More than 45 percent of consumers say the opportunity to earn rewards is a primary driver for purchasing, according to a study from Maritz Motivation Solutions. So what will happen to Starbucks (NASDAQ:SBUX) now that it has changed how customers can earn points?
Starbucks has just restructured its loyalty program. Previously, gold members, those who have made 30 transactions in a year, then earned a bonus item after 12 more purchases. Each purchase was counted as a "star."
But now Starbucks will award two stars for every dollar spent and issue free items after 125 stars are earned, thus rewarding those who spend more rather than frequent customers with lower check averages. The new program starts in April.
For shoppers like me, this means fewer rewards. I spend less than $2.50 a few times a week and occasionally buy a breakfast sandwich or lunch. Giant, frothy expensive drinks aren't my poison, and I don't plan to start drinking them now that they can make up the difference between the rewards I once earned and the new system.
Starbucks wants to reward its most profitable customers, not the most frequent, and that could lift revenue by more than 5 percent, according to Chris Luo, VP of marketing at loyalty program FiveStars and former head of global SMB marketing at Facebook.
"At FiveStars, we've seen quite significant impact on spend per visit with a point per dollar program," Luo said in an email. "Conservatively I think 10 to 25 percent lift is possible. As a result, given that 30 percent of their revenue goes through loyalty, I think 30 percent times 20 percent [could] equal a 6 percent lift in revenue with this change."
But what of those other customers who visit often and spend less?
We might spend more, said Luo. Or we might jump ship.
Starbucks is hoping to placate shoppers by adding benefits and other ways to earn. It also wants to market its Stars as currency, making the rewards available to other brands and businesses the way airlines have with frequent flier miles. Redeem those points for flights or get a magazine subscription.
Maybe there are plans to let shoppers earn Stars at other retailers through partner programs. There's a benefit there to brands not big enough to invest in a program of their own. But that would make the program more expensive for Starbucks. Operational costs could more than offset the benefit of a 5 percent profit increase.
Maritz found that 43 percent of consumers join loyalty programs because they want to earn rewards. Only 17 percent in a program say they joined out of love for the brand's products and just 5 percent because of a shared identity with brand values.
Six out of ten customers believe that companies only offer rewards programs to get them to buy more, rather than in an effort to build a relationship with them.
Starbucks may well lift their bottom line. Or, cynical customers who see the change as a play to get them to spend more may vote with their fewer dollars and go elsewhere.
Look, I get it; retailers regularly reorganize their businesses by closing underperforming stores or finding ways to reward their most profitable customers. It's very difficult for a business—even one with a wildly successful program such as Starbucks'—to fire their least profitable customers and absorb those losses.
Time will tell, but history informs us that the thriftiest consumers don't like being fired by their favored retailers. Just ask Ron Johnson and JCPenney. -Laura