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Starbucks Uses AI-Powered Personalized Rewards to Boost Frequency and Spend

Starbucks Uses AI-Powered Rewards to Boost Frequency

Starbucks is seeing its artificial intelligence data efforts boost its rewards program effectiveness, incentivizing consumers to spend more and visit more often.

On a conference call Tuesday (Jan. 30) accompanying the coffeehouse giant’s first-quarter fiscal 2024 earnings report, CEO Laxman Narasimhan discussed the company’s successful efforts to drive greater value from Starbucks Rewards members.

“In the U.S., we implemented targeted offers aimed at bringing our occasional customers into our loyalty program,” Narasimhan said. “As we’ve seen over time, Starbucks Rewards members develop a routinized long-term relationship with our brand that increases both tickets and transactions. Additionally, we activated new capabilities within our propriety Deep Brew data analytics and AI tool to identify and incentivize specific rewards members cohorts.”

Consumers, for their part, want personalized deals and discounts. The PYMNTS Intelligence report “Personalized Offers Are Powerful — but Too Often Off-Base,” which drew on responses from more than 2,500 U.S. consumers, revealed that 71% have received personalized offers and are interested in them, and another 12% have not received personalized offers but are interested.

In the quarter, Starbucks saw its rewards program 90-day active member base in the U.S. increase to 34.3 million, up 13% year over year, amounting to about 4 million new members. To further drive engagement, the brand is using rewards partnerships, looking to target the built-in audiences of other companies in other industries. The brand announced Tuesday such a collaboration with Bank of America.

“We’re … pleased to share [that] Bank of America will be our next Starbucks Rewards partner, delivering even more value to our most loyal customers,” Narasimhan said on the call. “This opportunity … is one of two new Starbucks Rewards partnerships we told you we would roll out this year.”

The move follows Starbucks’ existing rewards partnership with Delta Air Line’s SkyMiles program, which Narasimhan said during Tuesday’s call has been a “great success,” driving deeper “connection and engagement” from loyalty members.

Many consumers are using restaurants’ loyalty programs. In the PYMNTS Intelligence study “Connected Dining: Consumers Like the Taste of Discount Meals,” based on a survey of more than 1,800 U.S. consumers, 51% of respondents reported using a restaurant loyalty program, with 49% participating in these programs at quick-service restaurants and 34% at full-service restaurants.

Additionally, consumers are increasingly engaging with restaurants digitally. Research from PYMNTS Intelligence’s study “Consumer Interest in an Everyday App,” which drew on insights from a survey of more than 3,300 consumers in the United States and Australia, found that 1 in 4 U.S. restaurant customers exclusively orders food using internet-connected devices. Plus, another 36% do so both via traditional channels (in person or by calling) and via internet-connected devices.

Starbucks, for its part, saw increased engagement across digital channels.

“We saw our mobile order and pay surpass a record-high 30% of all transactions of the quarter, and we reduced downtime of mobile order and pay by half,” Narasimhan said on the call. “…We saw record results in our U.S. delivery business, with growth of nearly 80% year over year aided by our expanded partnership with DoorDash. We see significant growth for continued incremental growth as delivery represents only 2% of our transactions.”