Do you know how your brand can create a differentiated offering and positively impact the perception of your loyalty program? The CEO of Starbucks recently went on CNBC to reveal Starbucks’ 5-year plan which will include improving customer experience. Apparently, their aim is to increase customer loyalty, customer retention, and customer acquisition. Let’s take a deep dive into Starbucks’ loyalty program to see whether they can deliver a truly differentiated experience. Where do they stand today? What do they need to do to truly improve customer experience, meet customer’s needs, and differentiate on the experience?

Loyalty Defined

What do loyalty programs mean to you and your brand? Loyalty programs should be designed, implemented, and enhanced over time to fulfill your understanding of customer preferences and spending habits, while monitoring, rewarding, and reinforcing desired behaviors. Loyalty programs have a direct impact on your revenue while encouraging your customers to increase spending and frequency of purchase.

Loyalty programs are everywhere and in every industry – airlines, hotels, department stores, retail and grocery stores, financial services, gaming, gas, etc. Since loyalty is growing in many different verticals, you are competing for share of customer’s wallet across all verticals, not just your competitors.

What Does this Means to Your Brand?

Earning customer’s respect is an essential building block for the relationships your brand need to create in order to survive and thrive; it’s something brands such as yours must build with the customers to engage with to be successful. However, with millions of businesses within various verticals vying for customer’s attention, a brand has to stand out above the rest and earn the respect that leads to customer loyalty and advocacy. This is where creating and enhancing a differentiated offering can positively impact the perception of your loyalty program.

Like any brands, Starbucks has a challenging task of creating an incentive program based on their understanding of their customers, fitting  that understanding into their brand, and creating the experience that drive relationships at the transactional level. Let’s see how credibility can be challenged incessantly, spreading criticisms faster than ever before, what you can learn from the Starbucks’ experience, and what Starbucks needs to do to truly deliver a differentiated customer experience.

Perhaps the best way to see if Starbucks’ current reward program meets today’s demands and tomorrow’s promises is to see it through a critical customer’s lens. Pain points (customer’s) and touch points (brand’s) are intersections between the customer’s world and the brand’s. Whether human, electronic, or one-way static, these touch points should address the customer’s pain points (desired functionality) and take customer’s feelings and perceptions into account. These are the places where Starbucks touches and serves their customers.

Viewed from a customer’s lens, touch points should be simple and effective so that they can transform, not just improve, customer experience. Starbucks Gold Star program as designed influences or incents specific actions, perceptions, or behaviors but it can also encourage bad behavior that potentially leads to bad experience and perceptions.

Yesterday:

The advent of Starbucks reward cards showed promise. They allowed their brand to become customer-centric. They combined innovation, communication, and the customer experience to move the customers up the loyalty ladder. It was a smart way to reward customer loyalty, gain new customers, and increase their bottom line.

Pain Points of Today and Opportunities for Tomorrow:

Their program as currently designed in today’s demanding socially influential culture has flaws that can put their credibility and trustworthiness into question.

Let’s go through the lifecycle of Starbucks’ loyalty program. The below scenarios are typical experiences that customers are facing, at one time or another, sometimes more frequently than others when using My Starbucks Rewards program.

Scenario 1: Join My Starbucks Rewards – Welcome Level

You’re a new member of the My Starbucks Rewards. As a new enrollee, your welcome level includes a free birthday drink or food and a balance protection.

1. Brand’s Touch Point: Reward customers for using a registered Starbucks Card at participating stores.
2. Customer’s Pain Point: To use their loyalty program, Starbucks requires customers to register a Starbuck card or load money into the card to get the benefits. Not all Starbucks (e.g. inside Barnes and Noble) participate in this program.
3. What Starbucks Should Do: Why limit the accumulation of stars to their gold card or branded gift cards only? Starbucks should expand their loyalty program to allow acceptance of other forms of payment.
4. What This Means to You: When you create or enhance a loyalty program that aims to improve customer experience, awareness alone can only take the success of your program so far. You need to nail down to your existing and potential customers the value of your program so that they understand why they should buy your products or services.
   1. Reduce the burden on the customer. Make it easy to join, use, and participate. Loyalty programs from restaurants and coffee shops make it simple for customers to use through a punch card with x number of times to get a free item.
   2. Accept all forms of payment. Don’t restrict the accumulation of stars or points only to your branded gift cards.

