The concept of loyalty programmes has long been debated in the business world. Do these programmes genuinely foster customer loyalty, or are they merely tools to drive sales? The success of Starbucks' rewards programme provides valuable insights into this question.
The Starbucks Success Story
Starbucks managed to launch one of the most successful rewards programmes globally, growing its sales by 40% through repeat visits from Starbucks Rewards members. Was this growth a direct result of customers receiving free coffee, pure coincidence, or a result of carefully crafted, data-driven strategies leveraging access to 14 million Starbucks customers?
Key Drivers of Loyalty
Through our ReAct loyalty research, we have identified eight key drivers of loyalty in the retail space:
Attitudinal Drivers:
Customer-focused approach
Strong brand equity
Overall quality
Positive reputation
In-Store Drivers:
Ease of locating products
Efficient check-out times
Product assortment and availability
Professionalism of sales staff
Interestingly, none of these attributes directly reflect the impact of shopper reward programs. With most retailers offering rewards programmes, what truly drives customer loyalty?
The Starbucks Approach
The Starbucks Rewards programme, launched in 2008, was a tiered customer reward programme. Starbucks understood that the foundational purpose of its rewards program was not just to push more sales. Instead, it was designed to become 100% customer-focused. Leveraging technology, Starbucks could understand customer behaviour, and purchase habits, and gain in-depth insights into who their customers are.
Measuring Customer Loyalty
Measuring customer loyalty involves more than just implementing a loyalty program. It requires a comprehensive audit of day-to-day customer experiences, attitudes, and behaviours. These measures are statistically calculated to segment the customer base into the following categories:
Truly Loyal:
Customers who like you and intend to keep coming back.
Accessible:
Customers who like you but may not consistently return.
Trapped:
Customers who don't like you but keep coming back due to a lack of alternatives.
High Risk:
Customers who don't like you and probably won't return.
Loyalty programmes should not be used primarily to drive sales. Studies have shown that rewards programmes do not inherently drive customer loyalty. Instead, businesses should use rewards programmes to gain access to richer customer information and behavioural analytics. This data can then be used to build closer, more meaningful relationships with customers.
While loyalty programmes can play a role in customer retention, their primary value lies in the insights they provide into customer behaviour. Businesses that use these programmes to understand and respond to their customers’ needs, rather than merely to boost sales, are more likely to foster genuine loyalty. The Starbucks example shows that when done right, loyalty programmes can be a powerful tool for creating a customer-centric business strategy.
Why should Customer-centricity take priority in strategy?
ReAct Insights has 30 years of experience in driving optimal growth through customer engagement research. We take a comprehensive, 360-degree approach to customer-centricity, helping many leading retail brands achieve growth through in-depth insights and practical strategy workshops.
References:
Bain & Co – https://www.bain.com/insights/are-you-experienced-infographic/
Dimension Data – https://www.prnewswire.com/news-releases/new-research-from-dimension-data-reveals-uncomfortable-cx-truths-300433878.html
