10 Aug Starbucks Loyalists and the Power of Rewards Programs
Google, Apple Pay, even Facebook is jumping on the money transfer train. Out of all of the in-app payment programs out there, who would you guess has the most active users? The answer to this question might come as a shock to you, but the most popular by a landslide is Starbucks.
You might be asking yourself, are people really buying that much coffee? The answer is, not really. The secret behind the success is not the amount being purchased with the payment app, but the frequency and ubiquity of the app itself. I could throw a lot of data points at you, and I will later in this blog, but the important thing to note here is not that people everywhere are dying to buy as many cups of Starbucks coffee as they can get their hands on, it’s that Starbucks has created an easy-to-use extension of their brand that resonates with their audience and makes life easier for the people who use it. Tying in the experience of the brand and a more convenient way to get caffeine into millions of people across the country is hard to compete with, just ask Apple Pay, Google Pay, and Samsung Pay.
“By the end of this year, a quarter of U.S. smartphone users — 55 million people — over the age of 14 will make an in-store mobile payment. More than 40 percent of those people will have done so through Starbucks’ mobile payments app”, according to new data from research firm eMarketer.
For The Love of Free Things
One of the central reasons reward programs are so effective is something we can all relate to liking. Free stuff, or the idea of free stuff.
We all love getting rewarded for the things we were going to do anyway. And the promise of a free drink makes the daily caramel macchiato just a little bit sweeter. Through reward incentives, the more you buy the more you get and that’s more than enough psychologists say.
“People enjoy being part of a rewards program. Susan Weinschenk, Ph.D explained that when compared to customers who were not part of the program, the customers with the reward cards smiled more, chatted longer with café employees, said “thank you” more often and left a tip more often, too.”
Reward Program Models
There are a variety of models for reward or loyalty programs. Based on the good, frequency, and perceived value, reward systems have to differ depending on the good or service purchased. The threshold for spending for rewards on flights or high ticket items is a lot higher than say, for coffee. You wouldn’t wait to reach thousands of points, or dollars spent for a $5 cup of coffee.
Starbucks operates on a fixed ratio with a little bit of ‘surprise and delight’ mixed in. It truly is a delicate balance to strike. Reward too often and you devalue the commodity. You also drive up marketing costs and spend more than generated by giving away too much. On the other hand, infrequent reward causes people to lose interest and not value the rewards program as a benefit. A fixed ratio is perfect for striking the balance and giving people a goal to strive for. They know when they will be rewarded, and it is attainable enough to spend the amount to get it. This coupled with surprise and delight, say a free drink on your birthday, or a members discount on specific days, make people feel like they have an advantage for being a rewards member over those who are not. This is enough to keep people in the program, even if buying habits slow down or for those who drop off after early adoption.
Creating Brand Loyalists
Because of the brand experience and incentives, Starbucks loyalists are going to remain Starbucks loyalists. Have you ever tried to convince a Starbucks drinker than Dunkin Donuts is just as good? It’s made its way into the identity of those who just can’t live without it. When fall rolls around you can’t escape the memes of girls in yoga pants and Uggs sipping pumpkin spiced lattes. And there’s nothing wrong with that. It shows us the depth of the brand loyalty and makes sense out of how a coffee chain demands the most engagement and revenue through mobile payment exchange.
Another reason experts point to as to why Starbucks has such a commanding lead in this area is their timing. Starbucks was one of the first to introduce an app of this kind. It was well-made, well-researched, and easy for users to engage with. Beating other ‘competitors’ to the punch has just been met with exponential growth for the Starbucks app. I use ‘competitors’ lightly here because Google Pay and others like it aren’t competing for cups of coffee and donut pops. They have a much wider offering and they still can’t seem to catch Starbucks.
Other loyalty programs use value as a driving force behind loyalty purchases. Is it worth spending a little more for a flight on an airline that is actively tracking your points? Is it worth spending a little more each flight for the promise of free air travel in the future? For a lot of people, yes. Not all value-based loyalty programs are as effective. Take credit cards for instance. You use your card for so many transactions, and you likely have one or two cards. With so much use, how much are you really tracking the ‘points’ you’re earning. And what do those points really get you anyway?
Making Use Of Your Own Rewards Program
At the end of the day, loyalty programs are great for reinforcing brand loyalty and reaffirming buying decisions. These switching costs and perceived benefits make buying decisions easier for members because the pattern of the purchase makes the decision inante. The less customers have to think about a purchase, and the more they feel connected to the brand, the less likely they are to take their purchase to a competitor.
Now, you might not be selling goods or something as routine as the morning cup of coffee, but think of reward incentives and how you could apply similar thinking and purchase patterns to your own business or offering. People are creatures of habit, so any way you can increase the likelihood of repeat purchase, the more likely you are to create brand loyalists for your business or offering. Want more on purchase psychology? Read more about reward programs and the illusion of progress as a motivation here.
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