Starbucks: Winning on rewards, loyalty, and data

Starbucks Rewards Program generates customer loyalty, increased revenue, and data for the company to create meaningful 1:1 relationships and personalized marketing efforts.

Starbucks Reward Loyalty Program

The Starbucks Reward Loyalty Program has a staggering 16 million active members (as of March 2019), with 11% growth of their user base in Q2 2018. Starbucks attributes 40% of its total sales to the Rewards Program and has seen same store sales rise by 7%. The Reward Program is available on mobile devices as the Starbucks app, and has seen impressive membership and growth since 2008, with multiple iterations on its original form. The investment made into the mobile interface has increased the frequency and spend of both regular and occasional customers. Starbucks uses this tool to individually market specific products and features based on data collected from the app about its users. Customers can order and pay through the app ahead of arriving at a physical location, as well as earn stars (rewards) that translate into free drinks, food, and merchandise. Starbucks is a clear winner that has reinvented their relationship with customers and captured enormous value through their investment into digital technologies.

How does Starbucks create value?

Customers benefit from using the app by:

  • Ease of payment in store through mobile app
  • Ability to order and pay ahead of arriving in store (and therefore skip any Monday morning rush lines by having a separate ‘mobile order pickup’ station – which in itself serves as a highly effective marketing tool for the app)
  • Rewards and benefits: such as free refills on brewed coffee and free drinks on member’s birthdays, relatively quickly earned other rewards from purchases, such as free food/drinks/merchandise
  • Special member events
  • Ability to send other members and friends gift cards through the app
  • App integration with other platforms such as Spotify to discovery music playing in store (a big part of Starbucks and more generally coffeehouse culture)
  • Members are first to know about upcoming seasonal and new product releases

Starbucks reaps many of its own ‘rewards’ from the app:

All these features have created an intense loyalty for customers to the app and reward program, which kicks back nicely for Starbucks. Members of their rewards program are feeding in valuable data that Starbucks can then mine to personalize marketing efforts to individuals and create a uniquely direct relationship with their customers. Besides drawing in the ‘occasional user’ to come back and increase their frequency of purchase (key in this business), the app has also been seen to increase the frequency and spend of regular and super-user customers. According to CFO Patrick Grismer, “We know from our experience that when customers join our rewards program, their total spend with Starbucks increases meaningfully”.

Aside from the increase in revenue associated with the app, the real value lies in the innovative potential uses for the large amounts of user data collected, which forms the base of Starbucks’ digital strategy. Starbucks has begun experimenting with digital menu boards in their physical locations to allow for a dynamic menu based on customer demand (varying with regional preferences and times of day), that would ideally continue to boost same store sales. The decision of where to place new stores and how to expand has also been informed by this user data. The ways in which this user data can be used in the future are important in the ever more personalized retail world, where customers want less of being ‘talked at’ and more of being included in a conversation.

What’s Next?

Starbucks continue to prove itself to be truly customer centric, building innovation around the core theme of their relationship with customers. Their willingness to adapt and invest in their digital technology has allowed them to create and capture enormous value for both customers and the company. As Starbucks gets access to more customer data, the ability to continue to create more meaningful, personal relationships with customers will only increase, and this is how Starbucks is positioned to win in the future. They have continued to innovate on ease of use with the app, now integrating voice as a feature when ordering for mobile pickup. Of course, Starbucks will have to continue within this theme of digital innovation to remain a winner in the future. Use of consumer data builds a strong base for a number of potential technologies to harness in the future, but it doesn’t guarantee success.

