How Starbucks built their innovative loyalty program
“Starbucks is effectively turning my life into a game in the pursuit of free drinks — trying to get me to visit during specific days, times, make new habits of visiting several days in a row, and purchase specific menu items.” — Dan Frommer, excerpt from ‘The New Consumer’ newsletter, 8 March 2020
Starbucks, with it’s now-ubiquitous green logo, is the best-known coffeehouse chain in the world.
Founded in 1971 in Seattle, the brand prepares beverages for more than 60 million customers every week, in 80 countries. In the last decade the number of Starbucks coffeeshops has nearly doubled and there are now more than 31,256 stores. This makes the coffeehouse chain the second most valuable fast food brand in the world.
In this Deep Dive we explore how Starbucks integrated their loyalty rewards within their venti-sized Starbucks-Blonde-Caramel-Brulée-Latte-world.
The Starbucks program is all about “being personal at scale” and the mobile app and integrated payments is key to this strategy. So along with the program mechanics we’ve also covered the mobile apps and payments in depth in this post.
But first, some numbers…
As of early 2020 the Starbucks Rewards program had more than 16.3 million active members in the U.S. market, with a 16% increase year-over-year. The tightly integrated Starbuck app, which is one of the worlds leading mobile payment methods, had 25.2 million users in 2019.
In 2019, 41% of their sales in the U.S. came from members.
In a press release of 2017 Starbucks shared that 36% of their sales in the U.S. came from the, back then, 13.3 million active members. In 2019, 41% of sales were linked to the purchases made by members. According to Starbucks, the company now has nearly 19 million of them in the U.S. (2020).
The personalized and deeply integrated program not only improves the experience for customers but also enables them to target promotions and marketing more effectively, thanks the insights gained.
The effects of this can be seen, for example, in the company’s Q1 2020 Fiscal Report, which shows an increase of 6% in store sales in America with a 3% increase in average ticket transaction. Starbucks explicitly cite their initiatives to create a unique Starbucks experience as a driving force in achieving these numbers.
However you look at it, Starbucks Rewards is a big success story and is a key pillar of the Starbucks business.
Starbucks Stars
The Starbucks rewards program is based on a classic “points” system. These points are called “Stars” or “Starbucks Stars”. Like with many similar programs the core incentive is that members earn Stars with every purchase they make. The following sections gives more insights how these Stars became eventually a payment option.
Earning Stars with purchases
In the US a customer earns two Stars for each $1 spent on any purchase in a Starbucks store.
Besides the standard spend-and-earn model Starbucks also has personalized, campaign-driven promotions for customers to earn additional stars.
Star Dashes
“Star Dashes” are personalized offers that allow customers to earn additional Stars by buying a certain combination of products in a specific time period.
Starbucks describes these as follows:
“[…] a way for them to earn Bonus Stars by purchasing some of their favorite Starbucks food and beverage items. These offers will vary based on the menu item as well as the number of stars that can be earned.” (Flager, 2019)
An example for this could be that if you order a Frappuccino three times within a certain time frame, you’ll earn extra Stars in addition to the Stars earned regularly for the drinks.
Star Dashes offers are created based on customer purchase data and are personalized to target these more effectively and incentivize customers to purchase and try additional products.
Double Star Days
Starbucks has one Double Star Day each month when members can earn twice as many Stars on all qualifying in-store purchases.
Earning Stars when buying Starbucks products from resellers
Starbucks’ branded products contribute significantly to the revenue stream of the coffeehouse chain. Starbucks has also included purchases of these products in the loyalty program.
Starbucks retail products used to have a sticker with a unique “Star Code” on the package. Customers would enter this code once logged in to their account to receive their rewards.
However, the company recently phased out the Star Codes on their packaging and now works with photos of receipts. This approach presumably also allows the company to understand what other, non-Starbucks, products their customers are buying.
With the app ‘Starbucks Rewards’ members can send a photo of their retail receipt on which the purchase of a Starbucks branded product appears. A maximum of two receipts per day can be submitted and receipts are valid for 60 days from purchase. After a few days these Stars will be added to the members’ account.
Status levels
The Starbucks program has two tiers or levels.
Everyone starts with ‘Green’ as the basic level, but members that spend more than $150 within 12 months will get “Gold Status”. Gold Status is valid for a year and entitles the member to a personalized Gold Card, as well as other special benefits (see below). It’s common to find devoted Gold level fans sharing their achievement on Social Media.
Rewards and benefits
Compared to some other programs, Starbucks Rewards has fewer rewards (check out our Deep Dives of Vitality to see their extensive range of rewards). Starbucks’ membership model instead focuses on convenience and personalization that is only available for members, and often exclusively through the app.
Due to recent changes, the program typically pays off for a customer after 2–3 purchases (on April 16, 2019 Starbucks introduced a major change to its reward program with the stated goal of making the program more interesting to “casual” customers. However these changes weren’t so popular among existing members and even caused the stock price of Starbucks to drop).
In general all members of the basic Green tier have access to the the following benefits however Gold tier members may get additional or special rewards unique to their tier.
Free refills
Members can get free refills on hot or iced brewed coffee or tea.
Personalized member offers and promotions
Starbucks makes use of a simple yet effective personalized offers to encourage customers to try new products or purchase something extra.
Personalized promotions tied to special occasions
Members benefit on special days like Christmas or Valentines Day. For example, this year Starbucks had a special happy hour for members, who received an exclusive “buy one, get one free” offer on the 14th February.
Free Birthday Drink
Adding your birth date to your account gives members the choice of a free gift. This reward is only available on the day of the birthday.
