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Analysis

Killing It: How Starbucks is Winning at Retention

The global coffeeshop chain is not massively successful for a fluke: they knew what they were doing and they kept a constant foot ahead of their competition. Drawing more universal morals from their marketing strategy could prove extremely beneficial

Rebecca Wojno
May 16 2017

In today’s social and mobile marketing era, meaningful, real-time, communication between customers and businesses reigns supreme. That’s why it’s especially important that we reintroduce ourselves to an old friend. That reliable pal we always knew had our backs, but partially neglected for a few years to focus on other friendships. This friend is customer retention. Put simply, customer retention means finding ways to keep existing customers excited and engaged with your brand.

Bain and Company found that increasing customer retention rates by just 5% would increase profits by 25-95%. That’s no small pay off. Loyal customers make the best brand ambassadors and spend more money on a long-term basis than frequently acquired clientele. According to Gartner Group, 80% of a company’s future revenue will come from 20% of its existing customers. But what makes a company kill it at retention?

Let’s take a look at a company that has managed to make millions of new friends on a regular basis, but continues to keep their old friends happier than ever. Global coffeeshop chain Starbucks happens to have one of the best retention strategies in the world. What started as a company the size of a small start-up now has 25,085 locations around the globe.

In 2016, Starbucks made 21.32 billion in revenue. Of course, other beverage chains – such as Dunkin’ Donuts – are also vying for customer’s attention, but the green mermaid has managed to slide past their competitors. So how did this coffee giant nail their retention strategy? They focused on personalization, providing excellent customer service, and introduced a loyalty rewards program. Let’s delve into the nuts and bolts of their retention success story.

Personalization is a “Must”

Customers crave a personalized, created-just-for-them experience whether they’re purchasing a taxi off an app or online shopping for underwear. Starbucks knows exactly who their customers are and what kind of cozy experience they’re looking for. Even though the green-apron-wearing barista writes down the names of every person who walks through their door, I still feel special when they write down my name on their cups in black Sharpie. They could just jot down the order on the cup and call out my Iced Vanilla Almond Milk Latte, but that’s impersonal. I’m not just a drink order after all.

When the barista calls out a name, it instantly feels more like a cozy neighborhood coffeeshop where all the baristas know you, and less like a corporate chain that serves millions of customers per day. And speaking of neighborhood feels, Starbucks is committed to connect with their clientele through their products and decor. Every store has a laid back atmosphere tailored to its specific neighborhood. Starbucks would never dream of using the same interior design elements in all of their locations, because the point is to embody a local, artisanal cafe, one that makes you feel at home. Wouldn’t you much rather play brand favorites with a company that goes the extra personalization mile?

Their Customer Service is Lit

Starbucks may not be the only coffee makers in town, but they sure make it easy for consumers to access their products. Anyone can purchase their K-cups, coffee beans, teas, merchandise, or gift cards in local grocery stores or online marketplaces like Amazon or eBay. Again, this is about knowing their audience, and the green mermaid loving crew appreciates accessibility. You know what their audience also appreciates? Seasonal favorites.

Come fall, the Pumpkin Spice Latte is as ubiquitous as those gorgeous autumn leaves scattered along the streets and sidewalks. It may seem obvious, but one way the coffee retailer kills at retention is through their excellent customer service a.k.a. giving the people what they want. As it turns out, the people want their PSLs and their Peppermint Mochas during the colder months of the year. These drinks aren’t just sugary beverages; they’re traditions, something to look forward to when the temperature begins to drop (probably even long before that!).

And you can’t forget about those red cups that have a devoted cult following of their own. There are numerous hashtags and Instagram accounts devoted to celebrating the special edition holiday cups, and Starbucks doesn’t skip a beat catering to their fans’ desires.

Lastly, Starbucks largely expanded their squad of loyal customers when they introduced their Starbucks app. According to Bloomberg Technology, the retail giant was one of the first companies to introduce the pay-through-your-phone method, and it’s now one of their most successful marketing strategies. The coffee giant first launched their app in 2011, and since then, it’s accounted for more than 21% of transactions in U.S. stores. The app may even influence how brick and mortar stores look; instead of the classic local coffeeshop design, customers could get their coffee fix in in-store stations. No lines, no counters, just a quick stop at the latte station. To put it another way, Starbuck’s initiative to transform how customers get their espresso (led by their marketing team) is working, and they’re on track to become a “mobile-first” company, similar to Uber, or Facebook.

Starbucks’ Chief Digital Officer, Adam Brotman, told Bloomberg that the app is extremely important. “It’s become one of our core strategies,” he said. Brotman also said that within a few years, their mobile app could account for over 50% of all transactions in U.S. stores. What this tells consumers and competitors is that Starbucks did their due diligence. They gathered the research about their customer’s wants and needs and figured out a way to cater to their patron’s busy schedules without sacrificing the quality of the experience or the product.

They’ve Perfected their Loyalty Program

Starbucks really thought about how their loyalty program would best serve their customers. Through the program, consumers can earn points, stars, and rewards for their purchases in Starbucks’ brick and mortar locations, local grocery stores, or ecommerce outlets. Currently, Starbucks’ rewards has 10.3 million users, so they’re definitely doing something right. A few years ago, I was riding in the car with a friend who also desperately needed a cup of coffee. When we pulled up to the Starbucks drive thru, she was just as excited about pulling out her shiny gold member card with her name neatly printed on the front as she was receiving her frappucino.

Reward members can play the program like a game, making it their mission to have as many stars in their virtual Starbucks container as they can. As my friend was showing me her collection of stars on the app, I could see the obvious short term satisfaction in the free drinks and birthday promotions, but what was so special about a gold card? In short, the gold card is a milestone. Customers must attain 300+ gold stars to get the prestigious card, a status symbol for all Starbucks fans. It’s not just a shimmery piece of rectangular plastic. The gold card gives consumers the chance to feel like they’re part of an exclusive club. Starbucks went above and beyond a typical customer rewards program by making earning points easy, convenient, and above all, an enjoyable, personable experience.

So, What Can we Learn from Starbucks?

Think of customer retention as the difference between having three really awesome, loyal, supportive friends, and having 20 wishy-washy pals who show up to your birthday party, grab a drink, and then disappear from your life for months at a time. Loyal friends are clearly more valuable, right? Starbucks provides significant insights on how to keep your existing customers loyal, satisfied, and most importantly, your relationship mutually beneficial, so they keep coming back for more.

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Rebecca Wojno

Rebecca is a marketing content writer, copy editor, and Oxford Comma enthusiast. Aside from writing about the importance of customer retention, she's a big fan of a good book, Mexican food, and living near the sea.

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