Starbucks and Dunkin’ have announced changes to their loyalty programs (SBUX, DNKN)

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Starbucks and Dunkin’ both recently announced changes to their loyalty programs, Starbucks Rewards and DD Perks, as mobile apps and loyalty programs become increasingly significant channels for quick-service restaurants (QSRs) — especially with functions like mobile order-ahead growing in popularity.

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Here’s what it means: Starbucks is restructuring its points system, while Dunkin’ is expanding payment options for loyalty members.

Starbucks removed its tiered membership status and is giving members greater flexibility in how they redeem "stars." Starbucks Rewards members no longer have to achieve a certain status in the tiered program to redeem rewards. Previously, members would earn two stars for every $1 spent, which they could accrue to achieve green or gold status and earn rewards based on that. Now, members can redeem rewards starting at 25 stars for things like an added shot of espresso in a drink and going up to 400 stars for at-home coffee products. Additionally, Starbucks Rewards stars currently expire after six months; but under the new system, stars won’t expire for cardholders of Starbucks Rewards’ Visa credit or prepaid card, which the firm launched last year.
Dunkin’ launched a 1,000-store pilot allowing members of its DD Perks loyalty program to earn points, regardless of how they pay. DD Perks members previously could only earn points by paying through the Dunkin’ app; but through this pilot, they can earn points by paying with cash, credit, debit, or a Dunkin’ gift card. Those customers can scan a DD Perks ID QR code in the Dunkin’ mobile app or through a physical loyalty card to accrue points when they make purchases. This larger pilot follows an initial pilot earlier this year at locations in Pennsylvania and California.

The bigger picture: Loyalty programs are integral channels in driving growth and repeat sales for QSRs — but firms need to ensure their programs are compelling to boost volume.

Starbucks is facing backlash from customers that feel the new system is devaluing their current points, which can hurt spending among a key audience.Starbucks has largely paved the way for QSR loyalty programs as its program has been successful in driving traffic to stores and fostering loyalty among customers: Starbucks Rewards grew by 14% to reach 3 million members during its fiscal Q1 2019 (ended December 30, 2018). And while in theory the new system allows users to redeem smaller rewards sooner, it also necessitates higher spending to reach the larger rewards. The early backlash Starbucks is facing might indicate the new system will be unpopular with customers. Its Rewards members are an integral audience for Starbucks to satisfy as historically this customer base has spent about three timesmore than nonmembers — but with a rewards program that might not be perceived as compelling as it used to be, Starbucks might need to find new ways to continue engaging this base.
Dunkin’ can see improved engagement and repeat sales by inviting more customers into its revamped rewards program. DD Perks hit 10 million total users in Q4 2018, up about 2 million annually; but this segment accounted for just 12% of Dunkin’s US sales, with mobile-order ahead alone accounting for 3% of transactions. However, Dunkin’ has been building out the capabilities of DD Perks with an Alexa integration, allowing DD Perks members to order ahead through voice commands. Expanding its ordering capabilities beyond the Dunkin’ app could encourage mobile orders and increase loyalty. And with its pilot, Dunkin’ is ultimately opening up its program to customers who prefer to pay in cash or to the 25% of US consumers who are un- or underbanked and largely have to pay in cash, which could help grow DD Perks’ customer base.

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