How Starbucks Perfected its Addictive Rewards Program

Coffee is undoubtedly a staple in many consumers’ morning routines. But in such an essential industry with a product that’s already addictive, what can companies do to separate themselves from competitors in the market? Let’s analyze one name brand company in particular, to see what has led to their immense popularity and success.

In the competitive world of retail and dining, Starbucks’ loyalty program stands out as a model of success. Launched in 2009, the Starbucks Rewards program has grown into one of the most effective customer retention and engagement tools in the industry. It has dominated the coffee industry and remains the largest coffee company in the world, with more than 39,000 locations and over $32 billion in revenue for fiscal year 2023 (more than Peets, Dunkin, and Panera combined). The loyalty program essentially asks customers to download their app and make a personal account, which eventually makes it easier to order and offers rewards/incentives. By maximizing user friendly experiences and taking advantage of human psychology, Starbucks Rewards is a key example of how to increase user retention and revenue.

Its dominance in the market can be attributed to several key factors like gamification and personalization that create a powerful customer engagement and loyalty engine. Therefore, not only is Starbucks coffee addictive, but so is the overall company’s strategy and thriving Rewards program.

So, what really makes Starbucks Rewards so “sticky”? Here’s a closer look and breakdown of how Starbucks has perfected its loyalty program to create a powerful, habit-forming customer experience:

1. Gamification
2. Personalization and Customer Engagement
3. Brand Loyalty and Social Responsibility Efforts
4. Strategic Partnerships
5. Psychology
6. Data Driven Insights and User Friendly App

Gamification

First, let’s review: what is gamification? It’s a powerful strategy in digital marketing and customer retention that transforms mundane tasks into exciting challenges. It essentially involves adapting video games elements like stars or membership levels when designing a product, with a focus on understanding and incorporating human motivations into each feature, to make users much more likely to use the app for more frequent and longer duration. Starbucks Rewards uses these three gamification features or mechanisms exceptionally well:

1a. Membership Levels/Tier

1b. Stars and Special Opportunities

1c. Rewards/Perks

1a. Membership Levels/Tier

In Starbucks Rewards, the membership levels are designed to offer different perks based on your level of engagement with the program. The Green Level Membership is the starting tier when you first join the Starbucks Rewards program. Basic rewards include a free birthday drink and access to member-only offers and events. A user reaches the Gold Level Membership after earning 300 Stars in a 12-month period. These members receive additional perks like a free drink or food item after every 125 Stars earned and access to more exclusive promotions and events. The Gold Level Membership creates motivation and incentives leading to much higher user retention and engagement.

1b. Stars and Special Opportunities

The Stars System, essentially the app’s virtual currency, is another fundamental gamification mechanism that Starbucks utilizes. Users receive 1 star per dollar if they use the app to “pay as you go.” They receive 2 stars per dollar if they preload or add money to a digital Starbucks Card using any payment option. This double stars effect is also applied if they use a Starbucks gift card. This encourages and amplifies user engagement, as well as customers’ willingness to try new things like the gift card or digital card.

Additionally, users can earn Stars even quicker with Bonus Star challenges, Double Star Days and exciting games. These special opportunities help captivate user interest. The Stars System encourages users to engage with the app and brand on a deeper level, as we will see with the different rewards that you can purchase with those Stars.

1c. Rewards/Perks

The loyalty program offers many different rewards or perks depending on how many stars a user has attained. 25 Stars can allow one to customize their drink. 100 stars can be exchanged for brewed hot/iced coffee/tea, bakery item, or more. 200 Stars earns a handcrafted drink or hot breakfast. The next two rewards are interesting, because they don’t only offer a meal or a cold drink. With 300 Stars, users can get a sandwich/protein box or a bag of coffee. With 400 Stars, users can even get merchandise. This lets Starbucks draw in more users while promoting their other products like at-home coffee and merch–which customers may not have been interested in had they walked into a Starbucks without using the rewards program.

Personalization and Customer Engagement

Starbucks Rewards excels in offering a highly personalized and addictive experience. By leveraging data from members’ purchase histories, Starbucks tailors promotions and rewards to individual preferences. This personalization not only makes the customer feel valued but also increases the likelihood of repeat purchases. For example, if a customer regularly orders a particular type of drink, they might receive special offers related to that item. This personalized approach makes rewards more appealing and relevant, driving increased engagement and repeat visits.

