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Starbucks Rewards: An Evolution in Data-Driven Marketing

In April 2016, Starbucks made a change to their popular Rewards Program. While lots of businesses have rewards programs, this one is different in execution. Watching it unfold since then, the Starbucks program is nothing short of spectacular, from a marketing point of view.

Starbucks Rewards: An Overview of the New Program

First, let’s look at the shift from the old program to the new one, to put it into context.

  • Under the new system: $4 = 8 stars. You now have to spend $63 in order to get a free drink.

Innovating with Individualized Incentives

So far, what I’ve described is a fairly standard rewards program, with a tweak in April that only seems to benefit the company. Yawn. Standard corporate operating procedure. If the story ended there, it would be pretty boring — and not unexpected.

The Power of Creating Customer Habits

There are two things that drive the rewards program, from Starbucks’ point of view:

  1. They do this with a “currency” that has no value. Given that you can cash in your stars for a reward, of course they have some value, it’s just a negligible amount to Starbucks. They want the customer to feel like it has value — but let’s lay this out.
  1. You gave them data through an app/card purchase — they know what you like and when.
  2. You demonstrated a behavior, which — if Starbucks is lucky — could become a habit.

Detecting Patterns in Customer Data

With every purchase using the Starbucks app, you leave a data trail.

  • How often?
  • What days of the week?
  • What time of day?

Starbucks Star Bonuses

For instance, they know what days of the week you purchase, so they might offer a “Double Star Day” to you to get you in the store on a day you’re not usually there. Then you get 4 stars per $1 spent, not 2 stars.

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  • Your first pre-order = 50 bonus stars.
  • Try their new nitro cold brew = 75 bonus stars.

Starbucks Star Challenges

Fire up the algorithms for Starbucks Rewards Star Challenges. For instance, they have a “Star Dash” which requires you to make a number of purchases within a certain number of days. Or they have “Bonus Star Combinations” which require that you buy (usually) three different items within a certain number of days.

Starbucks Star Dash

For the “Star Dash,” the algorithms look different for different customers.

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  • This challenge looks different when offered to my wife, however. Her “Star Dash” has a higher threshold, and is thereby harder to achieve. Her challenge is to make 6 (not 5) purchases within the next week to collect 50 bonus stars, or to make 9 (not 8) purchases within the next week to collect 150 bonus stars.
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Bonus Star Combinations

There are also “Bonus Star Combinations,” where they are clearly trying to 1) get you try a new product, and 2) bet on the chance that you’ll form a new habit — if you like the product, that is.

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  1. One Latte (though I don’t usually order this)
  2. One Starbuck Refesher (a new item introduced this summer)

Know Your Customer at an Individual Level

The more you know your customer, the better. The closer your relationship, the better it will be — for you and your customer. When you know your customers at an individual level, you can talk to them differently. Customers are happier when you acknowledge them for their contributions to your business. You should never talk to a regular customer in a generic way — let them know, even with subtle cues, that they are special!

Doing Better with Data

Can we outsource the entire customer experience to data? Of course not. But as one facet of your marketing strategy, it can contribute a lot. Compare this observation about Starbucks to television advertising. Starbucks knows you by your data, and then the customizes their marketing to you specifically. Not to you, the demographic. Not to you, the public in general. To you the person — and your actual buying habits.

  • Intensifying those habits by rewarding them; and
  • Gamifying it to make it more fun.

Applying This Lesson to Your Small Business

You might think, how can a small businesses do this type of thing? Strapped for time and money — how can you put this type of thing to work for you? It’s just a matter of scale. You probably can’t design a complete rewards program (though you see independent cafés do this all the time), but you can start doing some simple segmenting and marketing automation to get started.

  • Automation: Once you know a prospect or customer’s interests, then you can set up simple sequences to nurture that customer little by little into making a purchase. Again, this doesn’t have to be difficult to start. Even an automated “thank you” email after a download counts as marketing automation. You just want to 1) make it trigger on its own, and 2) give the customer a clear sense of what to do next.
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Writer, Educator, Musician. Trying to listen more than I speak.

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