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How Starbucks Became the Leader in Customer Loyalty

April 12, 2022

In this article you will learn:

In the world of customer loyalty programs, Starbucks has consistently been credited with having one of the best rewards programs and a very loyal following. As of October 2021, the program has nearly 25 million members and Starbucks Rewards now represents 53% of the spend in their stores.

The coffee giant is at the top of its game because of its attention to customer experience and finding ways to achieve business goals without sacrificing customers' needs. With many restaurants and retailers longing to model their programs after Starbucks, how does the Starbucks Rewards program continuously build and strengthen customer loyalty?

Starbucks Customer Loyalty App Star Rewards

Starbucks Loyalty Program’s Secret to Success: Personalization

The Starbucks Rewards program awards customers with "stars." As they earn stars, customers receive free coffee and products. In addition to celebrating their birthday with a free treat, there are also bonus rewards like double star days and access to exclusive games and offers.

But it's more than a free coffee that hooks consumers enough to become loyal Starbucks consumers. What puts Starbucks on a loyalty pedestal is their ability to envision and deliver true 1:1 customer personalization at scale.

Personalization At Scale

Consumers today have endless options, receiving interactions from brands 24/7. This means brands need to stand out as customers are demanding a certain level of personalization if you're going to earn their attention, a piece of their wallet, and their loyalty.

Starbucks has done this by hyper-focusing on identifying a holistic view of their customers. This has allowed them to truly personalize their interactions, creating a connection that leads buyers to become loyal customers.

Here's how Starbucks Rewards program achieved true 1:1 personalization:

Behavioral Segmentation

Current technologies like micro-segmentation or demographic segmentation are still connecting consumers to a handful of mass offers. Grouping consumers based on large segment patterns like their age, if they just got married, or hobbies does not create loyal customers or provide personalization. True personalization happens at the behavioral segmentation level.

When customers receive communication that matches their shopping habits, preferences, and behaviors for brands, they're more likely to engage because there’s relevance. They feel as though the brand "gets them."

Behavioral segmentation also allows brands to track and move customers more quickly and easily through a customer journey. And then marketers can identify points where efforts are or are not working, in order to optimize the experience.

Starbucks has capitalized on using behavioral segmentation by understanding the behavioral habits and patterns on a customer level. They know if a buyer uses mobile ordering, their standard order, the amount of their average order, how frequently they're visiting, and where they’re visiting.

Behavioral segmentation allows Starbucks Rewards to tailor personalized interactions and communications based on that specific customers' behavior. By building a clear 360 customer view, they created a more engaging experience for every individual customer.

Gamification

Modern gamification leverages customer data insights and creates experiences with multiple steps connected to driving value for the customer and positive business outcomes for the brand. Starbucks has taken the concept of gamification and based its entire loyalty program around it, using powerful tools to better engage customers and induce emotions like excitement, intrigue, and happiness to influence specific actions.

Consumers move up through personalized steps on the customer loyalty journey, earning stars while working towards "winning" a reward. These steps could include downloading the mobile app, purchasing a muffin with your regular latte, or placing your order ahead of time with mobile pick up features. Below you’ll see how Starbucks uses gamification to personalize on a customer level. It's important to note that when customers can see the path laid out before them, they're more likely to purchase.

Gamification allows brands to deepen the relationship with customers and build an emotional connection that benefits you and them. They're working towards relevant offers while creating an emotional connection to your brand, and you're gathering more data through interactions that help drive incremental revenue. In fact, brands that leverage gamification see their growth rates increase by 6% to 10%.

Starbucks Customer showing the Starbucks Customer Loyalty App to Barista

Personalized Offers

Personalized offers are the driving force to increasing revenue in loyalty programs. And gamification and behavioral segmentation would not be possible without offers and rewards as they are your tools of communication with customers.

When presented with an offer, a consumer can be triggered by a spark of emotion that motivates them. Since emotions drive behavior, brands that create these emotional sparks with customers are better positioned to encourage customers to complete an action valuable to a brand while still being relevant and alluring to the consumer.

Offers are what gives Starbucks the advantage. Starbucks knows your purchasing habits based on behavioral segmentation; they then create personalized offers and present them to consumers in an engaging way through gamification to receive a personalized reward.

Magic? I don't think so…

Machine Learning Builds Customer Loyalty for Starbucks Rewards Program

Starbucks has accomplished personalization at scale by implementing machine learning into their loyalty program. Machine learning harnessed the power of automation and optimization, and it allowed Starbucks to personalize offers to customers' unique needs and preferences.

Machine learning automatically identifies relationships between disparate data, breaking down the data silos that have previously prevented personalization. As more data is gathered with every customer interaction, the machine learning algorithms become more intelligent, enabling brands to test and analyze alternatives quickly. It then optimizes from those learnings, and fine-tunes offers to deliver each individual the most impactful customer journey.

This process is known as dynamic offer optimization. And it’s how Starbucks achieved its goal of becoming the most personalized brand in the world through its Starbucks Rewards program.

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 dynamic offer optimization from platforms like Formation. This made deploying offers faster and increased efficiency across the entire offer cycle.

Personalized Loyalty Programs: The Number Don’t Lie

Personalization at scale might seem like a nice-to-have, or perhaps you may think it's something that is not even possible for your brand. However, if you're not currently setting yourself up for a personalized future, you're already behind and currently missing out on tremendous benefits.

There is a massive opportunity for brands that strategically leverage their data –according to BCG, redirecting 25% of mass promotion spending to personalized or dynamic offers would increase return on investment (ROI) by 200%.

It's time to start thinking about your loyalty program as a revenue driver. Knowing it costs 5 times as much to acquire new customers and that a 5% increase in customer retention can lead to a 25% increase in profit, savvy marketers are focusing on Customer Lifetime Value (CLV) to assess whether programs are driving increased revenue. They’re increasing that CLV by utilizing personalization and machine learning. And with a potential top-line growth opportunity of more than $70 billion annually up for grabs, it's a no brainer.

However, personalization at scale isn’t enough. Marketing teams can analyze campaign results to try to provide this type of personalization. But it's impossible for marketers to understand and use all of those data points for millions of loyal customers. They simply cannot work fast enough to respond to customer behaviors which are constantly changing. By implementing dynamic offers and leveraging zero- and first- party data using machine learning, brands can create and deliver effective offers much faster- now in a matter of days rather than weeks.

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

Starbucks took their program to the next level but leveraged machine learning with increased marketing operations execution speed by 10X, increased revenue lift per offer by 3X, and sent out 15 million 1:1 offers per week.

Technological innovations have made personalization at scale possible, and Starbucks has taken advantage of that. Their secret weapon, personalization and machine learning to deliver dynamic offers that excite and engage their millions of customers.

Download the Starbucks rewards app today and join the millions of Starbucks rewards members.

How Formation helps Starbucks Customer Loyalty

After integrating Formation’s Offer Optimization Platform with the company’s data sources and marketing channels, the Starbucks loyalty program 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 results with Formation’s platform to provide detailed attribution reporting against key performance indicators (KPIs).

Learn more about Formation here -> https://formation.ai/product/

Conclusion

Starbucks set a new bar for what a powerful customer loyalty program should do for both customers and the brand, and they've reaped the benefits. Are you ready to start your brand’s journey toward a dynamic, personalized loyalty program?

Determine your brand's tech readiness for personalization and learn more about your loyalty program. Start here.


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)