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Research Focus: Effectiveness of Grocery Retail Loyalty Programs

Posted on September 10, 2019September 10, 2019

Are loyalty programs effective? With the amount of money invested in customer loyalty programs, this is a question that matters greatly to a lot of stakeholders. We may now finally have some scientifically sound answers, at least as it relates to grocery retail loyalty programs. In the largest scale academic study of 358 retail brands across 27 different countries, Professor Bombaij from Tilburg University and his coauthor found some good and some bad. Their research findings are reported in a paper to be published in International Journal of Research in Marketing. In this research focus feature post, I would like to discuss the key findings from the research and what they may mean to your loyalty program management.

Overview of the Research

The two researchers were interested in finding out if loyalty programs really work, what program designs are effective, and if program impact depends on the retail type and on country and cultural differences. They started with the top 15 grocery retail brands in 27 countries (17 in Western Europe and 10 in Eastern Europe). For each brand, they tried to gather information on its sales, loyalty program design (if there is one), and other business characteristics. Combined with country level information, these data allowed the researchers to systematically analyze the impact of different factors on each brand’s sales per square meter. Importantly, they used rigorous statistical methods to make sure that any differences found are real differences due to the loyalty program, not because of some other things mixed in there.

A Closer Look at Starbucks Rewards Program Redesign

Posted on April 3, 2019April 3, 2019

Changes are coming to Starbucks Rewards. On April 16, Starbucks Rewards will be expanding its reward structure to five levels. A few other changes will be made to the program too. Will these changes make this leading loyalty program even better? What might be motivating these changes? How will the changes affect the program and its members? In this post, I attempt to dissect these changes and offer my assessment of the new Starbucks Rewards program design.

What Changes Exactly?

The biggest change to the program is the addition of more reward thresholds. Instead of a single reward threshold of 125 stars, it will feature five levels of rewards ranging from 25 to 400 stars. The new program will also erase the current difference between a Gold member and a base member, allowing both to enjoy the same set of benefits. The table below compares the current vs. the new program structure.

	Current	From April 16, 2019
*Earning Stars*	2 stars per $ spent	2 stars per $ spent (unchanged)
*Reward Levels*	A single level, at 125 stars	Five levels, at 25, 50, 150, 200, and 400 stars
*Reward Items*	A free food or drink item, excluding alcoholic beverages and multi-serve food and beverage items	25 stars: free drink customization (e.g., extra shot, flavor, etc.); 50 stars: a free hot brewed coffee or tea, or a free bakery item; 150 stars: a free handcrafted drink, hot breakfast, or parfait; 200 stars: a free lunch sandwich, protein box, or salad; 400 stars: a free select merchandise (e.g., gift) or at-home coffee.
*Membership Tier Structure*	Green and gold. Gold is qualified by earning 300 stars in a 12-month period.	Single tier
*Base Tier Benefits*	A birthday reward Free in-store refills of hot or iced brewed coffee and tea Early or extended access to some promotions and offers Personalized offers and coupons Can NOT redeem stars for free rewards until after reaching Gold level	Same as before, but now everyone has the same ability to redeem their earned stars for rewards. All members now also receive a monthly double-star day that used to be reserved for Gold members.
Gold Tier Benefits	All Green benefits The ability to redeem every 125 stars earned for a free reward A double-star day as selected by Starbucks A personalized gold card	Not applicable, as there will no longer be a premium tier. Gold members do not lose any benefits. They just have to share them with everyone else.
*Star Expiration*	6 months after the star is earned	6 months after the star is earned (unchanged)

More Complex Reward Thresholds

The new design significantly expands the reward structure of the program from one to five levels. What could be driving this change?

1 Point Per Dollar or 100 Points Per Dollar?

Posted on November 30, 2011June 6, 2018

When designing a loyalty program, have you ever wondered whether you should give customers 1 point for each dollar they spend and require 100 points for a free reward, or if it’s better to grant 10 points per dollar and require 1000 points for the reward? On the surface, these two setups require the exact same effort from consumers and should make no difference to the effectiveness of your program. But an article by Professor Rajesh Bagchi and graduate student Xingbo Li published in the Journal of Consumer Research says it’s not quite as straightforward as you may think. Which option is better depends on whether you have a straightforward single point structure or a mixed structure, and whether your focus is on encouraging low spenders or rewarding heavy buyers.

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Photo by Flickr User twitchcraft | CC 2.0

Context

The authors conducted two lab experiments. The first experiment was based on a grocery store loyalty program and involved 246 undergraduate students. Various aspects of the loyalty program were manipulated, and the respondents reported how likely they would recommend the program to others and whether the program would increase their loyalty toward the store. In the second experiment, 375 student and non-student respondents made simulated purchases given a restaurant loyalty program. At the end of the simulation, they also reported their recommendation likelihood and perceived loyalty effect. Continue reading “1 Point Per Dollar or 100 Points Per Dollar?”