In the present economy, companies are looking to beguile audiences with innovative reward program strategies, in a chance to earn extra bucks. According to Business Insider, Starbucks had one of the most successful memberships aligned amidst rewards, with members being indebted for over half of the coffee giant’s sales.
The rewards program began more than one-and-a-half decades ago when in 2008, gaining members was steadfast but exploded during the pandemic.
The program has amassed over 29 million members with a year-on-year increase of 16 percent, at the end of 2022. With an optimistic plan for reinvention, Starbucks also planned for a rewards system based on NFT called Starbucks Odyssey.
Starbucks made new upgrades (or maybe downgrades?) in its widely acclaimed customer rewards program, much to the chagrin of its loyal caffeine aficionados. The modifications in the reward system went into effect on February 13, 2023, with netizens roaring displeasure on the media platform Twitter, claiming that Starbucks is just making it harder for members to claim and redeem their rewards.
Lately, all companies pruning their rewards program are facing customer backlash. Other examples of food chains that made it more expensive for accruing rewards redeem would be Chipotle, which surged the number of points that a member needed to claim a free burrito by 16 percent, and Dunkin’ Donuts, which decided to revamp its reward system and double the spending done to acquire free drinks like a latte.
Will this decision of Starbucks lure profits but push away their main source of revenue, the customers? Can the multinational coffee chain be able to avert the dilemma?
How And Why Starbucks Upgraded Its Rewards Program
In the coffee chain Starbucks Rewards Program, members can indulge in free items off the menu, when they redeem “Stars” – points which are earned when purchasing food or drinks.
In a bombshell two-sentence email sent out to members notifying them of an upgraded “Terms of Use” link, that only a select few could be bothered to read, Starbucks announced their plans for revising the Star program. Members would continue to earn Star rewards points analogous to its prior system of points per dollar spent but would cost twice as many points to get a free hot coffee.
From the previous 50 Stars, a member would now have to redeem 100 Stars to claim a free brewed coffee or tea; 300 Stars versus 200 for a free sandwich or salad; and 200 Stars in place of 150 for handcrafted drinks like frappuccino or latte.
With the rising inflation, a few customers agree that Starbucks may need to redefine prices to economize costs, but many loyal customers disagree with the company’s reasoning.
“This change allows us to improve the health of our program while making member favorites like iced coffee easier to earn.”
– Starbucks on changes in the rewards program.
Any company’s perspective of this decision suggests that they have a profit incentive to make rewards more generous. If rewards are easier to redeem, customers are motivated to purchase products or services that earn them points. This is one of the major reasons why airlines witness frequent flyers committing to mileage runs at the end of the year to hold better status.
Starbucks reasons that frequent customers’ purchases can benefit by surpassing the costs incurred and rewards offered.
Another interesting statistic reveals that cold beverages account for a minimum of 60 percent of the total quarterly sales of Starbucks since 2021 [all credits to Gen Z popularizing iced drinks]. So why is there uproar being caused by the fewer quantum of the audience, when these rewards are also indicative of lowering the points of free iced coffee/tea from 150 points to 100?
The answer could be the concept of Loss Aversion. In behavioral economics, loss aversion elaborates to when people perceive the value of their loss greater than the equivalent of their gain. If people need to spend 50 more stars to redeem their free hot beverages in comparison to customers who will spend 50 less to get iced drinks, they feel more pain. This disagreement causes more complaints than the percent of customers praising the advantage they have received.
The Ramifications Of An Unfriendly Surprise
Roughly 27 million loyal U.S. members generate 55 percent of Starbucks’ US revenues according to Forbes, and losing out on such value could ruin the proliferation of the company. In 2022, Starbucks’ ranking nosedived to #272 in Forbes America’s Best Employers list from an incredible #149 in 2021.
Loyal customers criticized this decision of Starbucks and voiced them out on social media. A customer named Graf-Juarez (since 2015) revealed of her plans to stop visiting the coffee giant.
Starbucks just torpedoed their rewards system… upping the redemption points by 50 – 100 stars each and removing merchandise entirely…
— 🌙L.C.🔮The Disco Space Cowboy🤠 (@LCRhapsody) December 28, 2022
“Starbucks is slowly chipping away at any goodwill I thought they had. As inflation rises, there’s a little-to-no reason for me to treat myself to a company which won’t treat me back.”
Xochi Mendoza, another customer since 2013, stopped going to the joint because of the price surge and said she’d save her stars to try new drinks.
“Nobody is happy about these changes. I hope they take a step back to rethink these decisions.”
The consequences of these changes would affect the hardworking, green-aproned employees too. Being on the frontline, coffee handcrafters are bound to be in the line of questioning to explain such changes to unaware customers.
Despite numerous employee perks, Starbucks’ workers have been vocal about their dissatisfaction as unhappy customers will set the vicious circle of disgruntled employees.
“I deal with more difficult customers than ever before.”
The quality of customer service is crucial to maintain brand loyalty, especially in the food business. With these changes, Starbucks is alienating workers to perform their best, which is exactly on whom its brand loyalty hinges.
Loyalty Has No Price Tag
While Reward programs like the frequent flyer ones are creatively designed to offer rebates to regulars, customers view them as ‘bank-savers’ and are lured to loyalty. These techniques lock the interest of a customer into purchasing repeatedly from the same company.
According to Fortune, in 2022, about 57 percent of restaurant chains now boast a loyalty program, with even small businesses seeking value.
Customer loyalty and employee loyalty coerce each other, both being based on trust to be treated fairly. Starbucks changing their policies may harm both of these relationships. Consistency is an indispensable attribute of a successful business pursuing loyalty. Customers have certain expectations based on all of what the brand stands for and major modifications jeopardize consistency and ultimately, the customer-brand relationship. Changing the rules makes it harder for loyal customers to redeem points and leaves them with a bitter aftertaste of the experience.
“The Rewards program generates significant revenue for Starbucks, which is highly predictable. Also, a relationship with the customer base is extremely loyal.”
– CEO Howard Schultz
Chandler Mount of Research The Affluent believes that Starbucks missed an opportunity to add more meaning to the customer relationship; instead of cutting value, the company could have introduced personalizing rewards as per customers’ wants.
“Brands must deliver the highest level of satisfaction. Just as luxury brand loyalty is incentivized by meaningful benefits, a brand can’t buy its way to loyalty.
The ever-evolving relationship between the customer and brand ascertains consistency, value and reliability, which is something these changes in Starbucks rewards program is lacking.
