No More Starbucks Gold

Lots of chatter online about the revamped Starbucks “rewards” program. Starbucks will discontinue its Gold Card program it began a year ago. The Starbucks Gold Card program was designed like many membership rewards program where customers pay a yearly $25 fee and in return they receive free refills on brewed coffee, free wi-fi access, and 10% off on all purchases.

Beginning December 26, Starbucks will replace its Gold Card program with a "My Starbucks Rewards" program offering customers a free beverage after 15 purchases. (There are a few other small perks in this program but it's essentially a Buy 15 Drinks, Get 1 Free program.)

Starbucks is touting its new rewards program as an improvement because of its simpler design and the no annual fee.

However, the consensus from the online chatter is this new program benefits less frequent Starbucks customers (2-to-3 visits a month) than the very frequent Starbucks customer (8+ visits a month).

Obviously the redesign of this program will benefit Starbucks more financially. Perhaps offering a 10% discount to Gold Card members on all purchases was profiting heavy-spending customers more than it was profiting revenue-needing Starbucks.

Whenever I read about new Starbucks business happenings, I refer back to the book I wrote about Starbucks foundational business practices. In TRIBAL KNOWLEDGE, there’s a short section on fostering customer devotion where I give the old school Starbucks perspective on “Preferred Shopper” loyalty schemes, such as a Starbucks Gold Card program or the new My Starbucks Rewards program...

“These ‘Preferred Shopper’ promotions also reverse the logic of great customer service: they ask customers to sign up for a card or buy a certain amount of product before they can enjoy the benefits of being part of the club. Do you really want to create two classes of customers? One that gets the ‘good stuff’ at a good price, the other that gets a raw deal? If you want to foster true customer devotion, don’t make your customers jump through hoops just to feel welcome, or 'preferred.'

Businesses operating like this treat their customers like cattle, doing whatever they can to attract attention. When companies are more focused on their own bottom line than their customers, both will eventually fall away. These programs lack soul and meaning to stand the test of time.”

The last paragraph in this chapter shares a thought more businesses, especially Starbucks today, need to pay attention to:

“Customer loyalty works both ways, and Starbucks knows that. Of course Starbucks wants to maintain its profitability, but it does this by helping the folks who come into its stores, not by working against them. If you want customers to stay loyal to you, stay loyal to your customers—treat them as people, help them as individuals, offer them something extra, and they’ll come back for more.”

You can read the full chapter, TRIBAL TRUTH #28: Foster Customer Devotion, in the box below:

Foster Customer Devotion

Comments

[Rob Kempton]

As someone who needs his "good coffee/ Wi-fi access / people watching" environment for work each day, I've just read this and thought - $25 and i'll get the WiFi i want from Starbucks finally (i wasn't aware before this!). I always thought they were missing a trick by charging for Wi-Fi ...bordering on arrogance. (I appreciate they (their brand) doesn't want the become the next place where all you see is 100 MacBooks open, and no one talking to each other, but these MacBook people buy coffee and muffins!).

But, looking at this outside Starbucks, the coffee house concept needs to be re-designed. I live in DC, and I'm seeing no obvious brand bond with the big brands like Cosi, Caribou, and Starbucks. They are convenience, and you can find them everywhere. From what i know, hear and see the good people of DC (and America!) want different - they want personality - they want escapism - and they want value.

Starbucks can offer the reward card (and i agree with John on the dangers), but really, they need to re-think how they are going to continue to be a dominant brand in my mind, in 2-3 years to come! Why should i go to Starbucks over the other options?

Rob Kempton - Man on the Moon Consulting

[Paul (from Idea Sandbox)]

John, what frustrates me about this is that Starbucks has *never* had a loyalty program, they've only offered reward programs.

I define loyalty as building a meaningful relationship with the customer. Knowing their name, understanding what they like, and treating them like a friend. (Good baristas do this. More money spent in training would be a better investment. Nevertheless, you can't count on each barista knowing each customer that well - so a 'system' makes sense).

You and I sat in the same Starbucks meeting room in 2000... across from the folks who were creating the Starbucks Card.

