Starbucks went live with its overhauled loyalty program last week, shifting from a single-tier model to a multi-tiered structure that fundamentally changes how members earn and redeem rewards.

With approximately 60% of sales tied to its loyalty program, this is a major recalibration for Starbucks, reflecting broader pressures facing modern loyalty programs.

"Loyalty isn't just a marketing tool anymore. It's really an infrastructure for retailers," said our analyst Suzy Davidkhanian on a recent “Reimagining Retail” episode.

• While 65% of marketers believe consumers return because of brand love, fewer than 1 in 4 consumers cite emotional connection as their primary driver for repeat purchases, found data from Razorfish and GWI.
• This gap becomes more pronounced as consumers enroll in multiple loyalty programs but actively engage with only a handful.

Defensive move or necessary evolution?

The timing of Starbucks' revamp raises questions about whether this represents innovation or a response to declining engagement.

In addition to the new tiered system, the changes introduce significant structural shifts including:

• Point devaluation from two points per dollar to one point per dollar for app users
• Higher redemption thresholds requiring twice as many points for rewards
• Enhanced perks for top-tier members, including extended birthday reward windows

"One of the things that was noted in the recent earnings call was that traffic overall has been growing,” said our analyst Sky Canaves. “They're seeing more transactions, but the non-rewards member transactions are growing at a faster pace than the reward member transactions.”

This creates inherent tension: Starbucks needs to drive greater engagement from existing members while simultaneously making rewards harder to achieve, potentially alienating the casual users they're trying to convert into frequent customers.

However, the move also reflects necessary fine-tuning of a best-in-class program.

“To keep that status, they have to fine tune things,” said our analyst Arielle Feger, pointing to recent loyalty overhauls at United Airlines, Michaels, and Hilton as evidence of broader industry pressure. “They have to keep not reinventing per se, but homing in on what’s going to really ramp up the program.”

The anatomy of an effective loyalty program

The ideal loyalty program consists of several different elements, including value perks, personalization, and ease of use.

For Canaves, the ability to share or gift points is a compelling feature, especially for brands looking to engage with younger consumers.

“There will be some demand, especially among younger consumers, to be able to share with friends and families or gift their points,” she said.

Choosing the right loyalty partners is also an important part of the mix.

"The more versatile your program is, the more you're able to use those points or purchases across different partners and experiences, I think that's going to create a really sticky loyalty program," Feger said.

The missing connection: Loyalty and in-store experience

A critical gap exists between Starbucks' loyalty revamp and its stated goal of reviving in-store experiences.

As app-first competitors like Dutch Bros and 7-Brew proliferate, Starbucks has emphasized returning to its "third place" positioning, yet the loyalty program changes don't explicitly drive in-store traffic.

Starbucks has several opportunities to bridge this gap, including:

• Incentivizing in-store ordering and dining with bonus points for customers who stay rather than grab-and-go
• Creating member-exclusive in-store events, such as after-hours gatherings or product sampling sessions
• Implementing surprise-and-delight moments at point of sale, leveraging customer data to offer unexpected treats

"If non-members see members getting a little sample or treat, maybe it incentivizes them to become members too," Canaves said.

Listen to the full episode

We prepared this article with the assistance of generative AI tools and stand behind its accuracy, quality, and originality.

This was originally featured in the Retail Daily newsletter. For more retail insights, statistics, and trends, subscribe here.