Starbucks' new rewards program that outraged customers is actually a brilliant business move

Many Starbucks lovers aren’t happy about upcoming changes to the coffee chain’s reward program. However, analysts have a different opinion.

On Monday, Starbucks announced that, starting in April, customers would earn reward stars based on the amount of money they spend at Starbucks, as opposed to the current system of one star per visit.

Starbucks said the change is based on requests by customers. However, the outrage online following the announcement demonstrated that many people were not ready to embrace the new system.

“This new program won’t work as well,” reads the top-rated comment on the Business Insider article reporting the change. “Making people wait till they spend $50 for a few drink is way too much.”

Despite backlash, some analysts have a different take.

“Yesterday morning, Starbucks announced an update to its rewards program that Nomura views positively, as it provides a greater incentive for customers to spend more money,” Nomura analyst Mark Kalinowski wrote in a research note. 

According to Kalinowski, the revamped rewards program is a major reason that Starbucks announced a same-store sales target of high-single digits in the coming fiscal year. In other words, the coffee giant is predicting that the dollar-based rewards program will drive significant sales growth at Starbucks locations.

“The more money spent, the more stars earned… which is, all else equal, more incentive to spend more money,” writes Kalinowski. “From many customers’ perspective, it probably is viewed as being more fair — somebody spending $6 should earn more stars than a different customer spending $3.”

Customers who see the change as the fair choice haven’t taken an especially strong stand on social media, compared to the volume of customers complaining about the change.

However, a few positive comments have appeared on Starbucks’ Facebook page — primarily from customers who typically buy more than just a simple, inexpensive cup of coffee.

“I like the idea! But I’m the customer who usually spends $13 to $20,” reads one such comment. “I always thought why only one star when I usually buy 2-4 drinks!”

Starbucks mobile orderStarbucks, via The Motley FoolStarbucks mobile order and pay.

Kalinowski also notes that the update is intended to provide greater incentive for customers to order and pay using Starbucks’ app.

The change also will cut the unnecessary hassle of ringing up multiple purchases for the approximately 1% of customers who split transactions to earn multiple stars when buying two or more items.

In January, Starbucks reported that the My Starbucks Rewards program had 11.1 million active members in the US, an increase of 23% from a year ago. The popularity of the rewards program has helped boost the chain’s mobile sales, which now account for about 6 million orders a month.

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