Starbucks stirs up its loyalty programme – but what can we learn?

11th Mar 2016

The concept of customer brand loyalty has become increasingly complex in recent years, largely due to the continuous evolution of technology and growing consumer expectations. Major brands are refreshing their loyalty initiatives to find the best solution for both the business and its customers. Marks and Spencer recently launched its Sparks loyalty card and Nectar has announced it will be making some digital upgrades to its programme.

But it’s the announcement from Starbucks last week that has caused the biggest customer outcry. The coffee chain announced changes to its programme, basing the earnings structure on the money spent rather than the number of visits. The changes have led to a drop in customer sentiment according to the YouGov BrandIndex and has caused excitement amongst competitors such as Dunkin’ Donuts at the prospect of luring defecting Starbucks’ customers.

Brands could find themselves adapting their loyalty strategies to reflect attitudes to data sharing and privacy

Despite apparent consumer annoyance with these changes, from a loyalty building perspective the changes are justified. According to Starbucks, the updates have come directly from customer feedback and the company seems to be trying to make its programme more about experiences (they work with partners such as Spotify to provide rewards) and not just about free stuff. Developing loyalty rewards around a brand’s most profitable customers also makes commercial sense, so this move is not surprising. With competition for customers becoming fiercer, many forward-thinking brands are realising the power of their customer data and creating more personalised experiences to attract and more importantly, retain loyal customers.

Big Data

During the second half of 2015, Collinson Group collaborated with Future Agenda, the open Foresight programme, to run 12 workshops in eight countries involving 110 industry leaders and loyalty experts to debate what the future of loyalty holds. Amongst other things, the report highlighted the impact of Big Data on the future of customer loyalty.

But gleaning customer data can be a challenge as consumers begin to realise its value and develop concerns over data usage and privacy. One key hurdle is that of privacy versus personalisation and how consumers decide if they trust certain institutions enough with their data to benefit from a more personalised loyalty service. The essence of the exchange of data for consumers is directly proportional to the value they believe they will derive in return for sharing their data, and a more personalised service is highly regarded as valuable by consumers bombarded with generic communications and offers.

Real-time data pulled from various sources, including social platforms, point-of-sale, and financial transactions all play a major role in engaging with consumers, and enables organisations to understand behaviours and attitudes towards its service. The increase in the availability of rich data on consumer behaviour, interests, and motivations provides brands with the opportunity to be more relevant and offer more personalised experiences. High street banks are starting to recognise the need to segment consumers into more narrowly defined groups. According to a Collinson Group survey of retail banking executives in 2014, developing a better understanding of customer lifetime value, and improving the use of customer data and insight ranked higher than investing in digital and mobile services, and further investment in branch infrastructure.

The issue of data privacy is constantly making headlines, with over 700 million data records compromised last year. TalkTalkand Sony were big casualties, bearing the brunt of significant reputational and financial damage, which must act as a reminder of the existing risk. Up to now, the only obligation brands have had towards consumers regarding data has been enshrined by the law, with compensation only due to people if the rules are breached. However, in order for consumers to willingly share their personal data, of which they increasingly understand the value, they will expect recompense for its use, loss or abuse. Data security is now a minimum requirement that consumers expect, if they are to share their information and the value exchange to function. Brands could even find themselves adapting their loyalty strategies to reflect attitudes to data sharing and privacy that may vary in the many global territories in which they operate.

The future of loyalty is about so much more than simply adding a few more enhancements to pre-existing rewards programmes. Brands must place the customer at the heart of business models. The rapidly evolving relationship between brands and consumers, the emergence of digital disrupters and developments in the regulatory environment mean that stasis is not an option.

Starbucks has taken some interesting steps, but it remains to be seen how this will impact customer loyalty in the long-term. The next five years will see companies becoming far more proactive in accounting for how they store and use data, not just with regulators but directly with consumers too. These measures will pave the way for a more transparent approach to data, which in turn will lead consumers to value those brands that have a proven track record with usage and security. In a world where data and the permission to make use of it will separate the winners from the also-rans, striking the right balance between customer intimacy and respect for privacy will be a key competency—with loyalty initiatives remaining a vital mechanism for gathering and aggregating data in ways customers are content with.

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