Starbucks: Give Your Customers Free Stuff (For a Price)

(MoneyWatch) 

That $5 cup of fancy Starbucks coffee has long been a symbol of daily indulgence. That's a brand strength in good times. But when the economic terrain turns harsh, that aura of a small luxury makes the daily Starbucks fix stand out as the first thing to cut. How do you persuade a suddenly frugal clientele to maintain that latte habit?

At Starbucks, the answer began by trying, through focus groups, to understand what its most loyal customers really want. These focus groups revealed that customers were willing to stick with Starbucks if the company helped them feel that they were saving even as they indulged themselves. “We were hearing from customers that value was becoming more and more important,” says Brad Stevens, Starbucks’ vice president of customer relationship management. The answer: Reward their fealty with free stuff — for a price.

In what looked like an obvious tactical move, Starbucks finally introduced a loyalty card, the Gold Card, last year. The coffee giant gave the card a whiff of exclusivity by making it nearly solid black, perhaps in a subliminal nod to the black American Express card offered to only the wealthiest holders. Unlike most loyalty cards, it’s not free: Customers have to pay Starbucks $25 to get one. Once in hand, though, it doesn’t require the user to accrue purchases to receive benefits, as other loyalty cards do. Cardholders get a free cup of coffee when they buy beans, free cups of new brews, free spritzes of syrup in their regular drinks, and, from time to time, free refills. “We could show we are listening to customer needs by offering value right off the bat,” Stevens says.

By the end of the second quarter of this year, the promotion had brought in $17.5 million in revenue from 700,000 card purchasers. While that may not seem like a big deal for a $10.4 billion company, says Michael Silverstein, a marketing expert with The Boston Consulting Group, retention of loyal customers is the key. “In the luxury world, 10 to 15 percent of your customers generate 80 percent of your profitability,” Silverstein says. “Successful companies are looking to lock and load, to really connect with their core customers.”

Starbucks hopes that if it makes those connections, its core customers will remember who took care of them during the hard times. “Things will get better, and people will feel like they can reward themselves again,” Stevens says. “We want to be there when that happens.”

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