Loyalty Optimization

I am a loyal Starbucks customer – have been for years.  Why – because according to my taste buds, a Starbucks non-fat latte is like nectar of the gods.  Every time; without fail, I receive a quality beverage.  Some people call my passion for a $4 cup of coffee crazy.  I call it an indulgence that I deserve, at least once a week.

I estimate that Starbuck’s receives around $200 a year from me.  So what now?  Should Starbuck’s be satisfied with the fact that I purchase my lattes only from them?  Should they be content with my $200 annual contribution?  I think not.  Sure, they want to retain me as a customer, and they will – unless they start serving “sucky” lattes.  But, Starbuck’s is missing an opportunity to grow my business – leverage my passion for non-fat lattes to increase my annual spend to $300 or even more.  So how might they do it?

1. Don’t reward me for buying weekly lattes

In the current program, rewards kick-in after 15 purchases.  So, in my case, I can start getting rewarded after about four months or even longer since I don’t think there’s a time requirement or expiration date.  Here’s the problem, I will receive rewards for doing the same thing I have done for years.  If Starbuck’s wanted to motivate incremental purchase activity, they might consider layering in a time frame.  So, for example, I might get an incentive if I make eight purchases in one month.  By doing this, Starbuck’s lowers the reward threshold but rewards me for my incremental behavior only – in this case, I’d be doubling my purchase visits.  Those incremental visits could actually fund my reward (You’re welcome, Starbuck’s).

2. Don’t reward me with lattes

I typically buy a latte regardless, so why not reward me with something I don’t purchase today but might be interested in purchasing (perhaps based on the behavior of other customers who drink non-fat lattes)?  If it’s free, I might try a menu item I’ve never tried before.  If I like it, who knows, I might just order it along with my latte on my next visit.  It’s called up-sell, and loyalty programs are tailor-made vehicles to up-sell customers and grow their value.

3. Recognize that my lattes are non-fat

Because all of my purchases are non-fat or light beverages, Starbuck’s can make some inferences about my preferences then use that information to determine my “up-sell” reward.  So, for example, when I am ordering my morning latte, perhaps my reward could be a cup of oatmeal.  I’ve not tried their oatmeal, but it is a healthier selection, and perhaps I might actually start ordering it on a regular basis.  It’s important to look at your customers’ purchase history to make sure your rewards and offers are meaningful.

What is one more purchase worth to you?

What if you could get your customers to purchase one additional item when they are shopping with you?  I’ve done that calculation for clients before, and the potential impact to their sales is tremendous.  Remember, good loyalty programs build loyalty.  Great loyalty programs build loyalty and steadily increase the value of their members over time.

What is your loyalty program doing for you?

Like this post?  Give us your comments, tweet it, become a fan, or follow us on Twitter!