One company's loss is another's gain. Last month, Starbucks announced that it would be making some major changes to its loyalty program and although the coffee chain thought this change was for the better, customers were not happy. Starbucks No. 1 rival, Dunkin' Donuts, plans to use this to its advantage.
The new loyalty program will reward customers based on how much money they spend, instead of how many purchases they make. Since Starbucks is notorious for having pricey drinks, the company assumed customers who indulge in their lattes and Frappuccinos would be happy with this and want to spend more money to earn more rewards, but the opposite happened.
Once Dunkin' Donuts heard that there were some unhappy Starbucks drinkers, it decided to win over the customers who are frequent buyers instead of high spenders. "We feel excited about the change to Starbucks' loyalty program," said Nigel Travis, chief executive of Dunkin' Brands Group, Inc. "We've been targeting customers with $5 gift cards."
Starting next month, Starbucks customers will now receive two stars for every $1 spent and earn a free drink or food item once they reach 125 stars. Since the current program grants customers one star per purchase made, and only requires customers to have 12 stars to get the free treat, regulars who come in for a normal and cheaper cup of coffee quickly realized how much better of a deal this was.
With the new loyalty program requiring coffee drinkers to spend $62.50 to earn their first free reward, Dunkin' Donuts wants to make it clear to its customers that their loyalty program only requires buyers to spend $40. If Starbucks customers convert into Dunkin' loyalists, it could end up boosting sales at Dunkin' by 0.25 to 0.4 percentage points.
When Starbucks first announced the change, it argued that customers requested this and that they would be earning rewards much quicker and easier than they do on the current program. Within eight days of the new announcement, Starbucks' customer satisfaction and perception levels dropped by half. Prior to this, 80 percent of current Starbucks customers said they would consider making their next coffee purchase there, but that number has now dropped to 71 percent, which doesn't look great for future sales.