Again, this creates an experience which is often shared on social channels.
Stars as a currency
Once customers have earned a certain number of Stars they can also redeem these to get free items. Customers are incentivized to earn more Stars in order to access more valuable items. This gives Stars even more the feel of a currency.
The first benefit, ‘customizing your drink’ “costs” 25 Stars (the number of Stars a typical customer would have collected after 2–3 visits). The image below from Starbucks shows a set of free items and their “price” in Stars.
Redeeming Stars for a free item can be done through the apps Order & Pay functionality, or communicated to the Barista taking the order when standing in-line.
After using the reward the number of stars will be deducted from the account.
Of course there will be customers that save up their stars for larger rewards. Nonetheless, it becomes more common to combine cash and stars to pay for upgrades of the daily coffee break. Also, as the loyalty points develop more the image of a currency, it is interesting to keep an eye on the expansion of Starbucks’ mobile payments with third parties. Experts see Starbucks in the position to make their payment program a separate business, thanks to their technical capacity and loyal customer base. It wouldn’t be a surprise, since Starbucks is known for its early yet successful investment in digital products.
Free items for Gold members
Gold members also get a free food or beverage items with every 125 Stars they collect. Once they reach this number of Stars a voucher is added to their account in the app which can be redeemed in a store of their choice.
The Starbucks App and mobile payments
The app might just be the best part of Starbucks® Rewards. — Starbucks
The Starbucks app is the gateway to the program’s rewards but also works as a payment and pre-ordering tool. Many of the unique benefits of being a Starbucks member are features available only through the app. Starbucks’ in-app payment is one of the most popular mobile payment methods in the US. According to numbers from 2018 it was even more frequently used than Apple Pay.
Paying with the app
Members can load money from their bank account onto their Starbucks account and are then able to quickly and easily pay for their orders.
eMarketer came to the conclusion that the Starbucks app was used by approximately 25.2 Million North American users making a mobile payment.
Money that’s been loaded onto a customers account can be used for in-app payments but it also works for in-store orders at checkout. When the barista scans the member’s unique card code the value of the order will be deducted from the member’s balance.
Starbucks has also integrated a tip function in the app where happy customers can give a small ‘Thank You’ to their barista.
In 2018 Starbucks added a guest check-out for non-members: These customers can pay using a credit/debit card, Chase Pay, Visa Checkout or Apple Pay. The idea behind it was to make more customers aware of the benefits and encourage more sign ups.
Gift cards
If you’ve been to Starbucks in the U.S. you might have seen the gift cards at the check out counter. Both buying digital gift cards for friends and family and managing your own digital gift cards is a key part of the app experience.
You can also link existing physical cards you have to your account in the app.
Managing rewards in the app
The app provides an overview of the point status and enables the redemption of unlocked Rewards. Members also benefit from customized offers.
Ordering in the app
A nice benefit for regular members who want to their coffee without queueing: Starbucks members can place their order, select the pick-up location and pay via the app.
Apple Watch
The Starbucks app also works on Apple Watch. You can open the Starbucks card to check the current balance, number of stars or pay for your order. The watch app also shows the barcode of a e-gift card. In case there’s no balance you can top up your account through Apple Pay in just a few taps.
Starbucks Pickup: the app integrated into the offline store
In November 2019 Starbucks opened its first Starbucks Pickup store in New York City’s Penn Plaza.
This concept is designed around the Mobile Order & Pay feature set of the Starbucks app. While this new concept is focused on digital innovation (for example, a digital status board informs the customer of their order status), Starbucks wanted to keep the social aspect and the connection to their customers: every order is still picked up from a barista.
“Our customers who are on-the-go have told us that connection and convenience are important to them. By designing a store specifically for the mobile order occasion, we can deliver both for these customers using the store’s design, location and the expertise of our baristas.” — Katie Young, vice president of Urban Markets for Starbucks
Pick-up stores boosted by Covid-19?
The recent Corona crisis could push this new store concept into a slightly different direction. Starbucks’ sales dropped significantly in the world with stay-at-home workforce, as a coffeehouse isn’t a place of social distancing. But this gives the general concept of a pick-up store with mobile-order system a different opportunity. A shift that may not have been intended but could eventually help in the transformation to the new normal.
Partnerships and collaborations
Starbucks has also set up a number of innovative partnerships to further benefit their customers.
Earning Stars from Lyft rides
The U.S. ridesharing app Lyft teamed up with Starbucks allowing Starbucks Rewards member to earn Stars when using the Lyft app to get a ride.
The partnership between the two businesses also includes the option for Lyft drivers to become Gold Status members in the Reward program of Starbucks and instead of cash, Starbucks Reward members can tip Lyft drivers with Starbucks eGifts within the Lyft app.
New York Times
Starbucks and The New York Times started their partnership initially by offering Starbucks app users free NYT content.
This has now been extended and Starbucks will be sharing top daily articles from The New York Times in the mobile app and rewarding loyalty members with Stars for purchasing subscriptions from the famous publisher.
Spotify
Starbucks is also spreading Reward Stars outside their stores with a partnership with Spotify. Starbucks integrated ‘Starbucks Music’ as part of the app where members:
“[…] will see a music link or a Now Playing banner and an equalizer icon. Tapping the link, banner or icon will take you to the digital music experience within the app, where you can see a playlist and song details. Tap to open the playlist in your Spotify app”(Starbucks).
Starbucks Rewards members are encouraged to create in-store playlists for Starbucks stores, while being able to listen to them even after leaving the coffeehouse.
Purchasing subscriptions from Spotify allows members of the Starbucks loyalty program to earn Stars.