Tuesday, January 12, 2010

Starbucks Responding to Incentives

It has been a while since I posted a Memorable Merchant, but I was so pleasantly surprised recently during a Starbucks visit, I had to dust it off.

While hanging out waiting for the girls to finish shopping a while back, I ran across a brochure talking about a relatively new program called My Starbucks Rewards.  Although I'm a loyal Starbucks customer, I did not know about this until now since my regular visits are at my local Safeway Starbucks kiosk and not a physical store. The current program is a nice evolution to something actually started in the past.

In the past, Starbucks had various forms of rewards programs that included the use of their Visa card to track purchases. Believing that one credit card and a debit card are all the plastic I need, along with no doubt countless other customers, Starbucks saw the wisdom in not requiring a proprietary Visa and combined the program.

They did it right.

Now (and long overdue,) Starbucks is tracking purchases via registered gift cards, using the typical "frequent flier" model:  the more you use it, the better the rewards.  The only change in my habits is the use of a gift card (and regular re-loads.) Three levels exist:
  • Welcome (black; beginner): free drink on your birthday; 2 free continuous hours wi-fi access
  • Green (5 stars earned): Black level rewards; free beverage customization (syrup and milk options/soy); free refills on brewed or iced coffee; free beverage with whole bean purchase; free trial offers
  • Gold (30 stars earned): Green level rewards; free drink every 15 stars; personalized gold card; personalized offers and coupons

You can get more details here.

Being someone who is always in the hunt for "miles," I appreciate getting credit for my purchases. It is interesting though (and a testament to Starbucks' dominance in the past,) that they are only in the recent past, becoming "competitive."  As recent as only a couple of years ago, they told Safeway to stop the "buy 7 and get one free" promotion as part of the Safeway Club Card.  The message: we don't need to entice people to drink our brew.

That has changed.

My economics professor in college, Dr. Ted Scheinmann, used to say, "people respond to incentives."  I quote him often since it is not only his, but the overall basic axiom of economics.  Starbucks originally (and for some time) had people responding just because they could afford expensive, but very enjoyable drinks, in very pleasant environments.  As competition has tightened from the likes of McDonalds and Dunkin Donuts (another good thing for consumers from an economics point of view,) Starbucks has needed to employ Dr. Scheinmann's axiom to keep customers responding.

It's working for me.  Since the sign-up via Blackberry from the "shopping" Starbucks, I have seven stars.  I'll be Gold in just 23 more.  Safeway kiosks aren't equipped to deliver the "rewards," but my everyday purchases count as stars.  At my pace, that's only about a month. 

Dave is "responding to incentives."

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