When it comes to customer loyalty programs, most fall short. The benefits come nowhere close to making up for the hassle and inconvenience to the customer.
Not so with Starbucks.
Of all the rewards programs I know, Starbucks has achieved something most brands today attempt but fail: They increase sales while showering customers with benefits.
This is large in part due to incredible use of their mobile app, which blends transactional capability with rewards, something most retailers miss.
According to a July 2015 article on PYMNTS, Starbucks CEO Howard Schultz has always said that Starbucks is an “undisputed leader in mobile commerce.” And he uses the mobile stats that he presents each quarter as fodder to support his claim.
In the company’s 2015 third-quarter earnings call, Schultz shared that Starbucks’ mobile transactions now account for 20 percent of all in-store sales — more than 9 million mobile transactions a week — and a 4 percent increase in foot traffic.
As a marketer, I scrutinize rewards programs for what they truly are: a program designed to create the illusion of potential benefits and rewards when in fact all they do is track and manipulate shopper behavior.
Always Pay Using Your Smartphone
When I first saw somebody pay for their beverage using their iPhone, it was kind of unnerving.
“What’s wrong with cash,” I thought, “it’s only a few bucks.” Now when I pay for every single Starbucks purchase with my iPhone I wonder if the person behind me is thinking the same thing.
Why do I use the iPhone app?
Immediately after installing it and setting up my account I saw that I would reach the first rewards level (Green) after only 5 visits and receive my first reward. Unlike most other retailers which offer a meaningless free trinket after 10 visits, 5 visits to Starbucks can accumulate quickly, and it comes with actual rewards.
The next and only other level is Gold, which you reach 12 visits after your first 5.
Rewards. Rewards. Rewards.
As a Gold member I receive a reward every 12 visits, but I also receive rewards along the way. As an example, recently I received an offer for a free Frappuccino with the purchase of 3 Frappuccinos.
You might be wondering who on earth buys 3 Frappuccinos, and that was precisely my thought when I first saw the reward, but this is where Starbucks is clever.
Personally, I don’t drink Frappuccinos, I get a Tall black coffee or a Grande hot tea on just about every visit. On occasion I get a Tall Latte, but my 10-year-old son asks me all the time if he can get a Frappuccino. Of course his younger brother will want one too and so I always say “no!”
But on this particular occasion we happened to be on a family road trip and had other family members with us. What a perfect time to give in and get Frappuccinos for everyone.
On that visit we walked out of Starbucks with 4 Frappuccinos and a Latte for only $11. In addition to the free 4th Frappuccino I also received a free drink for some other reason I wasn’t even aware. Probably a consecutive visit or something.
Starbucks is showering me with rewards and I am buying more Starbucks than ever before.
Where Others Go Wrong
The status quo for retailer rewards programs is a “free something” every 10 visits, and that’s it. I can’t think of a single other rewards program that makes me feel like I am actually getting a reward.
Panera’s rewards program stinks. Every 10 visits you get a free drink or a free bakery item. Problem is, people don’t go to Panera for coffee and tea, they go to eat, so imagine how long it can take to hit Panera 10 times, unless maybe you work nearby and go out to lunch often.
In the 2-3 years I have been with the Panera rewards program I have redeemed maybe one or two rewards. In the few months I have been with Starbucks’ program I have redeemed probably half a dozen.
Walgreens does ok. They offer discounts on numerous items if you are a Walgreens Balance Rewards member. At the end of the day, you aren’t getting much. You just aren’t being ripped off as bad as non-members. The other day I bought 4 packs of gum for under $4. Woo hoo!
Retailers need to put more thought into their customer lifecycle and build a unique rewards program around the customer.
Caution: Beware of Security
One thing to be careful of with the Starbucks rewards program is that because transaction capabilities require access to your debit or credit card, there is a security vulnerability. People have been burned by hackers breaking into their online accounts and loading up purchase cards for themselves to make transactions. You may want to read up on how this happens and how you can protect yourself.
This type of security breach is not limited to Starbucks of course. Any retailer that makes it possible to purchase product through its smartphone app or website is susceptible to such security breaches.
