% system lift with a loyalty program.
The best loyalty programs are simple and don’t slow up the cashier line. But the best retailers don’t have “loyalty programs”. They earn their customers’ repeat visits and raise their average transaction sizes by enhancing the experience for everyone, every visit, no exceptions. They don’t burden their customers and cashiers with complications.