Starbucks Redux

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Back in late February when it was first announced I wrote about Starbucks’ revamped rewards program. And how it seemed to me just another way to appease Wall Street’s insatiable profit and revenue demands by cajoling more people to spend more money at their local coffee hangout.

Since that post the Twitterverse has erupted with snarky comments  and “goodbyes” from rewards program members. Based partly on the unfavorable reaction – and the timing as rival Dunkin’ Donuts rolled out its own loyalty program – a major Wall Street analyst gave Starbucks a well publicized downgrade. The stock fell – but partially recovered.

You may recall the rewards program was changing from one star per visit  – a transaction-based system – to a dollar-based plan. 2 stars for each dollar spent. You used to achieve gold status (which you need for your rewards) with 30 stars. So buying one small coffee each day would give you gold status in about a month. After that you needed just 12 stars (or 12 visits) to get your free extra large caramelized honey latte – or whatever. Now gold status takes 300 stars. And then 125 stars for each reward. Big difference.

So Starbucks barged ahead. April 12th was the big changeover. Since then stores have been plastered with gold-lettered signs urging coffee lovers to join the rewards program, buy something and get one year of gold status virtually immediately. Current gold members would automatically get another year of gold. Of course I jumped at that. Even though I knew I was being bribed. Maybe a lot of other disgruntled rewards members did the same. Or a lot more new members signed up. This week in its second quarter results Starbucks said membership jumped 16 percent year on year and 8 percent from the previous quarter.

But wait. There’s more. In those same second quarter results the coffee giant reported revenues somewhat below analysts’ expectations. And after just matching profit forecasts – warned of weaker earnings for the current quarter. Of course the stock fell again.

Flopuchino! As CNBC so elegantly captioned  it on TV.

Hmm. Maybe all those potential freebies to keep people like me happy will actually hurt Starbucks’ bottom line? But isn’t that just what the new rewards program was designed to change?

You mean after enraging its loyal customers to keep Wall Street satisfied Starbucks had to backpedal to keep those same customers from walking away? And then find a way to make the now more expensive rewards program attractive to newbies?  And keep both groups away from Dunkin’ Donuts? At least for the short term. Which is all anyone cares about these days anyhow. And which is why Wall Street bid down the stock again.

And which is why for Starbucks right now – it’s a kind of a zero sum game. At least as far as the rewards program goes.

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