Note to Starbucks CEO: Don’t use technology (or loyalty programs) to demotivate your employees

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Summary: While the Starbucks App is cool and makes buying coffee and food quick and easy without dealing with cash, credit or debit cards, the company appears to have developed the app without fully considering the impact on their employees. The app doesn’t offer users the option to tip baristas when making a purchase.  Other mobile payment apps like LevelUp and even taxi cab credit card machines make tipping quick and easy for users.  The Starbucks Rewards program also concerns us as it rewards customers for paying for one item at a time, even when purchasing multiple items, which could lead to increased employee and customer frustration.

app and empty tip jar 4 color croppedBefore writing about a couple of things I don’t like about the Starbucks loyalty program, let me start with a few things I love about the company and its CEO:

  • I read “Pour your heart into it,” CEO Howard Schultz first book about growing Starbucks in 1997 when I was CEO of The Loyalty Group and found it to be one of the most candid books about the challenges of leading a fast growing company.   I still recommend it to others today.
  • Starbucks offers full and part time employees who work at least 20 hours a week health insurance and other benefits, sadly unlike many food service and other U.S. companies.
  • I believe Howard is a role model for using his position and the millions of daily retail and online consumer touch points to advocate for social change.  A few examples: Starbucks was one of the first major corporate sponsors of Jumpstart for Young Children, the leading nonprofit that pairs college students with Head Start children, and remains a sponsor today; their Create Jobs for the USA raises funds for the Opportunity Finance Network that is dedicated to delivering responsible, affordable lending to help low-income, low-wealth, and other disadvantaged people and communities join the economic mainstream; and yesterday I saw that the company has started a “Come Together” campaign through their stores in the nation’s capital region to lend their voice to other leaders calling for members of congress to address the fiscal cliff.
  • Perhaps most importantly, I like their coffee and love the employees at our local Starbucks on Church Street.

So here are a couple of things I wish they would change:

In the book about Starbucks “It’s not about the coffee,” author and former Starbucks President Howard Berman describes the Starbucks culture as one that “stresses people over profits.”

Sometimes you can tell how much a CEO and other executives “get” what it’s like to be on the front lines from seemingly unrelated decisions they make or support.  The Starbucks iphone app is a powerful example.  While I love the convenience and cool factor of paying with my phone, it has always bugged me that the app does not have a feature that would allow me to always tip my Starbuck’s baristas.  And, from my unscientific survey of watching those who pay with their phones vs with cash, it appears that the employees are losing out on this deal as few customers dig in their pockets for tips after paying with the app.

people not profit and app

Having paid a lot of my college expenses with tips earned from bartending at the Chestnut Pub in Morgantown during my WVU days and at private parties while completing my MBA at Chicago, I notice these things.   And when I mention this concern to Starbucks employees, they confirmed that tips are declining.  A few asked me to write about it and post it on the My Starbucks Idea page.  Hence this post.

Surely, this cannot be rocket science.  I say that not because I am capable of developing smart phone apps, but because I know that the Google Ventures backed Level Up, one of my favorite mobile payment apps, gives you both the opportunity to set a tip for whenever you pay at a restaurant and also reminds you when paying to add a tip.

OK, so they definately have more than their share of rocket scientists at Google and Google Ventures, but the same can’t be said for my local Bay State Taxi company (with all due respects).  For years, they have prompted customers to tip their cabbies when paying with a credit card.

level up and bay state taxi apps

So think about it Howard.  Might make a nice Holiday Gift for your employees.

As loyalty strategists, we’ve also struggled with the Starbucks Rewards program’s design from both a store efficiency and employee and customer satisfaction point of view. Here’s why:

Starbucks Rewards program members earn 1 “Star” every time they pay with either their registered Starbucks Card or the mobile app.  After the member earns 12,  they can redeem their Stars for one free drink or food item.  So what’s a maximizer to do? Obviously, ask to ring up multiple items with individual swipes or scans, even when being bought on a single store visit.  If you buy 3 items every weekday at Starbucks and pay for them as one purchase, it would take 2 and a half weeks to earn the free coffee or pastry reward.  But if you don’t mind looking like a jerk, and you ask your local Starbucks employee to ring up each item individually, you would earn the reward after only four days.   As the ATT commerical says “faster is better.”  Right?  So what’s wrong with this model?  At least two things:

  • Customers are rewarded for slowing down the speed of their transactions. A key benefit of a properly designed loyalty program should be to insure it capitalizes on Fred Reicheld’s principle that loyal customers should be lower cost to serve than occasional shoppers.  Reicheld  is a former Bain & Company Partner, the founding father of understanding the economics of customer loyalty and the author of The Loyalty Effect and numerous other books and articles.  He and his teams are also the driving force behind the Net Promoter Score.
  • This undoubtedly slows down the barista’s ability to efficiently serve customers and can yield increasing levels of customer and employee frustration.  In their HBR Classic Article Putting the Service-Profit Chain to Work, originally published in 1994, Jim Heskett, Tom Jones, Gary Loveman, Earl Sasser, Jr. and Len Schlesinger wrote

” In exemplary service organizations, executives understand that they need to put customers and frontline workers at the center of their focus.Top-level executives of outstanding service organizations … understand that in the new economics of service, frontline workers and customers need to be the center of management concern. Successful service managers pay attention to the factors that drive profitability in this new service paradigm: investment in people, technology that supports frontline workers…”

So while Starbucks is redesigning the app to give customers the opportunity to efficiently tip their employees, we suggest they look at the overall program design and reward economics as well.

Questions:

Have you asked your employees how new social, mobile or other digital technology initiatives impact them and the customers they serve on a daily basis?

When you are in the design and development stage of new technocolgy enabled initiatives, do your front line employees have a seat at the table?

Additional Math:

For those of you so inclined, here’s the “loyalty math” that shows the value back to Starbucks  customers can range from as low as 6% to 17% in this simple example where we assume that the average item purchased is priced at $2.50 and the member redeems for one item priced at $5.00 after they earn 12 Stars.   Note, in our experience 6% is a high value reward and 17% is among the highest we have seen.  In a future article on “Loyalty Economics 101” we’ll examine the behavior change needed to achieve a positive ROI from loyalty program reward levels.

starbucks rewards calculations