Starbucks New Loyalty Program Case Study: Spend-Based Loyalty Program

I. INTRODUCTION

This is a company related case study about the New Loyalty Program of the largest
coffeehouse company in the world known as Starbucks. The Starbucks has a current visit
based-program but they announced that it's changing the way it does rewards, and the net
result to many customers is that they’ll have to spend more before getting a “free” coffee
as an appreciation for their business. But the main issue in the changes of the Starbucks
Reward System is that; Why the Typical Coffee Drinker Will Hate Starbucks' New Reward
System? Lately, it was bombarded by complaints that Starbucks customers are upset if not
infuriated by the brand's change to a spend-based loyalty program and many of those
frustrated come from 50% of customers who average less than $5 per visit. Hence, the
other half of customers who spend more than $5 per visit are happy because they'll be
getting rewarded more often for their loyalty. Basically, it's easy to see why the typical $3
per visit customer is upset. If you are one of those typical customers who always visit but
spend a little, would you also be glad to their new loyalty program? Do you think the new
spend-based program is actually fairer to their customers and rather to the current visit-
based program? Do you think the new loyalty program was worth the increase in spending
per visit from all customers? Do you think the new reward system will increase their
customer's loyalty? Nonetheless, because Starbucks initially rewarded customers on a visit
not spend, the brand created expectations with regular coffee drinkers who are
understandably upset as their loyalty is less appreciated now. They also opted to change
the program by using their average ticket of $5 but it possess a challenge because many
regulars prefer a standard $3 cup of coffee. It's hard on their part to please every customer
but ultimately, reward programs are just a complex way of offering discounts, though they
tend to be shrouded in an insistence that they are about recognizing customers for their
loyalty.

II. BACKGROUND

Year's ago, Starbucks created their loyalty program as a visit-based program in which
customers back then got a single star for each transaction, regardless of the beverage size
or price, even if all they bought was drip coffee; 12 stars was enough to claim any drink of
their choice. If a customer will visit almost 30, then he/she can reach the Gold status and
become eligible to receive the rewards. But the world’s most popular coffee chain
announced that it was changing its transaction-based rewards program to a spend-based
one. Starbucks Rewards are currently based on the amount of times you visit the chain. You
earn a star for every visit, regardless of how much you spend. With the new system that the
company says will be implemented in April, however, stars will be accrued based on how
much customers spend rather than the number of times they pop into Starbucks to buy
something. For every $1 spent, you’ll get two stars. But by switching the focus of the
loyalty program from a frequency of visits to how customers spend, Starbucks is attempting
to broaden the appeal of the loyalty program beyond its most loyal customers with the
expectation that once consumers become loyalty members, they will visit more regularly to
earn rewards. Last April, Starbucks made some significant changes to its Rewards program.
Rather than requiring customers to wait until they acquired enough stars for a food or
beverage item, it introduced a tiered system, with a variety of rewards at different levels of
stars. The customer needs to earn 125 stars to get a free Starbucks drink. But only those
who are at the Gold level in the rewards program qualify for the freebies. Everyone who
signs up for Starbucks Rewards starts at the Green level. To get to Gold, you need to earn
300 points, in other words, you’ll need to spend at least $150 a year at Starbucks to start
earning free beverages. Once you reach the elite Gold level, you’ll get a free beverage or
food item for every $63 your spend. So, if you typically spend $5 every time you visit the
coffee chain, you’d need to make 13 visits to earn a reward. The more they spend per visit
and the more they frequently they visit, the faster they will be rewarded. It's tough to
please every customer yet Starbucks realized the spend-based program rewarded their best
customers better and opted to change the program by using their average ticket of $5.

III. EVALUATION OF THE CASE

The following are the various pieces of the case study:

 Starbucks change their current visit-based program to a spend-based loyalty

program

 Typical Coffee Drinker are upset to Starbucks' New Reward System

  Starbucks opted to change their program by using their average ticket

 Starbucks offers other benefits and privileges for the high-frequency of low-spend
customers

In the given various pieces above, Starbucks change their current visit-based program
to a spend-based loyalty program is working, yet Starbucks is making some massive
changes to its rewards program changing how many stars customers have to earn to get
free food and beverages. However, Starbucks is further enhancing the customer experience
with the introduction of a new Starbucks Rewards program. Hence over the past years,
Starbucks Rewards continues to be a powerful enabler of loyalty up until the current year.

Typical Coffee Drinker are upset to Starbucks' New Reward System is working because
typical customers are freaking out about the disappearance of their stars, which Starbucks
Rewards members can cash in for food, drinks, and other items. Customers typically earn
two stars for every $1 they spend. But with the new loyalty program, customers became
green members when they first signed up for the loyalty program and gold members when
they earned at least 300 stars in a year. Only gold members could redeem stars for free
items. That's why they are understandably upset as their loyalty is less appreciated now.

Starbucks opted to change their program by using their average ticket is not working
because their regular or typical customers still prefer a standard of $3 cup of coffee. Some
customers visit the store and spend only less than $5 but still, they want to earn points for
the rewards. But for those who spend a lot on each visit would still be glad because they
could

IV. PROPOSED SOLUTION OR CHANGES

Ensure that the customers view the rewards as worth the effort

Including the views or perspective in the reward program in the development process
is crucial to ensuring that they value the rewards and see them as worth the effort.
Managers should value customers' input and select rewards accordingly. Starbucks
customer who sees the rewards as worth the effort will be more enticed and obtain their
loyalty to them. I chose this as a solution because first, and foremost customers plays a vital
role within the business environment. They should be considered and their opinions or
complaints matters whatever the business change regarding their sales, rewards or
anything. The customers should oversee if the changes are worth the effort.

Make sure that all customers understand how to earn the new rewards system

Managers should clearly delineate how their customers can earn rewards with their
new reward system. The Experiential Benefit of Starbucks is also good because it is also an
advantage on the part of the low-spend customers. When customers have a
comprehensive understanding of what is expected of them, they will be more capable of
accepting the new standards of the business.

V. RECCOMENDATIONS

Set reasonable and transparent for the new rewards system

Starbucks customers must see the rewards as attainable in order for them to engage in
the necessary effort to obtain them. Check in with customers to ensure that they believe
the rewards are within their reach.

Provide creative ways with the high-frequency spend-less customers

While discounts are the standard customer reward in loyalty programs, the program
needs to offer more if they want their other customers would not be upset on the process.
For example, their best or top customers who frequently visits but spend a less, are given
exclusive access to new products. This creates a memorable customer experience and gives
customers greater inducement to become members and spend at Starbucks.