Starbucks Rewards users are asked to create their own personal accounts with Saved Favorites and Payment Methods. They even get a free birthday treat!

Not only does Starbucks personalize your account with your favorite drink information saved– but it also sends push notifications and allows for easy communication which also leads to increased user engagement and retention.

Brand Loyalty and Social Responsibility Efforts

Starbucks recognizes the importance of brand image and is working hard to ensure it has made sizable efforts in terms of sustainability and social responsibility.

Starbucks integrates social responsibility into its rewards program, appealing to customers who value corporate ethics and community engagement. Initiatives like the “Starbucks Foundation” and various social responsibility campaigns resonate with customers who value corporate social responsibility. By linking rewards to community efforts and sustainability practices, Starbucks appeals to socially conscious consumers, strengthens its brand image, and deepens customer loyalty.

Strategic Partnerships

Starbucks frequently and strategically collaborates with other brands and businesses to offer exclusive promotions to its rewards members. These partnerships can include anything from limited-time offers with popular brands to special promotions during holiday seasons. Such collaborations not only provide added value to members but also attract new customers who might be interested in these exclusive deals.

For example, the partnership with Delta, allows for customers to link Delta SkyMiles and Starbucks Rewards accounts to earn miles on Starbucks Card reloads of $25 or more, plus Double Stars on travel days. People can also link their Bank of America eligible card and Starbucks Rewards account to earn 2% Cash Back and Bonus Stars on qualifying Starbucks in-app purchases. Another similar example is that customers can link Marriott Bonvoy and Starbucks Rewards accounts to earn Double Stars during eligible stays, points during any Marriott Bonvoy Week and more.

The benefits of strategic partnerships are evident. Not only does Starbucks garner more interest, new users, and user engagement, but by giving incentives and linking the rewards account with companies like Delta and Marriott Bonvoy, everyone benefits. Starbucks recognizes the importance of partnerships for their brand strength and penetration, marketing, and financial success. The partner companies are open to collaboration as they also realize the mutual benefits for their respective business. Starbucks acknowledges the significance of increased user engagement and retention in generating revenue–and takes advantage of this.

Psychology

Starbucks has perfected the ability to develop user interest and keep them engaged–a necessary tactic or strategy for any similar company to be successful in today’s market. So besides the coffee, what has made Starbucks so sticky and addictive?

When it comes to customers, Starbucks is exceptional at utilizing psychology, cognitive, and behavioral science. “The Habit Loop” describes the neurological patterns that govern routines, and was coined in the 1990s by researchers from MIT (Massachusetts Institute of Technology). The loop consists of three parts:

1. The trigger/or cue: signals to our unconscious minds that it’s time to perform our habit
2. The routine: the habit or behavior itself
3. The reward: the payoff you get from performing your habit

Starbucks uses several triggers that have been discussed throughout the article. Some of these include push notifications with new drinks or exclusive deals or special events like Double Star Days and Bonus Star Challenges.

Starbucks Rewards also creates a simple, personalized, and gamified routine experience. Behavioral Science tells us that personalization is a powerful tool to capture user attention and interest. From a personalized home page (“Good afternoon David”) to an experience that makes saving and recording your favorites a breeze, Starbucks Rewards makes its experience as personalized as possible. In addition, gamification drives engagement. Users don’t just earn stars, they can also move from the Green to Gold rewards tier once they earn 450 stars in one year. Gold status members can get even more rewards (like free extra shots of espresso, syrups and whipped cream). When the program first launched, users could only trade in stars for drinks. But as it’s evolved, the rewards have evolved as well. Customers can now use stars to get food, coffee beans, and merchandise. U.S.-based users can also earn airline miles from their purchases through a partnership between Starbucks and Delta Airlines.

By offering so many rewards options, Starbucks is giving customers control over their rewards–or autonomy as psychologists would call it. In addition to the variety of rewards, users can earn more points depending on how and when they use their card. For example, if a user loads their Starbucks Reward app with cash instead of paying with a debit or credit card, they earn 2x the rewards. This behavior actually makes a big difference to Starbucks’ bottom line. Starbucks is technically one of the biggest “banks” in the United States based on the amount of customers’ money it holds via the Starbucks Rewards app. In fact, in its Q3 2022 earnings report, Starbucks reported that it had $1.7 billion loaded on Starbucks accounts/gift cards waiting to be spent in its stores. Clearly, Starbucks has mastered the ability to create an addictive habit loop, leading to increased user engagement and higher revenues than competitors who haven’t been able to do the same.

