Tuesday, September 13, 2011

Loyalty

So, I don't have much by way of internet on the sailboat (on which I now live), so I've been spending a lot of time in Starbucks to use theirs. This in mind, I signed up for their loyalty program. It's really neat, you basically do it through a gift card that you reload online, and every time you use it to pay you get a point, with various rewards depending on how many points you have. This is kind of genius. Not only is it a solid loyalty program requiring an investment without loss, it makes you spend money there that you no longer feel is real money. That's a big psychological win for them. Even better, though, it has to save them HUGE amounts on credit card processing fees. The way that CC fees work, smaller purchases in the 1-4 dollar range absolutely eat you alive, and that's Starbucks' bread and butter. They almost certainly have a pretty sweet negotiated rate, but it still has to bite into their profits significantly. Getting everyone to use a gift card means that they're paying much smaller fees on transactions in the 15-50 dollar range without having to actually upsell. Plus, they get to take Paypal easily, something that most brick-and-mortars can't manage.

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