Why Starbucks Wins at CRM

By: Emily Koba

Customer Relationship Management (CRM) has become a crucial part of the modern marketing strategy. Most commonly, CRM is performed through the use of customer loyalty programs. Ultimately these programs exist so that businesses can see their profits increase by focusing on personal relationships with customers. Countless loyalty programs exist, however according to an article published by Marketing Magazine, Starbucks seems to be a leader when to comes to creating an effective loyalty program that satisfies customers, as well as increases profits.

In our textbook, CRM is defined by its three major objectives. The first is customer acquisition. This means that the “right” customers will be attracted to the business or product, based on known or learned characteristics. In this year’s Q3 results, Starbucks revealed a 28% increase to 10.4 million users of its loyalty program, My Starbucks Rewards. This number included a total of 6.2 million gold members, the highest status level the program has to offer. This is a strong indication of the second major objective of CRM, customer retention. CEO Howard Schultz was quoted saying that the growth of Starbuck’s loyalty program, “continues to be our most important business driver as new members contribute not only short-term increases in revenue and profit, but also long-term loyalty for years to come”. The program creates an incentive for customer retention through its three levels – welcome, green and gold. Users can work their way to gold status through increasing their purchase frequency, which earns them “stars”. These stars can be redeemed for free food and drinks. This increase in purchasing obviously gives way to the third and final objective of CRM, customer profitability. Howard Schultz cited My Starbucks Rewards as major reason for the Q3 18% increase in net revenues, making a new quarterly record of $4.9 billion.

The Starbucks Loyalty Program has seen great success in its mobile payment option at a time when many other mobile payment apps have been struggling. In U.S. Starbucks stores, 20% of transactions are done via the mobile app, resulting in nearly 9 million mobile transactions weekly. The article mentions that the popularity of mobile payments at Starbucks comes as a certain “Network Effect”. Starbucks as already created a sense of intimacy at the counter, and witnessing someone ahead of you in line utilizing mobile payments with ease will ultimately influence you to try it out as well. This is achieved by the high frequency of consumers’ Starbucks visits and their close proximity to other customers.

Even with the proven massive success of the program’s current model, Starbucks still has plans for enhancing it. Over the summer it announced plans for partnerships with outside companies to increase ways that customers can utilize their program membership. The first was with the ride-sharing company Lyft. This deal would allow riders to collect loyalty program stars, while all Lyft drivers would automatically earn gold status. A second plan for partnership was with The New York Times. This would allow loyalty members to view a selection of stories for free via their Starbucks app, as well as earn stars through paid subscriptions to the newspapers.

In conclusion, The Starbucks Loyalty program exemplifies all the components of modern successful CRM. While it has been able to achieve the three objectives of CRM, it has also been able to go above and beyond by paying attention to all the components of customer loyalty. Its plans for partnerships with outside companies successfully integrate Starbucks into other common tasks for consumers besides just getting a cup of coffee. Being able to earn stars through riding in a Lyft or reading the New York Times proves that Starbucks is attentive to their consumers’ lives beyond their Starbucks visits and is therefore customer centric. Considering optimizing ease of purchases through the successful implantation of the mobile payment option shows that Starbucks has a customer mind-set, but is also focused on increasing purchases and profits. Starbucks has clearly considered all aspects of a successful customer relationship management model and will continue to experience record breaking profits and customer growth because of it.

Source: http://www.marketingmag.ca/brands/why-starbucks-is-winning-at-loyalty-152974

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16 thoughts on “Why Starbucks Wins at CRM

  1. Tara Stuhr November 10, 2015 / 7:45 pm

    Starbucks is a great inspirational company when the topic of consumer relationships is brought up. Howard Schultz was fired from his head role at Starbucks early in the business’s lifespan, but the company started to plummet once he left. Therefore, Starbucks wanted to bring him back, and when he was brought back he started the customization of a cup of coffee. He wanted Starbucks to not just be about cups of coffee, but an experience when entering into the store. A large part of this is writing and announcing the name of the person who ordered the drink, rather than the drink order. Just this simple change increased sales and profits for the company, and they have continued this success for many years. I would have to say that the Starbucks loyalty program is much more popular on the west coast because of their competition, Dunkin Donuts, is taking over the east coast. Seeing that I personally am from Southern California, I know that many people take advantage of this loyalty program and they now have reached a new customer relationship with the company. They swear by Starbucks and all that it does, which can be seen as the ultimate customer relationship a company can reach.

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    • Jane Paradise December 2, 2015 / 4:31 pm

      I was actually never aware that Howard Schultz was fired from his leadership role and later brought back when Starbucks wasn’t doing so well. And what did he do differently upon his return? He began changing the entire way people look at ordering a cup of coffee, and I agree with Owen, he probably wanted to ‘bring out the coffee drinker’ in everyone whether they were aware of it or not. Enjoying this simple beverage was now fun (and different), as opposed to being dull and routine.

