Starbucks Rewards Effects on Customer Valuation
http://www.starbucks.com/rewardsfaster
Starbucks frequenters in their Rewards Program will, in the near future, experience changes in what and when they can claim their rewards. Food is now included as a choice to get free. Drinks require twelve gold stars instead of fifteen. However, one can no longer get a tall beverage with a purchase of coffee beans. Although personally not an avid Starbucks fan, the new reward system has made me question the effects of these changes on people’s product preferences, at least for rewards program users. Since a Starbucks does not usually run out of items, to talk about a perfect matching does not make much sense (the person after you can still order the same thing you did after all). However, the choice in one’s free item at Starbucks may effect individual valuations, which can have effects on the market.
Changes in rewards programs like this may have subtle differences in what people choose for their daily coffee run. The various drinks and foods offered by Starbucks are the items, and the customers are the people. Each person has a particular valuation for each item on the menu. For a rewards program member, after acquiring twelve stars, the prices under the updated program for many items decrease to zero. Among the products at price zero, the person will be assumed to order their highest valued item, which may be different from what they usually order. This is mere exploitation of their preference. The interesting case is when a person may explore an unpredictable item to “switch things up” since it is free anyway, which is more likely to happen now that foods will be part of the program. In this way, valuations of novel items can be fully fleshed out, and these new items possibly become new favorites that one grabs daily in addition to their coffee.
The interesting case could have a polarizing effect on the community in regards to valuations. For general items on a menu that one has never ordered, their valuations toward them might be apathetic to slightly positive. After experiencing the item, the items will either be forgotten or very well liked. From there, Starbucks can gauge a better, quicker understanding on how well their novel items do, and therefore adapt supply so that people always get their preferred match, and so that they lose the least amount of money. Since Starbucks is not known as a place to grab a quick bite, this program may be a quietly calculated way to invite people to try and love their snacks. Let’s hope Starbucks food does not end up costing the company millions of dollars in wasted supply!
– kfc35