The Behavior Economics of Starbucks

As a Seattle girl, I love me some Starbucks so it is fun to refresh this episode which was one of the first (and most popular) behavioral economics analysis episodes I’ve ever done. It is currently the 11th most downloaded episode of the show of all time, and with 277 episodes to date, that is a pretty big deal! If you aren’t familiar with this format, it is an episode where I talk about a well-known company and their practices to share what concepts from behavioral economics and behavioral science in their work so you can see what you might want to emulate and what isn’t a good fit for you in your company. 

So, why this episode from late 2019, and why now? Well, it is because of the loyalty program and this coming Friday’s episode where I am joined by Lauren Kemp and Stephen Springfield to talk about how they created an “irrational” loyalty program at McDonald's during the pandemic. It is a fascinating story with lots of insights for you to learn.

Today, I chose to share an episode that showcased another loyalty program doing a lot of smart things that are different from the traditional punch card approach to loyalty. (And, good news, there is a lot more to this episode that I know you’re gonna love.) So grab a coffee, and settle in…

• [00:40] Today’s episode is a behavioral economics analysis of Starbucks.
• [04:01] In this episode we are going to dig into their Star Rewards program, featured drinks, and products, the coveted red cups, their personality, overall brand choices, their logo, locations, social media, and pricing. 
• [04:23] Without the original brand and pricing, Starbucks would be just another coffee shop.
• [05:57] One of the big aspects Starbucks had to overcome was the pricing anchor. 
• [08:41] Howard Schultz and Starbucks took a step back. They got out of their own way and created a new category which ended up changing the conversation about coffee around the world. Asking good questions can help you get there. 
• [10:19] Price is never about the price. It is all about all the things that come before the price that matters more than the price itself.
• [12:02] The first big drink Starbucks made famous was the Frappuccino. There is a lot of effort that goes into turning these things into multibillion dollar industries.  This created a brand within a brand. 
• [14:27] Most everyone knows that the original PSL started at Starbucks. Pumpkin spice lattes are one of the seasonal drinks Starbucks brings out each year. They are only available for a few weeks or months until they are gone. This is scarcity in action. 
• [17:39] Starbucks changed the game. They created something different and managed to hold a big piece of the market even when imitators arose in every area. 
• [18:28] Starbucks is constantly testing and they are not afraid to have something really popular only available sometimes. 
• [19:24] Making and keeping a tradition alive is something Starbucks does amazingly well. The red cup first debuted in the 1997 holiday season and has been a staple ever since.  
• [20:19] When you become a lifestyle brand you bear the responsibility of being a big part of peoples’ lives. Your choices reflect theirs and when you do something out of character, they will tell you about it. This is both good and bad. 
• [22:30] Consistency is key and until you define what you are and are not you can’t be whatever it is consistently. When you have your own filters and know what you are about you can shout them from the rooftops and your tribe will resonate with them. 
• [24:49] The value of a brand is more than money and bottom-line sales. It is about the overall experience with the brand at its core. 
• [27:13] Find what people are already talking about and loving and see how you can be part of that conversation. 
• [28:39] The Star Rewards model is built to create habits for users and increase visits. It also encourages users to try new items and has limited-time offers, and customized preferences with an opportunity to get bonus stars. 
• [29:48] Being willing to test, experiment, and learn is something Starbucks does really well. Essentially Star Rewards is a huge testing ground of live field environments. 
• [32:15] Star Rewards is super easy and built-in. You have loss aversion and reciprocity built into the promotions. 
• [33:50] Star Rewards is a smart balance of loss aversion, scarcity, relativity, habits and more all executed through a series of experiments to see what is bringing the most value to the company and its customers. 
• [34:59] Scarcity is a powerful tool when used correctly, especially when properly paired with loss aversion to help people choose your product. 
• [36:31] Melina’s closing thoughts
• [38:39] There is a lot of value and loyalty that comes from delightful, unexpected experiences and a less formal program is perfect for that.

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Get the Books Mentioned on (or related to) this Episode:

• What Your Customer Wants and Can't Tell You, by Melina Palmer
• How Customers Think, by Gerald Zaltman
• Alchemy, by Rory Sutherland
• Engaged, by Amy Bucher
• Marketing to Mindstates, by Will Leach

Top Recommended Next Episode: Get Your D.O.S.E. of Brain Chemicals (ep 123)

Already Heard That One? Try These: 

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• The Sense of Hearing and Sound (ep 27)
• Habits (ep 256)
• How To Set Up Your Own Experiments (ep 63)
• Relativity (ep 12)
• Reciprocity (ep 238)

Other Important Links: 

• Brainy Bites - Melina’s LinkedIn Newsletter 
• A Starbucks Barista Asked Me This 1 Simple Question, and Using It May Be a Great Way to Boost Your Sales
• Every Starbucks Growth Strategy Is Working
• 30 Interesting Starbucks Facts and Statistics (2019) | By the Numbers
• How Starbucks Transformed Coffee From A Commodity Into A $4 Splurge
• Starbucks Didn’t Invent the Frappuccino. Here’s Who Did.
• Starbucks Has Made An Insane Amount Of Money From PSL Sales
• Starbucks Red Cups 2019: When Do Christmas Holiday Drinks Start Going on Sale?
• A Brief History of Starbucks’ Holiday Cup Controversies
• Starbucks Will Be Selling Fewer Limited-Time-Only Drinks That Can Be Super Hard To Make
• SPAM® Pumpkin Spice