      After reading that about Howard Schultz, I immediately noticed a correlation between him + Steve Jobs. The board of directions also fired him, the company started to suffer, and later he was restored to his original leadership position. In my opinion, I think what he really started doing upon his return was customizing the PC, so that each customer could really make the product / experience his own. Not only that, he worked to make using a computer fun again, and in doing so ‘brought out the computer user in people when they didn’t even know it existed’.

      As for the fact that Starbucks has always written down customers’ names on their cups, I’m not sure if this really improved sales right away – but I can see where the customization trend kicks in here to help make Starbucks more profitable overall. And then there’s the psychology behind using someone’s name. In one of my favorite books, ‘How to Influence People’, by Dale Carnegie, there is a whole chapter he dedicates towards the importance of using a person’s name, because he says to the individual it is ” the most important sound in any language”.

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  2. Owen Jarem November 10, 2015 / 9:06 pm

    I’ve always been amazed at the following that Starbucks has been able to create, and that is largely attributed to their CRM. By creating these loyalty plans they have separated themselves in a way that their competitors can’t keep up with. As a casual coffee drinker, I don’t feel the need to go to one place to get a cup of coffee over another. What I have noticed from going to different places to get coffee is the experience that Starbucks creates compared to competitors. For example, at Dunkin Donuts they are there for convenience and there isn’t much of a connection there, and normally that is what I look for with my coffee. The few times I have been to Starbucks, I’m inclined to sit down and really enjoy my coffee. Starbucks seems to want to bring out the coffee drinker in people that they didn’t know existed.

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  3. Taylor Mason November 16, 2015 / 11:02 pm

    No wonder how Starbucks has been able to maintain such a broad consumer base over the years. With such great loyalty programs they should have no issues gaining and retaining customers. Personally I am not a big Starbucks fan, however like Owen stated I have always been astonished by the atmosphere that Starbucks has been able to establish and maintain throughout the years. Although Dunkin Donuts already has a prominent loyalty program set in place, especially with the American consumers, Starbucks is still a leader within the industry. Overall I still believe that their coffee prices are a little high for the daily coffee drinker, but I think that they do a great job connecting with their consumer base and making people want to come back. Even though I would still choose Dunkin Donuts over Starbucks, they do however do an excellent job incorporating their customer relationship management within their day to day successes.

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  4. Skye Stewart: Portfolio November 17, 2015 / 7:29 pm

    I agree that Starbucks has been very successful in using customer relationship management. Considering the recent Starbucks’ red cups issue, many people have been paying more attention to Starbucks and how it treats their customers. For example, they have always written customers’ names on the cups they serve and have a rewarding system for loyal Starbucks regulars. This post absolutely relates to the recent red cup issue because with their plain red cups, Starbucks was trying to give customers the chance to tell their own stories instead of telling their own stories. This issue was made an even bigger deal by blogging influencers and in return, has probably gained Starbucks even more customers than they already had.

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  5. Zach Pelletier November 18, 2015 / 2:52 am

    I agree that Starbucks has done an exceptional job using customer relationship management, especially with their app and loyalty rewards program. I know there were some enhancements that you discussed, such as partnering with Lyft and the New York Times, which would allow consumers to earn stars more frequently. This is an ingenious idea by Starbucks, seeing many consumers already are a part of the loyalty program and use the app to pay for their purchases. Something new on the Starbucks app that wasn’t mentioned in the article was the ability to order remotely using the app, and picking up your order right when you arrive to the store. This allows customers to avoid lines, and feel that they are appreciated by the company, seeing you can walk in, pick up your coffee at the counter, and walk out. I am intrigued to see what other developments will come from the Starbucks loyalty program and app.

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  6. Whitney Torgerson December 2, 2015 / 3:08 am

    I agree that Starbucks is an excellent example of using CRM successfully. Personally, I have experienced excellent CRM from Starbucks. I went to my local Starbucks and ordered a drink I usually get. I could tell that the barista preparing my drink was new, or at least I had not seen him before. After getting my drink and leaving the store I later realized that my drink was not made how I usually like it. I went on to twitter and tweeted about how bad my drink tasted that I wasn’t going to finish it and was upset that my money (we all know Starbucks is not cheap, but still but it, haha) was going to waste. Within less than an hour, Starbucks responded to my tweet and apologized and asked if I would say where I ordered from so that I could get a free drink the next time I go. I was really impressed with how well Starbucks responded to my frustration.

