Launched earlier in November but new to me, Starbucks now offers frequent customers a ‘gold card’ to reward loyalty. Unfortunately, unless you’re already spending hundreds on cappuccinos and lattes each year, it’s not much of a bargain.
Part of my criticisms (and many others) has been that Starbucks has been milking its customer base for years without many good programs in place to reward them. They’ve had a rewards card for a while, but in my opinion its pretty lame (you can check it out here). The gold card attempts to reinvent Starbucks as a customer-centric company but reeks of a desperate marketing ploy to prop profits after last quarter’s haul fell by an astounding 97%. While gold card sales are very strong (reported to exceed expectations by 20%) the benefits appear to only favor the most dedicated customers. Simple math, as you’ll see, is the achilees heel of the entire plan.
Available for an annual fee of $25, the gold card promises these benefits:
– Free initial beverage
– 10% off most purchases
– Free birthday beverage
– (3) 10% coupons for family or friends
– Free 2hour WiFi access
At first sight, it might appear enticing. Sure enough, we were caught off-guard by the sales pitch. A free drink (our barista selected the more expensive one, which was great) and 10% off future orders sounds great. In our case, we probably visit an actual Starbucks store maybe 3 times a month. How long until the card pays for itself?
– $4 Value of free coffee (grande java chip lite)
– $.30 discount on latte ($3.30 – 10%)
So with lots of rounding, we’re out about $20. To make that back, we’d have to buy $200 worth of coffee over the next year. At the cost of Autumn’s $3.30 tall skinny lattes, she’d have to buy 60 of them just to break even. That comes out to five every month, or roughly more than 1 each week. While that’s not an impossible requirement, it really just amounts to a very long, interest-free loan to Starbucks. Even if she religiously goes twice a month, she’s fronting Starbucks a 6-month investment with a total net return of under $5.00. Hardly worth being out of the $25.
Sure, if you’re OCD about Starbucks and go every day, you’ll find much more value. Starbucks’ press release says a customer that comes in 10 times per month for a double tall nonfat latte will break even in 4 months. Even that seems like a waste. Remember, spending money just to get the discount just results in a loss any way you look at it if you already didn’t need the product. You’ve see a lot of those buy 5, get the 6th free type things in the supermarket, right? Well, if you don’t really need 5, then the free 6th just means you paid for 4 .. which in most cases is 3 more than you needed. Again, think of these things as interest-free loans to a company.
For corporate customers or those few remaining diehards who must have their daily fix of Starbucks, this card is probably a welcome step forward in rewarding their loyalty. For the rest of us, it’s a gimmick that offers a minimal return, if any. Our suggestion? Offer a garden-variety frequent customer program that costs nothing. Even if it takes 20 coffees to get a free one, it does keep the incentive in our head to go to Starbucks when we do want coffee and doesn’t back you into a corner rushing to break even before a year.
Fortunately for those who may have jumped into the boat without doing the math, you can return your gold card within 30 days (with the original receipt) for a refund. After all the lofty sales projections, I’d be interested to know if they include the net effect of the refunds in their totals. I estimate Starbucks will have a fairly steep rate of return as consumers wise up to the reality of the program.
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