Wednesday, March 23, 2016

Getting Screwed (a little) By Starbucks

On April 12, 2016, Starbucks is adjusting their customer loyalty program. Instead of one Star per purchase, with a free item every 12 stars, you will now earn 2 Stars per dollar you spend, and need to collect 125 Stars for a free item. Additionally, at the transition any Stars you have on April 12 will be multiplied by 11.

I did a little analysis of whether the transition and ongoing purchases are more or less rewarding under the new regime. It is (unsurprisingly) sensitive to what your average purchase is. Here's the numbers:

Not to spoil the surprise, but if your average purchase is less than $5.21, you will not be receiving as many rewards as you used to. For example, someone who spends $3.50 per day will now have to spend $62.50 for a freebie instead of $42. They are getting a 5.6% return on their purchases instead of the 8.3% they used to. That's a pretty big haircut.

Then again, you're spending $3.50 for something with a make-at-home cost of less than $0.50 plus the amortization of whatever equipment you use. If you buy a $400 espresso maker and it lasts for four years of daily-weekday coffee (250/year), that's an extra $0.40, for less than $1.00 total.

Actually, if you're going to go that route, the new Starbucks rewards plan is a great change for you. You'll now get a free bag of beans after every five bags instead of every 12.

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