How Starbucks Became #1 in Customer Loyalty

How Starbucks Became #1 in Customer Loyalty

In the loyalty world, Starbucks has consistently been cited as having one of the best rewards programs around with a very loyal following — and that has also been the model for other rewards programs among restaurant and retails chains. As of October 2020, the Starbucks Rewards program has over 19.3 million members and generates nearly 50% of their revenue.

The coffee giant is at the top of their game because they’re all about customer experience and finding ways to align business goals to their program without sacrificing the needs of customers. So when Covid-19 stay-at-home orders disrupted their customers’ daily morning routines last March, Starbucks quickly pivoted from the “third place” to in-store pick-ups.

According to Starbucks’ investor news, they reported a 25% reduction in transactions during the fourth quarter of 2020. However, by pivoting and leveraging their loyalty program with seamless mobile ordering, together with individualized and relevant offers, they actually increased each average ticket by 21%.

Starbucks Customer Loyalty App Star Rewards

How the Starbucks Rewards Program Builds Customer Loyalty

So how does the Starbucks Rewards program continuously build and strengthen customer loyalty? That’s what Starbucks asked a few years ago, as it sought to become the most personalized brand in the world through its Starbucks Rewards program.

With so many members, Starbucks Rewards wanted to deliver offers that were individually personalized across their coffee shops and their mobile app, to create the best possible experience for customers. They turned to Formation’s Offer Optimization Platform, which automates the creation, optimization and measurement of offers down to the individual customer. The Offer Optimization Platform enables the real-time creation of each customer’s offer at scale, which means the actions and rewards are unique to each customer.

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Using Formation, Starbucks has been able to take data from a variety of sources - from transaction and loyalty programs to product and store information - to learn more about each customer and automatically tailor offers to their unique needs and preferences. Our solution also allows the coffee chain to test initiatives in the market using an end-to-end experimentation feature, and fine-tune offers through a constant flow of new, real-time customer data and interaction information.

The results: Formation made it easy for Starbucks to deliver true 1:1 relevancy at enterprise scale, enhancing the customers’ experience, while driving extreme efficiency in the marketing process.

Want a closer look at how Starbucks did this?

Download this case study to learn more about how we help Starbucks automate offer assembly, offer management and reward fulfillment, as well as measurement and tracking of key performance indicators (KPI).

An Overview of the Starbucks Customer Loyalty Program

Aligned to their brand and mission, the Starbucks Rewards program awards customers with “stars.” With each purchase, they earn stars and receive more if they follow individualized multi-step offers from buying specific items or other parameters during a time period. As they earn stars, customers win free coffee and products, in addition to celebrating their birthday with a treat, bonus rewards like double star days and access to exclusive games and personalized offers.

Also, the coffee giant uses their loyalty program to align customers to larger business goals and objectives, such as downloading the Starbucks app to use their “order and pay” system, signing up for their Starbucks Rewards Visa card or trying new products and services. Here’s what customers can earn with their Starbucks stars:

  • 25 stars: Customize your drink (espresso shot, dairy substitute, syrup and more)
  • 50 stars: Brewed hot coffee, bakery item or hot tea
  • 50 stars: Handcrafted drink, hot breakfast or parfait
  • 200 stars: Lunch sandwich, protein box or salad
  • 400 stars: Select merchandise or at-home coffee

Starbucks Customer showing the Starbucks Customer Loyalty App to Barista

How Starbucks Personalizes Offers at Scale

Leverage existing MarTech stack to scale loyalty offer distribution beyond traditional segmentation

Starbucks wanted to grow revenue from its loyalty program through individualized offers. Their aspiration was to move beyond traditional segmentation all the way to individualized targeting. However, the company’s existing tools and systems were not able to support 1:1 individualized offers at scale or the speed of the end-to-end marketing process the loyalty marketing team desired.

Transformed offer optimization: from insight activation to seamless 1:1 reward fulfillment

To achieve their goals, Starbucks used the Formation Offer Optimization Platform to power millions of individualized offers to members of My Starbucks® Rewards. The platform enabled Starbucks to combine their disparate data sources – including transaction, product, loyalty and store information – to construct, deliver and manage individual offers, resulting in significant sales lift for the company’s personalized marketing campaigns.