Scenario 2: Congratulations You’re at Green Level

After five purchase transactions, you get free birthday drink or food, a balance protection, free refills on iced or brewed coffee and tea while in the store, and special opt-in email offers.

1. Brand’s Touch Point: Lure and incent to join the reward card program. Encourage customers to recommend their program to friends, praise them to others, increase purchase, and increase return visits. Immediate gratification allows customers to see the value right away and not have to buy a lot or wait for months before they’re rewarded for their loyalty.
2. Customer’s Pain Point: None.
3. What Starbucks Should Do: Continue to offer the green level and easy attainable rewards as an encouragement for enrollment and ongoing participation.
4. What This Means to You: Customers make buying decision based on how they feel they are being treated and rewarded. They like to feel appreciated and rewarded for their loyalty to a brand. Build visibility and advocacy for your brand with fast, easily attainable rewards that can be achieved and redeemed early in the program. When they feel pleased, appreciated, important, or special, they will become your loyal advocates by praising your brand to others.

Scenario 3: Congratulations You’re at Gold Level

30 stars earn you the Gold status which includes a personalized gold card in your name and a free drink or food every 12 stars earned. You still get everything in the Green level.

1. Brand’s Touch Point: Keep Gold level by maintaining 30 stars.
2. Customer’s Pain Point: Customers are required to earn 30 stars within one year and to maintain the gold status for another year by earning 30 more stars. Doing otherwise will bring them back to Green status.
3. What Starbucks Should Do: Make program rules easy to understand and rewards relevant. Set a realistic achievable goal.
4. What This Means to You: Your loyalty program must be realistically attainable within a reasonable time period.

Scenario 4: Your My Starbucks Rewards™ level has changed

You, like many other customers, have been a loyal customer for many years going to Starbucks as frequently as four times a week and purchasing for yourself as well as for a group. You consistently have been a frequent buyer of their products and gift cards not only at Starbucks but also at many other places where Starbucks’ branded products and merchandises. At times, you forget to bring your Gold card, thus, you pay with cash, a debit card, or a credit card. One or two years into your Gold status, you receive an email with the above subject heading. Confused as to why your level has been changed, you open it up only to find out that your gold status has been downgraded to green. Your first thought was “I didn’t make any changes to my rewards card.” After your initial confusion, followed by utter shock, you couldn’t help but see in the big bold text the first opening line the message of “Your level dipped from Gold to Green. But it’s easy to get back again.” You proceed to read the email which goes on to tell you how you can get your gold status back. In summary, you discover that not only did you lose your gold status but you have to work for your stars to get back to gold.

1. Brand’s Touch Point: Inform customers via email that their level has dropped from Gold to Green and what they can do to get back to Gold.
2. Customer’s Pain Point: Emails such as this can leave loyal customers feeling frustrated, disappointed, angry, and confused.
3. What Starbucks Should Do: Gold star members, based on customer’s purchasing frequency, are Starbucks’ most profitable customers. Deliver the value the way customers want it delivered. Understand what barriers that they create with their loyalty program that can keep their customers from what they want. Make sure customers understand the Gold program objectives as well as terms and conditions. Email campaign such as the above example can negatively impact customer retention rates and marketing investment. The email should show that Starbucks recognizes that the customers are valued for their loyalty and reinforce desired behaviors in ways that make it crystal clear that there is tremendous value to the star program.
4. What This Means to You: Frustrated customers complain to their friends, to a brand’s associate, and anyone in their social networks. They have no problem switching brands and purchasing less products and services. Know what’s happening in your market that can impact customer experience and ultimately impact your brand, and create an email campaign that addresses what your customers really want and need from you. Build loyalty program campaigns and promotions that resonate with your customers.

