The timing of the announcement of the new Tim Hortons Rewards program and the latest update to the Starbucks Rewards program was unpredictable, but also prescient, in an odd sort of way.
Unless you live in Canada or in the Northern realms of the United States (can I say Buffalo?) you might not think the two coffee chains should be compared as competitors in the same article. I understand that perspective at a national level in the US, but if you are Canadian or live in Western New York then you understand how interwoven Tim Hortons is into daily life, and consequently how much anticipation has existed for the announcement of a rewards program at “Timmies”.
Tim Hortons launched its new rewards program in Canada on March 20, 2019, just one day after Starbucks officially announced changes to its award winning program. I doubt the two brands knew anything about the timing of their respective announcements, but once both were made, the game was on. It was only 3 weeks later that Tims™ Rewards was launched in the US on April 10, just a few days before the new changes went into effect at Starbucks on April 16.
There is irony to be found by dissecting what Tim Hortons just launched and the continuing development of the Starbucks Rewards program. The irony is this: The Starbucks program was launched in 2009 and its economic model was transformed in 2016. I wrote about the changes at the time on LoyaltyTruth.com and you can find the article here if you want additional perspective.
To sum it up, Starbucks had recognized the pitfalls of a frequency based model and shifted to a revenue model, meaning it shifted to rewarding customers based on their ongoing spending with Starbucks, not on how many times they visited and made a purchase. The latest updates to the Starbucks program fine-tuned the offer to meet its most current business objectives, and we’ll get to that in a minute. The irony is this: The newly launched Tim Hortons Rewards program is based on a frequency model, like the one that Starbucks discarded in 2016.
Tims™ Rewards offers customers the ability to earn the choice of free coffee, tea, or baked goods after making 7 eligible purchases. This is simple to understand for customers, but strangely excludes two of the most popular items on the menu from earning loyalty value: bagels and Timbits. If you’ve never had a Timbit, you must be doing much better on your diet than me. There are other “personalized offers” available through the program, but the core value at launch is based on visit frequency.
The changes made to the Starbucks program amount to a partial reversal of the strategy they set forth in February 2016. At that time, the brand kicked casual coffee drinkers to the curb in favor of more ardent customers who covet customized beverages, food items, and home coffee products. The latest round of changes shift emphasis back to customers closer to entry-level, allowing them to earn rewards starting at lower thresholds (25 Stars) rather than making the 300 Star Gold level (previous structure) a requirement to earn a reward.
I applaud Starbucks for having the courage to make changes to its decade-old program which now reports more than 16.3 million active members and accounts for about 40 percent of Starbucks transactions. It is always within the rights of any brand to adjust its program to meet specific business needs. In 2016, it appeared that Starbucks wanted to reward those higher value customers who created significant revenue for the company more than the casual buyer who might even game the system by splitting transactions to earn more visits.
Now, it appears that Starbucks wants to create a slicker on-ramp for new customers and get higher engagement from customers who spend less, but might be enticed to spend more over time. This approach might be a response to the heightening coffee competition among QSR chains, and promotional gimmicks like Burger King selling a month’s worth of coffee for just 5 dollars, or as Burger King likes to say “the price of a large Cappuccino at Starbucks”.
Still, any changes must be made with care, and the blitzing of Star balances from customers who had not yet earned the Gold tier was a surprising move by the chain. Some customers are not happy about losing Stars earned with previous purchases and it might have been a nice touch for Starbucks to at least offer up a free drink to these folks in return for having their balances reset to zero.
There’s one of the toughest parts of operating a loyalty program: Starbucks is brave to make changes to its program to meet its needs, but any such changes must be conceived, executed, and communicated oh so carefully to not upset a loyal customer base. Taking ideas that make financial sense and look good on PowerPoint and making them a reality with customers is easier said, than done.
What lesson should Tim Hortons take away from all of this? Most importantly, the marketers at Timmies should resist making program changes for an extended period. I hope that the frequency model they have chosen survives the test of time. I also hope they realize that excluding two of the most popular menu items from earning could dampen enthusiasm among their most loyal customers.
If they determine that changes need to be made in the near future, they don’t have to look any further than the tallest tree in the coffee forest, Starbucks, to see how changes should be communicated and understand that even the best can fall prey to program details that seemed inconsequential to the marketing team, but become the fodder of viral social posting among their best customers.
How do we compare Tim Hortons and Starbucks? We can’t really. The success and maturity of Starbucks Rewards puts it in its own competitive set. The wisest thing that Tim Hortons can do is to learn from a big brother that has been through waves of transition with customer loyalty and is still around to talk about it.
Bill Hanifin is CEO of The Wise Marketer.