SHOP TALK: Rewarding loyalty
Consider this: 40% of Starbucks transactions in the US come from a Starbucks card
There’s some psychology behind loyalty programmes, you know. When a person gets rewarded, special pathways in the brain are activated. This in turn (through reinforcement) makes one seek out more rewarding stimuli.
They, loyalty programmes, that is, foster the ultimate bond, albeit a marketing one.
In return for pledging allegiance to you (the brand), I (the consumer) get something.
This behavioural support snags you (brand) both sales — through repeat purchasing — and, less tangibly, data.
Now, last week I went to the launch of the “Starbucks Rewards” programme in SA.
One of the most frequent questions that Taste Holdings boss Carlo Gonzaga has received since launching the global coffee brand in the country last year, hasn’t been around capital allocation or shareholder value but when the group will launch the membership scheme locally. Taste is the local licence holder of the brand. If you were wondering — the most frequently asked questions were whether or not it would sell Pumpkin Spice Lattes (it did) and when it would open a store in Cape Town.
If you’ve been to a Starbucks outlet in the US, you know that its loyalty programme is a big deal — customers mostly present their phones or a card, instead of cash when they’re transacting. You tend to feel like a hillbilly with your five bucks. You see, other than being an incentive scheme, “Starbucks Rewards” is a mobile payment platform that operates on a prepaid system — so users load funds onto a Starbucks card (or mobile app), which they then use to buy stuff.
Consider this: 40% of Starbucks transactions in the US come from a Starbucks card. Mobile payment actually accounts for 27% of transactions.
I read a piece last year where S&P Global Market Intelligence was quoted as saying that Starbucks had more funds loaded onto plastic and mobile Starbucks cards than the amount in deposits at small regional banks in the US. In a January quarterly update, that figure was a record US$2.1bn (this is cash that will be spent in store so it’s effectively on their balance sheet). Gonzaga told us that one in six people across the US received Starbucks gift cards last Christmas.
Starbucks has just three stores in SA, so for now the loyalty programme is unlikely to be a big revenue generator. However, apart from tracking purchasing behaviour, it will act as a retention tool to motivate existing customers to stay engaged and, as a consequence, they’ll end up spending more. It will also be useful to attract new customers.
It works simply enough: two levels — Green and Gold, each with a tiered offering of perks. You either get a card or you download the app on your phone.
What the local app doesn’t yet have functionality for is mobile ordering. This is like click-and-collect, but just for coffee and um ... a s’mores brownie (or whatever’s your poison).
Overall, mobile order and pay represents roughly 7% of US transactions, up from 3% a year ago. There’s an issue though, it’s causing congestion in stores. On a conference call, Starbucks said about 1,200 of its stores (during peak hours) were getting more than 20% of their transactions from mobile order and pay.
CEO Howard Schultz said the issue had created “anxiety” among some customers. It’s just a matter of getting the execution right, I think. Since when is too many customers a bad problem to have?