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  7. Matthew E. Dulac December 2, 2015 / 9:25 pm

    When I think of Starbucks, I always compare them to Dunkin Donuts and it really isn’t a comparison. Starbucks generates loyalty and they have no issue with this as they provide an atmosphere that Dunkin Donuts cannot compete with. Starbucks has great loyalty programs and this brings even more individuals to consistently use their products. I am a big Starbucks fan and I appreciate that they offer loyalty programs as well as high quality products. Even though their product costs more, it is also a higher quality product and isn’t just cream and sugar with a hint of coffee. The connections that they offer as well as the atmosphere that is provided to everyone makes Starbucks almost feel like family. The CRM of Starbucks is a step ahead of the competition and it will continue to be this way as it does not appear any chain coffee corporation is moving in this direction.

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  8. Kedar Gandbhir December 5, 2015 / 5:28 am

    I have never been a fan of Starbucks, to me it is a over the top overpriced coffee chain with a plethora of ridiculous coffee names, sizing charts, and food selection. It’s terrible and yet many are attracted to it so it must be doing something well. This rewards program is a great example of the aspects Starbucks excels at and how there are successful with customer relationship management. They do a great job getting and retaining customers.

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  9. Adam Chadbourne December 6, 2015 / 8:10 pm

    While I am not that big of a Starbucks fan, like others who have commented, I will admit that what I know about the Starbucks loyalty program is impressive. Starbucks definitely has one of the best loyalty programs I have ever seen. When I have gone into a Starbucks, which has only been a few times, I have definitely sat around and enjoyed my purchase because of the atmosphere of the store. They are very welcoming and create an ambiance that is welcoming to customers. They also seem to make a big point to really appreciate their customers. When my sister got one of those gold loyalty cards before the mobile program, they sent a personalized letter thanking her for being a customer for so long. Once smartphones users grew and the popularity of mobile apps, Starbucks definitely jumped right onto the bad wagon and made the use of the program easier, allowing the customers to look at their account and use their card right from their phone. Starbucks also had another concept with their customer loyalty where customers could use their Twitter account and use #tweetacoffee to send a free coffee to one of the people they knew on Twitter. Starbucks has always been improving their loyalty program in order to appeal to their customers.

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  10. Michelle McNall December 7, 2015 / 1:34 am

    While I am not the biggest fan of Starbucks’ coffee, I do respect the fact that they have been able to establish a loyal customer base and I admire the atmosphere that they create in their cafes. In comparison to Dunkin Donuts, though Starbucks is overpriced they certainly draw people in with the welcoming atmosphere and their loyalty rewards program. Starbucks is often a meeting place for professionals and because this is the case, this is an area that I feel like Dunkin Donuts just can’t compete. Great article, Emily!

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  11. Andrew Lak December 8, 2015 / 9:22 pm

    Starbucks is an additive brand. I am a huge fan and go to Starbucks often, mainly due to the array of products that they have, the customization as well as the mobile ordering. I love being 5 minutes away, opening the app and hitting two buttons to place my order. Park walk in grab my drink and walk out. They have done such a fantastic job keeping high volume and demand with customers. Also they have a holiday rewards were I believe after your purchase your 5ith holiday beverage your next is free of any size. Again another reason why I rather drive to a Starbucks than a Dunkin’ Donuts. I am not familiar with any customer loyalty program that Dunkin offers I know there is one but have never seen it really advertised at all. Great article very informative. Thank you

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  12. Ashleigh Sargent December 9, 2015 / 2:01 pm

    Great article. I agree that Starbucks has done a great job in creating a loyal following. I think they have a great combination of products offered ans the environment in their stores. I would much rather spend time in a Starbucks doing work for a few hours than in a Dunkin Donuts. Starbucks products seem higher end than a place like Dunkin Donuts, and I think a loyalty program helps to bring people back to try new menu items.

    One thing that I have found interesting related to Starbucks this year was the red cup issue. I wonder if that actually impacted sales or loyal customers. Obviously, there is much less coverage in the media now, but it would be interesting to know how their sales were effected (positively or negatively) when the red cup were all over social media and the news.

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  13. Joe Pantalone December 10, 2015 / 4:20 am

    Starbucks does a fantastic job at creating an environment for getting coffee. It is largely based on their use of CRM practices. They create an inviting presence and even take the time to know your name. I know of a person that is an avid Starbucks customer and they know him by name and even his order depending upon what day it is.

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  14. Alicia April 26, 2016 / 7:07 pm

    Starbucks does a really great job with customer relationship management. The awards program that they have implemented has increased their CRM tremendously. The most interesting part of this article for me, was the partnerships that Starbucks has created with Lyft and The New York Times. The New York Times is hugely popular around the country, not just in New York because people can access it online from anywhere. Having an app that allows users to view exclusive articles must provide a ton of exposure, so I think that was an extremely smart move by the company.

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  15. Megan Lac May 5, 2016 / 11:57 pm

    Not being a fan of Starbucks myself, I didn’t know that they had partnered with Lyft and The New York Times to help their customer loyalty and CRM. It certainly is out of the box thinking seeing as those companies aren’t centered around the same product, but thats also probably what makes it work. People who enjoy both things get a benefit from both, interesting take.

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