Since Starbucks announced changes to its loyalty program on Feb. 22−the My Starbucks Rewards loyalty program will now be based on how much money customers spend rather than number of visits−most of the prominent social media comments have been from unhappy patrons.
But Matt Kates, VP of Strategy and Insights, HelloWorld, believes the changes Starbucks implemented are smart and will prove to be very beneficial to the company in the long run. Loyalty360 talked to Kates to find out more about his thoughts on this trendy topic.
What was your immediate reaction to Starbucks customers on Twitter that blasted the company for its changes to the loyalty program?
Kates: I wasn't surprised. There are two guarantees in the world of loyalty programs: First, all good loyalty programs need to evolve in order to remain relevant to their members, economically sound, and aligned to company objectives. Second, when changes are made to a loyalty program, there will be a portion of program members that will focus on the sense of loss elements rather than the holistic program changes, even if the net impact is neutral or positive to members.
Starbucks had the foresight to recognize the member perception of risk that accompanies change and made the smart decision to proactively address it by notifying members over a month prior to the change, sharing the rationale for change, providing marketing materials that outlined the changes in very simple terms (i.e., the “Today and April” chart), and addressing the (likely) No. 1 concern of members: That their banked currency would be diluted. Even with good planning, it is impossible to eliminate the negative feedback associated with change. The goal should be to treat members with the respect they earned through their loyalty and minimize potential negative reactions. Above all, brands can’t let the risk of adverse feedback get in the way of the need to evolve the program.
Why do you think these changes are relevant and promising for Starbucks?
Kates: Loyalty programs are ways for brands to build affinity and encourage continued engagement from consumers. The changes Starbucks made to the program better align reward economics to consumer spend and enables more flexibility with how they engage and reward their members. By moving from needing 12 stars to 125 stars for a free item, Starbucks has greater flexibility in providing members with bonus Star opportunities. The current 12 Star construct creates a constrained currency system that limits the program’s ability to award bonus stars because each Star represents a significant percent of earning a free item. Loyalty programs need the flexibility to offer their members targeted currency bonus opportunities and accelerators in order to motivate incremental behavior. By expanding the scale, Starbucks’ loyalty program is maturing, and consumers will see more benefits more frequently, ultimately increasing loyalty.
Do you think Starbucks will gain or lose customers because of this?
Kates: The program changes won’t have a significant impact (positive or negative) on the number of Starbucks customers. The overall changes that Starbucks made create a stronger and more sustainable loyalty program. The expansion of the program currency from 12 stars to 125 stars to earn a free item provides Starbucks with greater flexibility to provide members with bonus Star opportunities. The shift from a visit-based to a spend-based loyalty model better aligns the program's reward economics and recognizes the value of Starbucks’ higher spending customers. Lastly, it will speed up the consumer experience at Starbucks. The 1% of Starbucks consumers who currently try to get additional stars by asking for multiple items to be rung up separately slows down the Starbucks experience for both the 1% who makes this request and everyone else in line as well. 1% might not sound like a big number, but it is significant for an organization with high transactions.
For a company that is a global icon, and has treated its customers so well, how do you foresee the future in light of these changes?
Kates: The future is bright for Starbucks; after all, the program changes have a relatively neutral impact on the average member. Starbucks treated its members with respect by being proactive and transparent with its communication of program changes. Any backlash to the changes will be short-lived as consumers adapt to the changes and see the benefits of the redesigned program themselves. It’s normal for consumers to be taken aback by changes to something they enjoy, but in this case, the benefits of the change will be apparent as they engage with the loyalty program on a day-to-day basis.
Furthermore, the new program model creates an opportunity for Starbucks to grow its relationship with members. The more flexible star model allows Starbucks to use the program currency to engage with customers more often through pulsed bonus earning opportunities. Additionally, the new spend-based model better motivates members to increase their spend per visit which will allow them to expand their purchase behavior and discover more of what Starbucks has to offer.
What do you think the detractors are missing that you believe makes these changes positive?
Kates: The so-called ‘detractors’ are likely frustrated that all purchases at Starbucks will no longer warrant the same reward value – particularly for lower per visit spend consumers. However, when looking at the program redesign in-depth, it’s clear that in aggregate (or on the whole) consumers will still earn Stars; larger purchases will simply garner more Stars than smaller purchases. By creating a larger scale for rewards, it’s not that members will earn fewer rewards, but instead, there’s more opportunity to earn bonus stars, ultimately giving more chances to win free items.