On Starbucks Gold « Caffeine-Fueled Sermons by Mike
It should be fitting that my first caffeine-fueled sermon be on the subject of Starbucks’s recent changes to its customer loyalty program, Starbucks Gold. For those unfamiliar with it, Starbucks Gold is a program that offers 10% off all Starbucks products, free WiFi, a free drink on your birthday, and several other small perks for an annual fee of $25. It was recently decided to cancel the program in favor of My Starbucks Rewards, in which participants will earn free drinks and other perks based on the number of drinks purchased (for no annual fee). The program only applies discounts to drinks and not to merchandise or whole bean. The explanation given is as follows:
“So why are we changing a good thing? We’ve heard from a lot of you on ways we can make the program better. As a result, the new program will be free.”
So why lament over a program that is now free? The reason is simply mathematical, though the calculations are not necessarily straightforward. In short, a customer would have to spend $833 a year at Starbucks to make the Gold card a better value than My Starbucks Reward. Excluding little perks, the My Starbucks Rewards card offers an approximate 7% discount while the Gold card offers a 10% (the $25 fee must be factored in, however). Fortunately, I do not spend that much a year in Starbucks but this calculation is based strictly on drink purchases. Any merchandise or whole bean would alter the formula in favor of the Gold Card. Thus, for me I’m on the cusp between these two programs.
So for a consumer who is served equally well by either program, the problem becomes a symbolic one—it represents an underlying corporate mentality that has taken hold particularly strongly during the extant financial crisis. In trying to boost year-over-year same store sales, corporations need to court new customers and boost frequency among their sporadic visitors. By watering down its former loyalty program, Starbucks is able to appeal to those for whom such a steep annual fee would not have been justified. Yet there are many people who spend upwards of $800, $900, or $1,000 a year in Starbucks and it is precisely these customers who have kept Starbucks’s financial head above water during the recession. It is these patrons who have not flocked en masse to the less expensive coffee shop alternatives such as McDonald’s and Dunkin’ Donuts. However, now that the economy is on an upswing, Starbucks can spurn its most loyal customers because they do not need to be rewarded for returning as they’ll be returning regardless.
And while this decision reflects poorly on Starbucks it is not altogether surprising, coming from a corporation that has been known for making some very poor decisions (to the point of senseless) with respect to its business model; see: Valentine’s Day Memo. However, this decision goes beyond cluttering their stores with CD’s, stuffed animals, and chewing gum. If there were customers, as they say, that wanted a free system then give it to them! But don’t eliminate a popular system like the Gold card; rather, make it a tiered system with the top tier being the current Gold program. It rings completely hollow that they did not allow for this and thus makes it virtually impossible for them to divorce themselves from the notion that this change was for reasons of profit as opposed to customer satisfaction. With all this talk of loyalty programs, it seems that Starbucks management does not realize that, fundamentally, loyalty is a two-way street. I do not think twice of driving past three Dunkin’ Donuts, a McDonald’s, and two independent coffee shops to get to a Starbucks. But for that loyalty I expect some in return.
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