Scenario 5: Maximize the Rewards per Visit

It’s 7:45 A.M. during a busy work morning. You decide to stop by the Starbucks near your office to grab coffee before your 8:00 A.M. meeting. There’s a long line. You’re the fifth customer. The first customer in line, Jack, places an order of coffee, and Barista June rings up the order and swipes his gold card. He then orders another coffee, and again, June swipes his gold card. This goes on for 12 minutes until all 12 items were ringed up. There are now 12 other customers anxiously and impatiently waiting to place their order. Others are complaining and ranting amongst themselves. Afraid you’re going to be late to your meeting and feeling extremely frustrated, you left before it’s your turn to order.

What kind of experience does this leave? Customers work around the one star per transaction by having their order ring up separately creates bad experience for everyone involved. This can be frustrating for partners, affiliates, and baristas alike because they are being asked to work around the system to satisfy the customer while having to deal with angry stares from other customers. It wastes a lot of time for them and everyone involved.

1. Brand’s Touch Point: Each transaction gives customers one star toward a new level or maintaining their current level. It’s a way to encourage frequent visits which leads to more sales and an increase in revenue streams.
2. Customer’s Pain Point:
   1. Customers feel like they’re jumping through hoops to maximize their rewards. This means that they would find the loop holes that will undermine Starbucks’ program integrity and intent and at the same time may cause other customer’s experience to be anything but desired. This can potentially have an impact on customer’s retention. In this scenario, customer Jack wants to maximize his rewards at the cost of other customer’s patience.
   2. Customers are already frustrated with the long waits but that frustration is further fueled when the wait time is increased by an apparent misuse and abuse of the reward program by other customers.
   3. What Starbucks Should Do: Customers nowadays have more buying power, high expectations, and have no problems going to a competitor that offers better experience. Emotions can play a critical role in their buying experience. For their increase customer experience long-term initiative, Starbucks should revisit the one star per transaction concept by looking at the program from a holistic perspective. That is, start by segmenting similar customers, and then create a loyalty profile that ranks and differentiates customers by their needs and purchasing cycle.
   4. What This Means to You: Customers have zero toleration for waiting time. Purchase decisions are not always made on the basis of price, but on the worth of an item or experience in the context of what customers want and expect at that particular moment. Customers are highly critical of items and experiences that are, or are not “worth it” to them as they think about the things they would value in order to create an expected good experience.
      1. Turn experience into opportunities. Smart brands recognize that experience exists that will result in an impression. You want your customers to be a more engaged and loyal customer. Turn customer’s complaints into up-sells. These complaints reveal hidden customer needs that can create new revenue streams.
      2. Be competitive. Customers are smart. They know your competitors better than you do. They shop around. They are used to reward cards from places such as grocery stores, pharmacies, and other retail outlets, that allow them to simply swipe their card and then pay with a method of their choosing. Starbucks’ current program does not reward customers for reloading their reward card. Peets gives its customers a medium free drink for reloading $20. That equates to one free drink for about every 5 drinks.

Scenario 6: One Star per Transaction Regardless of Total Purchase

Customer Joe purchases a tall drip coffee for $1.65. Customer Jan purchases a frappuccino, a toasted bagel, and a Smartwater for a total of around $10. Customer Paul purchases six drinks for about $24. They each receive one star for the transaction. Jan and Paul complain on Facebook and Twitter, respectively about the unfairness of the Starbucks’ one star per transaction program.

