It seems to happen every few years now at every company with a customer-loyalty program: The rules change, and people get upset. This time, the changes are at Starbucks.
Until yesterday, you earned two stars for every dollar you spent at Starbucks; once you accrued 125 stars, you got to cash them in for any drink you wanted. Now, in much the same way that an airline will charge you more frequent-flier miles to get to Tokyo than to Toledo, Starbucks is tiering its redemption options by cost. For 25 stars, you can get a flavor shot or a specialty kind of milk in your beverage; for 50 stars, a drip coffee or a baked item.
Here’s the part that has people upset: The any-drink-you-want reward now costs 150 stars. Essentially, Starbucks used to give you a free drink of your choice after $62.50 in spend; now, you have to spend $75.
The company argues this change is good for consumers because it adds flexibility: The any-drink-you-want system is good for customers who like to treat themselves to the occasional triple venti hazelnut soy latte with whipped cream; but if all you really want is a drip coffee, you’ll now be able to get one for free every time you accrue just $25 in spend. Starbucks is also making the program more egalitarian by eliminating the requirement that you earn 300 stars in the year (that is, spend $150) in order to be able to redeem any stars at all.
The new offering of low-price reward options at Starbucks brings the company in line with recent reward-program changes at airlines and hotels that let customers use their reward points for smaller, more frequent perks. In addition to offering award tickets and upgrades, airlines will now let you redeem a few thousand frequent-flier miles for in-flight Wi-Fi, or for a visit to the club lounge, or for a specialty cocktail at the club lounge.
Adding these lower-price options gives customers the advantages of flexibility and immediacy: no need to wait years to accrue enough miles for a plane ticket; no need to wait weeks to accrue enough stars for a hazelnut latte. But the trade-off is that these awards are less generously priced than the big ones you’d have to wait for. Frequently, when you buy airline add-ons with miles, you’re getting one cent of value per award mile or less. As for Starbucks, at 80 cents for an extra shot of espresso, you would be better off paying cash for that and saving up your stars for a free drink, so long as you can think up an order complex enough that it would normally cost at least $4.80.
I see some additional reasons Starbucks would expect these reward changes to boost its profits, besides just reducing the cash value per star that customers get when redeeming. Pushing people toward simpler items like drip coffee and baked goods may reduce labor costs and help lines move faster in stores. And pushing people toward add-ons instead of whole beverages could raise frequent customers’ overall consumption and spend at Starbucks.
Suppose you’re a loyal Starbucks customer who buys a latte with cash every day, except when your reward balance hits 125 stars, in which case you used to buy it with stars. The cost to Starbucks to provide you that reward is more than what it costs the company to make your drink; it’s the full retail price of the drink, which it would have collected from you if it had not owed you the reward. If this new system induces you to stop taking free drinks, and instead to use your stars to augment your drinks with the occasional extra shot of espresso or vanilla syrup, your cash spend at Starbucks will go up and the only cost to the company will be the actual cost to provide those extra shots — which is less than the retail price.
Ultimately, reward programs are just a complex way of offering discounts, though they tend to be shrouded in an insistence that they are about recognizing customers for their loyalty. Years ago, before the introduction of spend-based star earning in 2016, Starbucks used to insist Starbucks Rewards was “designed to show our appreciation simply for stopping by.” Customers back then got a single star for each transaction, even if all they bought was drip coffee; 12 stars was enough to claim any drink of their choice.
Of course, what Starbucks really appreciates is that you spend money with them. With these changes, Starbucks Rewards still expresses that appreciation. But the program is now designed to express that appreciation in a way that makes the company a little more money.