Starbucks to Change Rewards Program

by Jordan Lavin February 23, 2016 / No Comments

In our blog we’ve written a lot about coffee. It’s one of those small things that adds up quickly. If you’re like me and you can set your watch by your daily coffee run (2:00 pm for me), chances are you’re spending $100 or more a month on caffeine. On Monday, Starbucks announced it would change its rewards program in April, which means you’ll likely have to spend more money to get the same value back in rewards.

The situation

Starbucks rewards are transitioning from a system that rewards you on a per-visit basis, to one that rewards you per dollar spent, the same way most credit card rewards programs work. This is great news if you’re a regular latte hound, but if you’re spending less than $5 on your average visit you’ll end up spending more to earn the same reward under the new program. Let’s take a quick look at how the old and new programs compare:

Stars

The basis of the Starbucks Rewards program is the star. Until March 31, each purchase is worth one star. When the new program comes into effect in April, you can earn two stars for every dollar you spend, regardless of how many times you visit. Spend $5, get 10 stars. Simple.

Getting gold

A quick explainer if a regular Starbucks trip isn’t your thing: the first step to gaining your coveted free drink is attaining gold status. Under the existing system, the gold level is attained with 30 stars. Assuming you’re spending $4 on average before tax and tip, it currently costs $120 to reach the gold level. Under the new system, you’ll need 300 stars at a cost of $150, no matter how many times you visit. You’ll only earn gold status faster if you spend more than $5 a visit on average.

Before After
Stars 30 300
Cost $120 $150
Difference: $30

Getting rewarded

Once you reach gold level and are accepted into the upper echelon of coffee-buying privilege, Starbucks rewards you with free drinks after earning a certain number of stars. Under the existing system, 12 stars equals one reward. When the changes come into effect, you’ll need 125 stars to get a reward.

To do the math, we’ll make a few assumptions. Let’s say you’re buying coffee once every weekday (20 visits a month), spending an average of $4 before tax and tip at each visit. Rewards are meant to be rewarding, so we’ll assume you’re going for value and using your rewards to buy something worth $6.

Before After
Monthly visits 20 20
Average bill $4 $4
Stars earned 20 160
Monthly rewards $10 $7.68
Rewards / dollar spent 0.125 0.096

As you can see, you’ll be earning a lot more stars, but they’re worth a whole lot less—going from 12 stars to get a reward (a value of about 50¢ a star), to 125 (a value of 4.8¢ each). And the value of your rewards is going down, too, from a reward of about 12.5¢ per dollar spent, to just 9.6¢ per dollar spent—about a 23% drop.

Breaking even

This isn’t a one-size-fits-all calculation, however, and there’s a break-even point on the new system. Based on 20 visits a month and a $6 reward, you’ll come out ahead under the new program if you’re spending $5.21 a visit or more. Don’t forget that’s before taxes and tip.

Do your own math

Naturally you’re a rewards hound and you want to know what a reward is worth to you. Here’s how to figure out if you’ll win or lose with the new rules.

1. Figure out your current monthly reward value.

Count how many times you visit Starbucks in a month to find out how many stars you earn. Divide by 12 to get the number of rewards that’s worth. Multiply by the dollar value of the reward you typically get. For example, if you visit 15 times a month, and get a reward worth $6, then the calculation is:

15 visits ÷ 12 X $6 = $7.50 monthly reward.

2. Figure out your new monthly reward value

Multiply your number of monthly visits by your average spend, then multiply by 2 to find out how many stars you’ll earn. Divide by 125 to get the number of rewards that’s worth. Multiply by the dollar value of the reward you typically get. For example, if you visit 15 times a month, spend $4 on average and get a reward worth $6, then the calculation is:

15 visits x $4 spend = $60 spent

X 2 points per dollar = 120 points

÷ 125 = 0.96 rewards

X $6 = $5.76 monthly reward.

In this example, spending $60 at Starbucks over 15 visits is now worth $1.74 less in rewards.

Flickr: m01229