STORED VALUE CARD

While YES it was going to be a "stored value card" and a better option than the paper coupons Starbucks had at that time. (Remember the eye-popping amount of money Starbucks was going to realize in NOT giving back change when paper coupons were redeemed? A $5 coupon spent on a $4 ticket meant the customer got the $1 in change. With the card, that change stays on the card and eventually gets spent).

So, it was a form of currency. But in exchange for loading the card, and registering the card with some information Starbucks could have a dialogue with you.

LOYALTY DRIVER

The bigger picture was a smart way to track and extend relevant offers and information to card holders. Like a special club.

A card where the flavored-latte lover would be alerted by email, or by the barista in-store about the new flavor arriving in the coming weeks... Perhaps a discount, or a special sneak preview would be offered. If I was a drink + food customer, it would alert the barista to offer me a sample or to purchase the seasonal pumpkin bread that pairs well with the caramel latte I order twice per week.

It was to serve as a "hospital patient chart" for the customer - providing on-screen relevant information for any barista who swipes the card at their POS.

A buy-10-get-1-free card has been one of the most popular customer service requests. Howard has never wanted to do them because they seem cheesy... 'Every bagel shop has one, Starbucks shouldn't,' was the perspective.

But a buy-10 card would be so much easier than all of the convoluted programs Starbucks is creating. Especially, if at the end of the day it simply serves as a 'thank you' for visit frequency.

[Analisa]

I like your point about not wanting to create two classes of customers. Like grocery stores that require a "rewards card" to get discounts...the ones that say "no club card required- everyone gets the sale price!" are much preferred.

Starbucks should give EVERYONE free wifi, first of all. But if they want to create loyalty,they could try something like this:
Come in ONCE, order any single item on the menu, and you get free wireless for the day. Print the code on the receipt, change it daily, and make that customer feel welcome (while they are a customer). People appreciate that every business needs to make money...although Starbucks sure could afford to give a LOT away for free.

Good post, thanks!

[Lexie]

John, thanks for the post and for a great re-read (of chapter 28, from my hard copy, of course!).

The opening, famous quote from Howard Behar that says volumes about Starbucks' past to this from Howard Schultz today “The future of the company is not based on cost takeouts...It’s based the emotional connection and trust we have with our customers.” http://tinyurl.com/ykgx2b2

Really? The company's current "instant" focus (from VIA to social media) seems less about customer cultivation and more about cattlization. And not the cool purple cow kind.

Standing in line, herded towards a register, waiting to have each item rung up separately to earn more points...is this Starbucks or the Speedway convenience store across the street?

[Adesh Sidhu]

Well said.
Loyalty programs no longer helps in building long lasting relationships with customers so that they come back again and again. They treat customers on the basis of wallet share. The more you spend with me, more incentives for you. It only has functional benefits (that too depend on individual's perception) and zero emotional benefits.

[Jeffrey Summers]

These are nothing more than frequency schemes. They have absolutely nothing to do with real, organic loyalty and no pricing scheme does. If you think your frequency program builds loyalty, just stop if for a few days and see how loyal your guests really are.

Whole foods comes the closest to actual loyalty building as they rid themselves of such crap and move to put more humans in touch with customers.

There are also more options than 'to have a card or not' but C-level executives wouldn't understand what's happening on main street if their life depended on it or Bain & Co. wouldn't have reported that while 80% of CEO's think their business offers a superior customer experience, only 8% of their customers think so.

Let's stop the insanity of focusing on price as a determinant or driver of loyalty and get back to adding real value to the guest experience.

Jeffrey Summers, President
Restaurant Coaching Solutions

[Jay Ehret]

You wrote about a different Starbucks in your book, John. It is no longer the company you used to work for. As Rob points out in his comment, Starbucks is no longer about relationships, they are about convenience. To re-read your book, and Schultz's own Pour Your Heart Into It, makes you long for the Starbucks that was.

By the way, if you want Starbucks coffee and free WiFi, real free WiFi without jumping through hoops, go to Barnes & Noble.

[Kevin]

please check out my blog and comment

http://starbucksgoldcard.blogspot.com/2009/12/starbucks-gold-card-changes.html