Perfecting the habit loop has made Starbucks one of the most used and financially successful loyalty apps in the world. Users are addicted to the brand and keep coming back for more. Perhaps in this case the habit loop is, or becomes, synonymous with brand loyalty.

Data Driven Insights and User Friendly App

As mentioned earlier, Starbucks has mastered creating the habit or pattern that has led to massive user retention numbers In fact, “Starbucks has a customer retention rate of 44%, which is significantly higher than the industry average of 25%.” But what has contributed to this?

Starbucks leverages the data collected from the rewards program to make informed business decisions. Starbucks uses data from the rewards program to understand purchasing patterns, customer preferences, and behaviors. This insight allows the company to refine its marketing strategies, optimize its menu, and tailor promotions to meet customer needs. This data-driven approach ensures that the rewards program remains relevant and effective, driving continued engagement and growth.

Not only does Starbucks use data driven insights to improve performance and personalization, but the app is extremely user-friendly and easily accessible. The app not only facilitates easy enrollment but also enhances the overall customer experience.

One of Starbucks Rewards’ key strengths is its seamless integration into the daily routines of its customers. The program’s mobile app is designed for ease of use, allowing members to earn and redeem rewards effortlessly. Features such as mobile ordering and payment not only streamline the purchasing process but also embed Starbucks into customers’ daily habits. This convenience encourages frequent visits and builds a habitual relationship with the brand. Therefore, the app promotes creating an addictive “habit loop” for consumers–leading to increased sales/revenue and most importantly, brand loyalty.

Results and Conclusion

As the most successful coffee chain in the world to date, Starbucks has taken advantage of several key concepts that have contributed to their company’s stickiness:

1. Gamification
2. Personalization and Customer Engagement
3. Brand Loyalty and Social Responsibility Efforts
4. Strategic Partnerships
5. Psychology
6. Data Driven Insights and User Friendly App

Starbucks targets customers with a human psychology business lens–through methods such as data driven insights and personalization, gamification and special events/opportunities to earn rewards, social responsibility efforts and more. The loyalty program in particular creates a habit loop using fundamentally ingrained behavioral principles, for example, being rewarded for performing a habit/task. The result is that these methods all strategically help increase user/customer engagement and brand loyalty–leading to higher revenues and user growth.

Starbucks is currently the world’s largest coffeehouse chain, with more than 39,000 stores worldwide and 381,000 employees. The company has a market capitalization of $107.44 billion. Starbucks’ Q3 2024 total company revenue was $9.1 billion, up 1% year-over-year and 6% over Q2. In fiscal year 2023, the company’s consolidated net revenues rose 12%, reaching a record $36 billion, even as Starbucks faced boycotts. The company also reported an 8% increase in global store sales for 2023.

In the U.S., Starbucks has over 100 million customers per week and 80% of Starbucks customers visit the store on a weekly basis. 55% of their customers have used the app for their mobile order. Additionally, Starbucks Rewards had amassed 34.3 million active members in the United States in the first quarter of 2024, which was a 13% increase from the previous year. Launched on December 26th, 2009, the Starbucks Rewards program is now contributing to nearly 60% of the brand’s total revenue.

It’s safe to say, Starbucks Rewards has been a massively successful loyalty program. Its implementation has proven to be an excellent model for other companies to emulate. So, what in particular has contributed to its success?

The popularity of the brand has certainly helped the loyalty program, but Starbucks Rewards also benefits from blending convenience, personalization, and customer engagement into a cohesive and addictive experience. By integrating the program seamlessly into daily life, offering frequent and relevant rewards, and continuously innovating, Starbucks has created a model that drives customer loyalty and satisfaction–fostering long-term brand allegiance.

The intentional and inherently addictive nature of the Starbucks Rewards program has capitalized on behavioral economics and fundamentally ingrained psychological principles that are directly correlated with generating higher revenues, customer growth, and user engagement/retention. By creating an addictive habit loop, Starbucks has ensured it will continue to keep customers coming in the door–and it is not just for the coffee.