 

Sources

https://www.e-zigurat.com/innovation-school/blog/companies-digital-transformation-strategies/

https://www.restaurantbusinessonline.com/marketing/starbucks-rewards-program-pushes-chains-growth

https://www.usatoday.com/story/money/2019/03/19/starbucks-redesigns-its-loyalty-program-so-you-get-free-stuff-sooner/3174227002/

https://zinrelo.com/loyalty-rewards-case-study-new-starbucks-rewards-program.html

https://themanifest.com/app-development/success-starbucks-app-case-study

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8 thoughts on “Starbucks: Winning on rewards, loyalty, and data

  1. I loved this post, Leah! (Not just because I’m a Starbucks junkie and heavy user of the app.)

    One thing that I think about whenever I use mobile ordering is the way my experience has changed in the store – I spend less time on the transaction, keep my headphones in, and don’t have to interact with anyone behind the counter. This is a huge positive for me (e.g., when I’m in a rush) and probably makes me lower cost-to-serve for Starbucks, but I wonder does the presence of in-and-out customers like me make non-mobile users’ experience worse? Are they served more slowly? Do they no longer enjoy lingering over a book in Sbux’s “third place” when there’s a constant stream of mobile customers with headphones in, coming and going? Maybe this is why Starbucks is doubling down on its Reserve Roastery high-end concept, to segment out the grab-and-go types like me from the coffee shop experience-seekers.

    To generalize, it seems that greater investment in/growth of digital channels can negatively impact traditional channels if not addressed proactively.

    1. Really good point!

  2. Great article highlighting Starbucks, Leah!

    Your blog post reminds me of our first case in class on Dominos Pizza. At one point, Dominos was considered a huge winner in the app/delivery space as they were an early adopter of app & ordering technology. But as competition moved quickly, other players such as UberEats and DoorDash threaten the competitive advantage these single-brand apps, such as Dominos, had developed. I sat in class wondering if Dominos could follow the Starbuck’s app model and develop a loyalty program, or if selling pizza vs. cappuccinos are just too different of business models?

  3. Interesting read! I think the membership programs that have become increasingly common in retail are an interesting way for traditionally analog companies to begin to experiment in the digital world. There is clearly value on the table for both the company and the consumer so I can imagine it would be an easier internal sell than some other digital transformation projects. I wonder how Starbucks will continue to improve their application to build an experience that connections the physical and digital worlds for their consumers and differentiate against other big chain coffee shops.

  4. Thanks Leah for the interesting post. I completely agree that the reward loyalty program is an effective initiative to reduce the customer churn due to the entry of new coffee players. However, I believe that it is even more important to improve the customer experience by creating new products that match with the evolving preferences of customers. As you mentioned in the article, data will play a critical role in the future to offer a more personalized service. Starbucks has developed some initiatives in this line. For example, in 2019 Starbucks installed 1,900 Mastrena II expresso makers, which have IoT sensors for preventive maintenance purposes. This initiative will allow Starbucks to reduce machines’ failures, reduce customer wait time and improve customer experience. In the future, Starbucks should continue working with data to improve their products and increase customer retention.

  5. Great analysis Leah and really unique viewpoint on what’s next for Starbucks! As brands continue to focus on building a deeper connection with their consumers loyalty programs that collect more personalized data and usage trends will help organizations better differentiate their service and product offerings. I am curious as Starbucks begins to really leverage big data what major changes do they decide to implement. There may be opportunities to decentralize operations and curate offerings providing localized products, location designs, and services which can further help Starbucks capture a larger share of wallet.

  6. Great post, Leah!

    I feel conflicted about Starbucks’ shift to the digital channel that allows for a greater number of customers to be served in a shorter amount of time. Personally, I’m the type of customer that spends hours at coffee shops for the quiet and relaxing ambiance, smell of coffee, and calming music. These days, Starbucks stores feel more like McDonald’s and the relaxing user experience has been completely lost. While they’ve now lost me as a customer, I recognize that they’ve gained 8 in my place that probably result in higher profitability. A win for Starbucks, but unfortunately a loss for me.

  7. Great post! This is super interesting to me – I had no idea this was such a powerful tool. There is one main thing I’m wondering about: What do you think allowed Starbucks to be more successful than other coffee shops with their Rewards program? Was it more the technology, the convenience, the recommendations, or the combination of everything together? I guess my thought is that I don’t know why more companies haven’t been able to replicate this.

    A second thought is just that the power of this loyalty seems so strong that it may be impossible to disrupt, despite lower prices elsewhere. We see new coffee shops popping up all the time, and I’m not sure any of them stand a chance knowing this.

    Thank you for sharing! This has opened my eyes to how important loyalty is and how brands can work on building that with customers.

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