Anyone running a rewards program needs to study Starbucks.

No one else's program so tightly integrates with the broader business strategy.

Here’s one example of this that I noticed this week

When you log into the Starbucks app, you see that rewards, not purchases are at the center of the Starbucks app. This is driven by the intuition that app purchases are driven by repeat customers who are willingly to go through a couple of taps to make a purchase.

It also offers them the chance to highlight the most important things – this week, this was how the rewards program is changing.

The change?

Pre-loading a card gives you 2x the reward points for purchases compared to 1x for all other payment methods.

Incentivizing customers to preload a card to pay for their daily coffee by offering 2x baseline rewards seems like a win for customers with no upside for Starbucks.

But according to their 2019 annual report, they hold $1.27 B in these cards with $140.8M of breakage – that’s value that will never be redeemed. So effectively, Starbucks is borrowing from its customers at a ~ -10% interest rate!

2019 10-K: https://s22.q4cdn.com/869488222/files/doc_financials/2019/2019-Annual-Report.pdf

This incentive follows you through the checkout process. A true masterclass in app/rewards program design and how that ties in with the broader business strategy.

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