1. Brand’s Touch Point: Reward customers regardless of how much they purchase.
2. Customer’s Pain Point:”Why do I get one star for purchasing six items when other customers get the same one star for only purchasing one item?”
3. What Starbucks Should Do: Evaluate how specific customers react to specific incentives and promotions. Create a hybrid star program that target usage and make the rewards a reflection of spending. Vons’ loyalty program – Vons just for U (J4U) – is a good example of personalized savings program that enrolled customers can save by getting personalized pricing based on what they buy.
4. What This Means to You: The recession has changed the way customers make spending decisions, and with social media influence, they are becoming smarter and making decisions based on others’ feedback. Empowered customers expect more from brands. Social media has made it easier for customers to share with others their experiences with your company. That is, your brand is now interacting with customers with the simultaneous influence of others. Focus on the experience. Customers also want to maximize their savings and are searching for things that add to the quality of their life and lifestyle and have no problems going to your competitors when they have a bad experience with your brand. Customers are vocal on social media channels. Any bad publicity can potentially affect your bottom-line.

Scenario 7: Mobile Payment – Pay with your Phone, Get Rewards

You decide to use Starbucks mobile app to link to your My Starbucks Rewards™ and pay for your purchases.

1. Brand’s Touch Point: Starbucks knows that an effective mobile loyalty program and payment app influences purchase behavior and ultimately affects their bottom line. Contactless phone app tapped at POS. The app allows customers to scan to pay while earning stars.
2. Customer’s Pain Point: The app doesn’t have all the bells and whistles needed for a great user experience. It isn’t available on all mobile platforms, operating systems, and devices. It’s buggy on some phones (e.g. login issues).
3. What Starbucks Should Do: Move beyond transactions with technology enablers that will enable Starbucks to monitor, reward, and reinforce customer’s desired behavior. Allow any loyalty identifier, including virtual IDs. If customers can be identified with their preferred payment method, they should be rewarded. Create and integrate a rule-based engine into mobile technology that’s directly tied and synched with the loyalty program. The data will allow for monitoring and reporting that can feed to understanding customer’s needs and creating personalized offerings. They should also understand what barriers that they create with their technology that can keep their customers from what they want. What can Starbucks do better than anyone else in their marketplace? Tie their loyalty program to multiple forms of payment, including credit/debit cards, prepaid cards, etc., not just their own gold card or Starbucks branded gift cards. Payment options can help attract a wider audience to their program and lead to better customer experience and satisfaction because customers can pay as they prefer – cash, credit, mobile app, etc. Why limit the accumulation of stars to their gold card or branded gift cards only?
4. What This Means to You: Customer experience is a differentiating factor in a commodity marketplace where matured technology is the mainstream. Peg mobile and social as key emerging tactical areas for your loyalty programs. Remote access provides customers instantaneous exchange of information between customer’s devices, your systems, and other third party integration. Make customer data integrated and easily accessible. Create power innovation for your brand. Intelligence is in every transaction. Data can increase customer conversion rates, identify trends and opportunities, evaluate how customers react to specific promotions, determine usage, and customer profiles.

Moving Forward/Forward Thinking:

It can take many positive experiences to make up for one bad experience. How can Starbucks (and you) improve customer experience? Fix what’s broken today to better address customer needs and truly differentiate on experience and at the same time, aim to disrupt the market. Give customers want they want and when they want it without a lot of fuss.

Innovative loyalty programs are tied into payment, marketing campaigns, and customer experience. There is a market opportunity for your brand to develop profitable loyalty programs. Learn from the lessons presented here to help you deliver a great customer experience. Smart brands know how to find genuine ways to rewards customers, differentiating their loyalty program from those of competitors’, and continually reevaluating tier requirements to ensure continued customer participation and satisfaction. I’ll leave you with this thought: Loyalty is more than just repeat purchases; it’s all about fostering a deeper, emotional connection between you and your customers so that you can market your products and services designed to acquire, retain, up-sell, cross-sell, and build customer advocacy.

For more tips on email campaigns and customer loyalty program, check out this related Starbucks article that takes you through the mindset of the customer’s experiencing the My Starbucks Reward™ program.