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When customers do the math on Starbucks’ new rewards program, they may not like what they see, Bernstein says

Author: Amelia Lucas

Source: CNBC

  • Starbucks announced changes coming to its rewards program, including a greater range of redemption options, last week.
  • “We think the new rewards plan runs the risk of alienating the core customers,” Bernstein analyst Sara Senatore said in a Friday research note.
  • Last time the company did a major revamp of the program, there was some customer backlash.

Last week, Starbucks announced changes coming to its North American loyalty program in an effort to attract new members. But Bernstein said in a note published Friday that the adjustments could anger existing Starbucks Rewards members.

The Seattle-based company has been experiencing slowing foot traffic at North American stores as the coffee market grows more competitive. To keep sales numbers up, Starbucks has been focusing on ways to keep customers coming back every day, like investing in its cold beverages and switching up the loyalty program. Starbucks Rewards accounts for 40 percent of its daily transactions.

“We think the new rewards plan runs the risk of alienating the core customers,” Bernstein analyst Sara Senatore wrote in the research note.

Members still earn two “stars” for every dollar they spend. However, the updated program eliminates Starbucks Rewards’ two tiers and gives members of wider range of redemption options, from 25 stars to customize a drink to 400 stars for select merchandise or at-home coffee.

“We want to make the program more appealing to more people,” Matthew Ryan, chief marketing officer at Starbucks, told CNBC when the changes were announced. “We want members more engaged out of the gate.”

The current iteration lets customers exchange 125 points — earned by spending $62.50 at the coffee chain — for a free food or drink item. When the changes go into effect in several weeks, members will have to redeem 150 stars — the equivalent of spending $75 — for a handcrafted drink, hot breakfast or parfait. A lunch sandwich or salad will set customers back even more: 200 points or $100.

“With lower discounts on higher value items, the program should be margin accretive — assuming no change to customer habits,” the note said. “But customers are savvy, and higher spenders are likely to recognize that the effect reward rate is lower (as much as 50% lower on some items).”

When Starbucks last changed its rewards program in 2016 to encourage customers to spend more, some consumers protested the changes on social media. The same backlash has not happened yet for the latest round of tweaks, which will not go into effect until April 16.

“We are confident the upcoming enhancements to Starbucks Rewards will lead to the continued growth and customer enjoyment of the program,” Starbucks spokeswoman Maggie Jantzen said in a statement to CNBC on Friday. “These changes will bring immediate value and increased choice to our members and we’re looking forward to introducing them on April 16.”

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