Starbucks’ rewards program pushes the chain’s growth

Active membership rose 15% over the past year following changes to the program and the addition of more marketing technology.
Photograph courtesy of Starbucks

On Tuesday, Starbucks started a contest called Starbucks for Life, giving its Starbucks Rewards loyalty program members a chance to win a beverage or food item every day for a month, a year, or even the rest of their life.

For the Seattle-based coffee giant, it is another opportunity to get more people signing up for what has proven to be a major source of sales.

There are now 17 million U.S. members of Starbucks Rewards, up 15% over the past year, making it one of the most popular loyalty programs in the restaurant industry. In China, about 10 million people are members of the program, up 45% over the past year.

The growth in U.S. loyalty club membership has helped Starbucks improve sales. U.S. same-store sales increased 6% in the chain’s fiscal fourth quarter ended Sept. 29 and 7% in the quarter before that.

The company said that its rewards program contributed “closer to 2%” of same-store sales during those two quarters, up from 1% previously.

“We know from our experience that when customers join our rewards program, their total spend with Starbucks increases meaningfully,” CFO Patrick Grismer told investors Tuesday, according to a transcript of the presentation on financial services site Sentieo.

Loyalty programs have become increasingly important sales-building strategies for restaurant chains, particularly companies such as Starbucks and Domino’s Pizza that depend on frequency.

These programs enable companies to market directly to consumers and learn more about them, making them a “one-on-one” marketing opportunity that companies consider invaluable.

Starbucks’ program has undergone a number of changes in recent years that have sometimes generated controversy.

Rewards customers generally earn two “stars” for every dollar they spend. In April, Starbucks changed the program to enable customers to more quickly redeem their stars for beverages, food or other products.

In other words, customers don’t have to be daily Starbucks users to accumulate enough stars to get rewards. Grismer said Tuesday that this change generated “significant positive customer response.”

“We’ve attracted more of what we call occasional customers into the program,” he said.

That “creates significant opportunity, because we know from our experience that as we migrate customers from what we call digitally registered into full rewards members, we see their spend increase substantially,” he said.

The company also improved its marketing through the program, adding technology that enables the company to better understand what makes its members tick. As a result, while membership in Starbucks Rewards has grown, so has customers’ frequency of visits.

“We took the opportunity to introduce an enhanced personalized marketing engine into our technology stack,” Grismer said. It allows us, through machine learning, to gain insights around what matters most to our customers, which informs the offers we make to them digitally.”

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