03/18/2016

Kerfuffle Over Loyalty Program Changes Brews a Lesson on the Value of Rewarding on Multiple Variables

Adam Craig March 18th, 2016
Categories
Customer Engagement

“I’m only a dollar sign.”

“Gouging.”

“No one believes that at all.”

“I know when I’m being screwed.”

Before it even launched, Starbucks’ revised rewards program was generating the kind of Twitter vitriol that we’ve come to expect from presidential campaigns. The coffee-seller’s website says the new rewards program will go live sometime in April, but customers are already protesting — loudly, angrily and creatively — on social media.

Peeved consumers are pointing out (rightly so) they’ll have to spend a lot more money in order to earn the points that add up to freebies. Under the old program, customers earned a point (a.k.a. “star”) per visit, regardless of the amount they spent. After 30 stars (30 visits), they reached Gold status, and could then redeem 12 stars for a free item of their choice. Under the new program, consumers earn two stars for every dollar spent, and will need 300 stars to achieve Gold status, after which they can redeem 125 stars for a freebie. You can understand how that math might look to consumers.

Starbucks defends the move by saying the desire for greater rewards tied to greater spend has been the top request from loyalty program members — leading one customer to tweet:

“Your biggest mistake was trying to tell ppl they requested
the change. No one believes that at all.”

Ouch.

While Starbucks has successfully cultivated an image as an ethical company that cares about its customers, it’s not hard to believe that the change was, at least in part, motivated by cost considerations. Loyalty program marketers must always balance the loyalty-building value of their programs against the actual cost to the company, and many companies have retooled their programs in an effort to reduce costs. As an example, many airlines have begun to award points based on dollars spent, rather than miles flown.

Often, when a company changes its rewards program to reduce its costs, consumers can feel cheated. Companies need to remember the value of a loyalty program is not just tied to the money customers are spending, but also the value of regular engagement.

Rewarding consumers on multiple variables can address both the company’s need to mitigate costs and the consumer’s demand for rewards that are achievable and relevant.

For example, it’s believable that consumers who spent more per visit at Starbucks would want to reap greater rewards than their peers who visited with the same frequency but spent less. (Although how anyone gets out of Starbucks without spending at least $5 per trip remains a mystery.) And it makes perfect sense for Starbucks to give greater rewards to the big spenders, especially if those consumers have repeatedly asked for it, as Starbucks says.

The flaw in the coffee shop’s new approach is that it seems to assume greater per-visit spend equates with greater depth of loyalty — and disproportionately rewards those big spenders while short-changing those who spend less but may visit just as frequently, and be just as loyal to the brand. Starbucks could have chosen to reconstruct its program in such a way that rewarded both consumers who spend more and those loyal not-so-big-spenders who visit as frequently or even more often than high spenders.

The blowback on Twitter illustrates another important point about loyalty programs. When the very actions you take to deepen loyalty backfire, you can actually end up driving away customers, as evidenced by some of these Twitter statements:

“Hate the new Starbucks rewards program. Am a gold member. Will go much less.”

“Time to give my @DunkinDonuts app a try.”

I’m sure Starbucks has a plan in place to turn this around, but for the rest of us, this is a lesson learned without the high cost.