STARBUCKS: THE $50 BILLION REWARD PROGRAM

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Companies worth over $50 billion:

- Pfizer- American Express- The Walt Disney Company- American Airlines- Starbucks Reward Program

Yes, Starbucks' Reward Program is valued at a whopping $50 billion.It accounts for 53% of Starbucks' in-store purchases. 

Why is it so successful?

How can you implement a similar strategy?You're about to find out!

Company Overview

Market Cap: $91 Billion (Source)Revenue: $29 Billion (Source)

Starbucks is an American chain of coffeehouses and roastery reserves. In fact, it's the world's largest coffeehouse chain with 33,833 stores in 80 countries.

Let's be honest, we all know Starbucks. The chances are you spend an extortionate amount of money with the company. 

I get it, they make a half-decent vanilla latte.

But why do so many people live and die by the Starbucks brand?It's because Starbucks aren't just the masters of the vanilla latte.

They're the masters of repeat purchases and it all starts with...

The Starbucks Reward Program

Breaking Down The Strategy

Everyone loves a good coffee. But let's be real for a second. There isn't much difference between your favourite coffee shop and its competitors.

So, how do coffee shops stand out and build a cult following?

It's a problem every coffee shop faces and one Starbucks was trying to solve back in the early 2000s.Then in April 2008, Starbucks' solution was born: 'The Starbucks Card'.

The card was the simplest form of a reward program: you scan the card when you purchase and the cashier tells you if you are close to a reward. It was very basic and definitely not the most effective form of a reward program. The program evolved quickly and in the same year, Starbucks introduced a 'Starbucks Gold Card'. Where "super users” could reach an elite loyalty status with extra freebies and benefits. Again, not the most effective form of a reward program but a step in the right direction.

These Starbucks cards were just the start.

It was when Starbucks released their rewards app, that they really took the program to a whole new level. People would still get the same stars, rewards and freebies, but they would also get the chance to:

• Add money on to the app

• Order & pay ahead

• Earn Stars even quicker with challenges and games.

The app wasn't made to benefit the customers though. In fact, Starbucks get 10X more from the app than customers do.

They can:

- Run marketing campaigns 

These campaigns include "Double star days" where users get double the rewards for purchases. As well as streak campaigns (see below) where users are rewarded for purchasing multiple days in a row. Why focus on acquiring new customers when you can make money from the ones you've already got?

- Push notifications

Imagine being able to remind your customers to come and buy your products on a daily basis. It's every business owner's dream.

Starbucks reminds users how close they are to rewards. As well as notifying them of any offers that are live. They certainly aren't letting their incredible access to customers' daily lives go to waste.

- Get tonnes of data

Starbucks has utilised the app to obtain HUGE amounts of data. They can track behaviours, calculate customer lifetime value and even see the effectiveness of different offers.

It gives them an insight into their customers that you simply can't get in retail coffee stores. It's things like this that have made Starbucks such a superpower. You can't see the effect this has, but just know it will be ginormous.

- Add real-time personalisation

It's important to note that Starbucks doesn't just offer any rewards, they personalise the rewards for what you want. 

Regularly ask for a muffin on the side? They'll offer you a free muffin when you spend a certain amount.

This is all without mentioning that the app means that customers see the Starbucks logo on a daily basis. When they open their phone they instantly see the logo - talk about a trigger to go and buy; they don't get much better than that.

These are just the benefits of the Starbucks app though. We haven't even scraped the surface of the macro effect of the program as a whole.

When you see the results of the program (they're at the end, don't worry) you'll quickly realise that Starbucks' reward program isn't just a great addition to Starbucks' business model - it's a vital part of it. 

But first, let's cover the macro effects of the reward program:

1) Increase revenue

Starbucks no longer needs to spend huge amounts of money attempting to acquire new customers. Instead, they can now just push their current customers to spend more money. They increase revenue by increasing purchase frequency instead of acquiring new customers. 

2) Becomes an identity 

People identify with Starbucks. They feel a part of the brand. You can't have that effect on someone when they're just nipping in for a coffee every so often. It's the reward program (and the increased purchase frequency that comes with it) that creates such a strong relationship between the brand and its customers.

It all comes down to the increased purchase frequency. A reward program takes customers from once-a-month customers to once-a-day customers. Users are always "nearly at a reward" or "trying to build stars" always incentivized to come and purchase.

It's simple, but it's genius. 

As I mentioned before though, you really can't get a grasp of just how successful the reward program is until you see the numbers. So, as promised I compiled some crazy stats for you.

Just take a look at these:

- Starbucks Rewards members (active for 90+ days) increased to 24.2 million in 2021, up 48% year-over-year. (Source)- 1 million new active rewards members in just Q3 of 2021. (Source)

- Starbucks has reported an increase in revenue of $2.65 billion, attributing their rewards program for most of the increase. (Source)

When you look at numbers like these you have to ask the question:

Would Starbucks be where it is today without its reward program?

It's not Starbucks' reward program that is anything special. But it was Starbucks' reward program that helped make Starbucks special.

How To Implement It

You may not be able to have a flashy app like Starbucks. But there are tonnes of much simpler ways you can implement an extremely effective reward program into your business. Here are my two favourites:1. Sticker Reward Program

This is probably the easiest reward program to implement. It has been around forever - long before apps were created. The most famous use of this form of reward program was for the McDonald's McCafe -  a campaign to encourage users to get their coffee from McDonald's. All you have to do is buy a bunch of business cards and stickers, then you're off to the races! From there you just give customers a sticker every time they make a purchase.Easy, effective, super simple and no expensive software is needed!

2. Square LoyaltyIf you want to get all snazzy and have your reward program online, Square Loyalty is a great option. It essentially gives you all the capabilities you'd ever need: digital punch cards, a tiered reward system and more. It even allows you to send texts to customers to let them know how close they are to a reward.For any business that is already using Square, this is magic! It also comes with a snazzy interface for your customers. What more could you ask for?

This has been a breakdown of Starbucks' reward program. I hope you have learned something and can implement a similar strategy in your business!

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I’ll see you next Sunday!