Starbucks Rewards individualized and optimized offers for each My Starbucks® Rewards customer in numerous ways using dynamic actions and dynamic rewards; by specific categories, sub-categories or products; and by the amount and type of rewards. Starbucks was then able to automate offer assembly, offer deployment, reward fulfillment and KPI measurement and tracking using Formation. This made deploying offers faster and increased efficiency across the entire offer cycle.

Learn more about how Formation helped Starbucks automate offer assembly, offer management and reward fulfillment, as well as measurement and tracking of key performance indicators (KPI)

How Formation helps Starbucks Customer Loyalty

Dynamic Offer Optimization produced 3X more revenue lift per offer than the segmented approach

After integrating Formation’s Offer Optimization Platform with the company’s data sources and marketing channels, Starbucks was able to:

Create individualized offers at enterprise scale: Starbucks created millions of offers each week across multiple offer types. Each type of offer was constructed with dynamic actions and rewards to improve certain customer behaviors including frequency, category exploration, cross-sell and upsell.

Continuous learning and optimization over time: Machine learning was applied to Starbucks’s customers’ data and their customers’ interaction patterns (or lack thereof) to optimize offer individualization and offer selection.

Synchronize cross-channel experiences: Starbucks’ loyalty program deployed individualized offers across channels including email, mobile app and push notifications.

Improve customer experience: My Starbucks® Rewards program customers could see their progress in real-time, with their unique offers and status reflected in the mobile app.

Dramatically increase execution speed and reduce manual work: Starbucks automated many facets of the offer process using the Formation platform, including development and measurement. This led to dramatically faster operations and improved operational efficiency.

Conduct advanced experiments: The rewards program safely, incrementally and reliably tested initiatives in the market using Formation's rapid experimentation capability.

Measure impact: Starbucks tracked and measured oer results with Formation’s platform to provide detailed attribution reporting against key performance indicators (KPIs).

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Starbucks Loyalty Program Stats

Here’s why Starbucks’ program is a leader in customer experience.

Starbucks prioritizes creating an individualized experience for customers from their app to their baristas. 79% of consumers agree that the more personalization tactics a brand uses, the more loyal they are to that brand, and 73% said they’re more likely to engage with a brand that offers a loyalty program versus one that doesn’t.

By leveraging Formation’s Offer Optimization Platform, Starbucks increased marketing operations execution speed by 10X, increased revenue lift per offer by 3X and sent out 15 million 1:1 offers per week.

Starbucks understands that customers want a more personalized experience that’s seamless from their app, email and in-store. 81% of consumers are willing to share basic personal information in exchange for a more personalized experience, and 73% said the brands they engage with the most recognize them on a one-to-one level.

It’s important for brands like Starbucks to stand out for customers. 58% of consumers said they’re more loyal to brands than they were five years ago, but the majority of respondents (63%) only belong to between one and three loyalty programs, meaning a program must deliver exceptional experiences to make the cut. Additionally, 77% of consumers feel brands could be doing more to earn their loyalty program.

Starbucks first launched their rewards program in 2008 with a punch card. It’s been a real evolution with stars, an app and individualized offers. In September 2020, they announced that customers could now earn stars by preloading their app and even saving a credit card. This convenience promotes their business objectives, the app and helps members to earn more free refills and the 25 stars to earn a free drink or coffee.

Starbucks Customer Loyalty Payment Options

Here’s some additional fun stats from Starbucks

Since April 2019, American members have redeemed 175+ million free rewards, from coffee to food, using stars.

Did you know that you can give a friend a star or two? In 2016, a member saved 17,000 stars and then gave away more than 100 drinks to military personnel in the Washington area!

From April to June 2020, Starbucks members represented almost half of all U.S. purchases (47%).

Learn more on how Formation empowers Starbucks to create individualized digital experiences for their rewards members. Contact us today for a demo.