1 Way Starbucks Keeps People Coming Back for More

In the video below, Motley Fool CEO Tom Gardner sits down with Starbucks (SBUX -1.02%) CFO Troy Alstead during a recent visit to Starbucks headquarters in Seattle. In this portion of the video, they discuss Starbucks' loyalty card, including how the idea evolved and how it helps to increase customer loyalty and gift-giving.

A full transcript follows the video.

Tom Gardner: One of the things I loved reading about Steve Jobs in the Jobs biography and other things about Apple is just how many things he said "no" to repeatedly over time and then as they arrived, and so obviously there's refinement to the idea over the years, so I'm wondering about the Starbucks Loyalty Card, the Starbucks card in that context. How did that one travel through the system as an idea and what is happening with that now?  It's obviously been an incredibly pleasing result here...

Troy Alstead: Very powerful, and you're right, that is an idea that when it first came up, time was not right. Not unlike drive-thrus in 1990. Loyalty in the '90s was not the right time for that. We first introduced a Starbucks card non-loyalty, but as a transaction type, a store value card 10 years ago or so.  And at first it had no loyalty components on it, but it was transaction-only. So customers could load value onto the card, it was an easier way to transact in the store, and what we found over time is that customers loved that, even though it had no loyalty element to it, they loved that tool.

Tom: They gave it as a gift, also a gift tool.

Alstead: It became a very gift-giving tool, it became a transaction tool, it became a way to identify with Starbucks.  That had a lot to do with how it resonated over time, is that customers found that identification, that connection to who we are in their wallet or in their pocket every day meant a huge amount to them.

So as time went on and as our experience with the card grew, we began to recognize that perhaps there's more to this. Perhaps there is an ability to use loyalty in some way. Then, as we came through our challenges in 2008 and really relooked at all elements of the business, loyalty as a tool came up again, came up as an idea to both help us incent our customers to provide them some value at a time when they needed value, when it was a challenging environment, when work was shaky or mortgages were difficult, we wanted to give value to people, and we wanted to do it in a way that was consistent with who we are. 

We launched the loyalty program three or four years ago now, using that transaction tool initially, the Starbucks card as a starting point for it, and have built on it since, and have recently added, connected it to mobile payments so people could pay on their phones.

Tom: Here we are -- or they can search their next question on their phone.

Alstead: And they can do that. It's taking off in a way that's phenomenal.  And for us, it's giving us a sustainability to traffic. It's giving us a way to constantly communicate and reach out to our customers, to reward them, to have some fun with it, to have them recognized in the stores. It's a very powerful tool and we're only getting started. There is much more we can do with this.

Tom: Just so you know, the way we use that card at The Motley Fool now is we hand that card to certain employees at different points along the way, sometimes as a reward and as a way to encourage collaboration. So you're given this card to take three people that you don't know in the office out for a cup of coffee at some point in the next week. They'll find the three people. 

Alstead: Fantastic!  Do more of that.