Avoid offering incentives to customers happy to buy without them.
That sentence might be obvious to any business owner with an understanding of their financial statements: incentives often (but not always) have a monetary cost to the business, which means unnecessary incentives equate to lower profits.
But how can you separate people who need incentives in order to buy and those that don't?
Starbucks recently realized a rather simple way to do it.
It now asks people to activate their "Double Star Days" offer before they earn double stars.
At this point, I'll offer a quick "Starbucks Loyalty 101" for the non-Starbucks fans reading this:
The Starbucks loyalty program awards "stars" for every dollar spent. Stars can be redeemed for things like free beverages, free snacks, and free merchandise.
How much is a "star" worth, you ask? As I wrote about here, nobody really knows... which is part of the program's genius.
Every so often, Starbucks emails their loyalty program members to let them know that the following day will be a "Double Star Day", meaning that every purchase made on that day will earn double the usual star incentive.
In the past, the doubling of the incentive was automatic.
And that was the problem.
Because the point of an incentive is to get someone to do something they might not otherwise have done. In the case of a "Double Star Day", Starbucks is offering certain customers an incentive to visit a store and make a purchase on a particular day... presumably on a particular day when a purchase might not otherwise have been made (as predicted by the data Starbucks collects on each of its loyalty-program members).
But if Starbucks were to award me "double stars" (i.e. an incentive) for a purchase I was going to make anyway just because I happened to be in a store on a "Double Star Day", it would be like throwing fresh espresso out the drive-through window: a relatively small cost, but one that could have easily been avoided.
Instead, Starbucks sent this message (via email) to its members:
ANNOUNCING CHANGES TO DOUBLE STAR DAY
For every Double Star Day moving forward, you’ll need to do one small thing: Activate for double Stars.
Just click on the “activate” button in the email or your app before you order ahead in app or in our cafés to earn twice the Stars. It’s that easy! Plus, we’ll remind you the day before and include a way to add Double Star Day to your calendar.
Customers who care about earning double stars will activate their offer and earn them.
Customers who don't, won't... and the company won't pay the incremental costs of doubling the incentive for purchases that likely wouldn't have been incremental to the business.
Simple, but highly effective.
At this point, I should mention the idea of having customers activate their offers is nothing new. I remember having dinner with a senior marketing executive of Canadian grocery behemoth Loblaw back in 2013, shortly after the company launched the initial iteration of its own points program. When I remarked I didn't like having to "activate" my offers before getting extra points on a particular grocery item, he smiled and said:
"But why should I offer you a discount on a purchase you were going to make anyway? We all understand redemptions on our offers are going to be lower because we're making customers take an extra step, but we're all okay with that because it means we're actually incenting people to buy products they may not have otherwise bought, not rewarding people who just happened to buy them."
When you put it like that, the surprise isn't that some companies ask people to activate their offers before taking advantage of them... it's that more companies don't do it.
Starbucks asking its loyalty program members to activate their "Double Star Day" offers is a savvy business move... and one I fully expect more loyalty programs will begin to adopt.
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