![]() ![]() ![]() People who need to spend 50 more stars from now on to get a hot coffee feel more pain than customers who will spend 50 fewer stars to earn a free iced coffee. Loss aversion means people perceive something they lose as a bigger deal than something equivalent they gain. Loss aversion, a key concept in behavioral economics, provides a simple explanation. So why the uproar, if one of the more popular items on Starbucks’ menu is getting cheaper? This means that for a large share of Starbucks customers, one part of the rewards program is actually getting more generous. Cold beverages have accounted for at least 60% of Starbucks’ total sales every quarter since early 2021, thanks in part to the popularity of iced drinks among Gen Z customers. The change is best summarized by a recent New York Times headline, “ Does anyone drink hot coffee anymore?” Iced or cold-brewed coffee is now the rage – even in winter – and growing quickly. The coffee business, however, has radically changed over the last few years. To an unsuspecting consumer, the points reduction for iced coffee may not mean as much against the points increase for hot coffee. What went less noticed is that the company is also lowering the price to get a free iced coffee or tea from 150 points to 100. But there is more to this change than meets the eye. The change that received the most attention was that the cost of a cup of plain hot coffee or tea would double from 50 stars to 100.Īt first glance, Starbucks’ modification to its rewards program might be perceived as bad for consumers. Starbucks announced changes to the terms and conditions of its rewards program in December, adjusting the “price” for some of its items. Chris Hondros/Getty Images Consumer friendly? Iced drinks have become Starbucks’ most popular beverage – even in winter. The highest cost items, for 400 stars, are merchandise, like a branded cup or a bag of ground coffee. ![]() Under the current program, the simplest and cheapest reward, for 25 stars, is adding a free shot, dairy substitute or flavoring to a drink. Stars can then be spent on drinks, food or merchandise. However, preloading money onto a Starbucks gift card or mobile app earns two times the stars. Each dollar spent on food or drinks earns one star. The rewards program’s rules are quite complex: The legal language runs about five times longer than this article.īriefly, customers earn credits by spending money. At the end of 2022, about 29 million people were enrolled, up from a little over 16 million in early 2019. The program, which had been regarded by some as one of the most rewarding, gained members steadily during its first two decades but exploded in growth during the pandemic. Starbucks, however, is an old-timer, having started its rewards program all the way back in 2008. About 57% of restaurant chains now have a loyalty program. Fast-food company McDonald’s only launched its loyalty program in 2021.Īnd now, even small businesses are finding it valuable and easier to start loyalty programs, thanks to the acceleration of digital technology in restaurants during the pandemic. Sandwich chain Subway, for example, didn’t start one until 2018. In the case of Starbucks, the rewards program reduces the likelihood that its customers will buy coffee from competitors like Dunkin, Costa Coffee, Tim Hortons or Peet’s Coffee.Įven though airline rewards programs have been around for years, rewards programs among large restaurant chains are relatively new. They are also meant to lock customers into a particular company or airline. They also are seen by consumers as a good way to save money, particularly when inflation is high. ![]() Reward and frequent flyer programs are designed to build loyalty, as they provide a form of rebate to regulars. ![]()
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