(image created by AI) An interesting study by the New Columbia Business School finds that…
At which customers is your loyalty program focused at? The loyal ones? Hmm, think again. There’s more to it than that. Even though you should put big efforts in keeping those loyal customers and use their advocacy power to generate new customers, in terms of turnover growth this group is already at its max. It’s the customers that show potential who should be high on your loyalty program priority list, turning them into loyal customers. This is common knowledge for experienced loyalty marketers.
Starbucks decided to take another route. And it pays off. They are delivering a mix of rewards and convenience, executed by using their mobile app, with a lot of attention to customer experience. This has enabled Starbucks to create a new segment of customers, or change behavior throughout existing groups so much that these customers can be redefined as a new group. How did they do that, you might wonder?
From classic punch card rewards to offering convenience
The Starbucks app has gone through many changes throughout the years. It started off as a ‘classic’ punch card that delivered a star per visit, letting you save for free beverages. Nice, effective, but it has been done before. Learning from the behavioral data the loyalty program generated, they spotted opportunities…and followed up on them (that latter detail is essential). They added convenience features, changing behavior of their members and turning them into a different type of customers. Convenience features they introduced included payments and the option to order ahead. These two resulted in completely new routes within their shops, enabling members to skip lines after they ordered ahead, so they can run in, without paying on the spot, and run out again. Members can experience a completely different Starbucks experience, which has a huge impact on their choices if they get a daily coffee, or when they travel and are in a rush. Knowing that your coffee is ready and paid for, allows for different routines, and different choices by coffee drinkers around the world. It’s not difficult to predict (I dare to write this in hindsight) that usage has exploded in this group. Now, over 20% of payments is done with the loyalty app and thus by loyalty members.
Rather than a group of consumers that – through analysis – can be traced as being loyal customers based on usage, Starbucks has been able to reverse the process: customers that can be persuaded to become a app using member start showing extremely better favorable behavior, which explodes turnover and lowers costs.
Now that is a good example of what a loyalty program can deliver your brand: change the customer experience, add reward components to nudge people into that behavior and follow the data to improve, and improve and improve. We like to call it ‘reversing loyalty’, no matter how paradoxical that may sound. Looking from a different perspective of what the power of your loyalty infrastructure can deliver enables you to create complete new customer segments with a very favorable behavior.