The document summarizes the battle between Starbucks and Dunkin' Donuts loyalty programs. After years of success, Starbucks angered customers by changing its rewards program to require higher spending. In contrast, Dunkin' Donuts' easy-to-use program increased satisfaction and capitalized on unhappy Starbucks customers. The document proposes Starbucks can achieve its goal of higher spending while maintaining customer satisfaction by returning to a simpler rewards structure with options for premium rewards for higher-spending customers.

1. Battle of the Baristas
Starbucks v Dunkin’ Donuts
Warring Loyalty Programs
2016

2. Starbucks
• 12 million loyalty members
• 2015 revenue: $18.5 billion
• Leader in quick-service
restaurants
• Customer satisfaction rates
declined by 3%, placing
them “below average”
• Value Prop: upscale coffee
hangout; personalized
digital experiences; mobile
app ordering; pricey
Dunkin’ Donuts
• 4.3 million loyalty members
• 2015 revenue: $783 million
• Customer satisfaction rates
increased by 4% in 2015, landing
them #1 in customer satisfaction
for 9 consecutive years
• Value Prop: Cheap coffee,
popular offerings, easy ordering
(especially with mobile ordering)

3. The Problem
After years of a successful loyalty program, Starbucks changed its
reward system, angering its customer base.
Old Starbucks Loyalty Program
Each visit = 1 Star
 Gold Status earned at 30 Stars
 Reward every 12 points
thereafter
 Lowest spend needed to reach
reward after gold status was
$24
New Starbucks Loyalty Program
Each dollar spent = 2 stars
 Gold Status earned at 300 Stars
($150 spent)
 Reward every 125 points
thereafter
 Spend required to earn reward
after gold status increased to
$62.50
DD Loyalty Program
Each dollar spent = 5 points
 Reward every 200 points
 Many promotions that give
away 125 points
 Without promos, spend
required is $40

4. Angry Customers

5. Why did they do it?
• Starbucks officials stated it was “more fair” this way; that it was unfair to
reward the venti-triple-latte-with-espresso-shot order the same as the
drip-coffee order.
• My take -- loyalty programs are designed to do one of two things:
1. Increase frequency of visits, OR
2. Increase amount spent at each visit
• Starbucks shifted its focus from rewarding frequency of visits to rewarding
amount spent. In order to support this new goal, the program had to
change and reward the new behavior they desired.

6.  Given the low threshold for rewards in original Starbuck’s loyalty
program, I believe the original goal was to increase frequency of visits
(same as Dunkin’ Donuts).
 With the new focus on amount spent, and the higher monetary
threshold required for rewards, I believe the goal is now to increase
average spend per visit.
Shifting the Starbucks Loyalty Goal

7.  Loyalty programs work when they increase utility – make transactions
easier, simpler, and faster.
 New program is complex; difficult to understand; takes substantial more
effort (in addition to more money).
 What was once a program that made customers feel special and
connected and rewarded for their continued patronage in a real and
meaningful way, is now a program much like any other – stars expire,
rewards difficult to reach, stars hard to keep track of.
Additional Unwelcome Changes

8. DD’s loyalty program is:
 Easy to use and understand
 Easy to earn rewards
 Able to share rewards with others
 Offers cashless payment via mobile app
DD has capitalized on Starbuck’s stumble, offering 125 points by using
promo code, “STARS”; offering $5 gift certificates to people who switch
What About Dunks?

9.  I propose that Starbucks can achieve its objective of increasing average
customer spend while maintaining the core of the original rewards
program.
 Return to simpler structure of 1 star per visit; 12 stars = free beverage
 Less than 1% of Starbuck’s customers order plain coffee.
 In 2015, average customer spend was $5.22. This is not a drip coffee
order.
A Better Way

10.  Just like retail stores that offer loss leader products, Starbucks could
easily continue to reward this small percentage of cost-conscious
consumers without angering everyone else.
 Add a premium “platinum” level that offers greater rewards for
consumers who spend more.
A Better Way