Yes we do hang out a Starbucks a lot; what consultant doesn’t? Hence we are all avid users of Starbucks Rewards. At Sprocket we are very observant of the fusion of Loyalty Economics and Experience Design. Starbucks Rewards is a great example of these two disciplines coming together to drive business value.

SO how does Starbucks Rewards blend Economics and Experience Design?

As a loyalty program designer, one of the cardinal rules is “Make it Easy”.  Not only is Starbucks Rewards easy… it’s easier. It’s actually faster when you transact with the app and earn rewards then if you transact with cash or a Credit Card.

The last thing I want in the morning is to be stuck in line behind some guy who is confounding the cashier because they can’t figure out how to redeem his points, or look up his loyalty number. I hate that, the guy backing up the line hates it, and so does the cashier. Sadly, a lot of loyalty programs fail because they are poorly designed customer experiences, poorly designed for the customer and for the staffer.

Instead of loyalty adding a second or two to the transaction process, (entering your loyalty number) Starbucks Rewards actually removes a step from the transaction process. To get my points I scan the code to pay with the app instead of swiping my card or paying with cash.  So its easier and faster – perhaps only a second or two. But when there is queue at 7:30 on Monday morning a second or two subtracted from each loyalty transaction versus a second or two added to every transaction makes a huge difference.

Then of course, the app drives the whole mobile ordering “we will have it ready for you when you get here” idea that is becoming increasingly popular with Starbucks regulars. Order ahead skips the line entirely.

Starbucks made a strategic decision that the only way to play in their loyalty program was through the mobile app. There is a trade off here. By not being “all form of payment”, Starbucks Rewards excludes a good portion of the customer base from the loyalty program. But, it’s smart from an experience design standpoint. When one thinks holistically about the Starbucks experience, the queue (or lack there of) really matters. A customer that uses the app and pays with there app is faster at the register, it saves a couple seconds, which during the inherent surges at Starbucks makes a big difference in how fast the line moves. Even ten+ years ago, when Starbucks launched their first incarnation of a rewards program (Duetto), Starbucks did not make the program all form of tender. With Duetto, you could only earn rewards when you used their pre-paid card.

There is also an economic principal at play.

Starbucks pays an interchange rate on every credit card transaction so credit card transactions cost Starbucks 200+ basis points. And they pay a “swipe fee” a flat charge perhaps 10 to 20 cents for every credit card transaction.  On a $4.00 latte the swipe fee is 2X the interchange fee.  So for Starbucks business getting people to load up the app $50 at a time removes that “swipe fee”.

Loyalty marketers often employ the mantra that Loyalty is about rewarding your most valuable customers. To be sure, the more you spend at Starbucks the more rewards you receive. BUT customer value isn’t just on the revenue side. At Starbucks, a customer who doesn’t incur a swipe fee produces significantly margin.

Also, Starbucks understands that a customer who moves through the queue just a couple seconds faster, or orders ahead and skips the line altogether is a more valuable customer because is easier service.  Moreover, not only is the experience better for the rewards customer, but by speeding the line the rewards customer, makes every customer’s experience better. And by the way, it makes the Barista’s experience better.

Starbucks seems to think of the loyalty program as an enabler of the entire customer experience, and not just a spend and get rewards program.

Starbucks Rewards is, of course, a points-scheme with tried and true loyalty tactics; these too are well designed and elegantly delivered. We noted the personalization as each of us Sprocketeers get different offers or the same offer with different threshholds based on our behavior.

Starbucks has purposely excluded non-digital customers from Starbucks Rewards. That is a noteworthy trade-off. More effective and more incremental promotions are one part of the rationale. Labor Costs and Interchange Fees are another. But to us it seems that using the loyalty program to shape the entirety of the customer experience is the biggest factor.  At its core, Starbucks Rewards uses a “spend and get” points-based reward model that has been around since punch cards. But Starbucks certainly thinks about loyalty in a far more holistic way than simply spend and get. In our opinion it’s a great example of the intersection of Loyalty,  Experience Design, and Business Strategy.

Well played, Starbucks.



Full Disclosure: Sprocket hasn’t worked on Starbucks Rewards. But we do enjoy the coffee and we’re fans of the program.