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Starbucks Is Going Personal With Its App

Starbucks has one of the most successful apps and loyalty programs among restaurants. Image source: Starbucks.

Starbucks (NASDAQ: SBUX) knows what you want and it plans to tell you.

The company, which has made its app an integral part of its business plan, wants to move beyond simply using the technology to reward customers for coming in often. As part of its next-level selling plan, the chain wants its app to drive sales by using past behavior to suggest future orders.

"The past program only rewarded frequency," said Starbucks Chief Strategy Officer Matt Ryan during the company's third-quarter conference call, which was transcribed by Seeking Alpha. "We couldn't reward any other behavior but that. We now have the opportunity, both in email, which we've just begun, and this quarter, in our app, to do suggested selling. So we will be suggesting and making personalized offers within the context of our app that will allow people to see things that are right for them."

That's a big change but a logical one for a company that pioneered the use of an app first for paying and most recently for ordering without having to wait in line.

A shifting focus for rewards

Any change to Starbucks' app/loyalty program can have major ramifications on the company's business. CEO Howard Schultz explained during the conference call that shifting its loyalty program from a frequency-based model to a spend-based one negatively impacted the quarter, but will ultimately pay off.

"The shift was a one-time event, a once-in-a-decade change built on carefully vetted analysis that showed that a spend-based program would best reward our most loyal customers and encourage all of our customers to visit us more often and spend more on each visit, and it would be more fair for all of our customers as well," he said.

Schultz added that the old model, where customers were rewarded once per transaction no matter what the dollar value, led to slower lines as consumers split their order into multiple sales. By changing to a spend-based model -- even though it caused some short-term customer confusion and negative feedback -- the chain was able to speed up its lines.

How will suggested selling work?

Starbucks already has significant experience driving consumer behavior using suggested selling on a macro level. The company already sends its loyalty program members emails offering rewards based on specific purchases at specific times of the day. Under its new program, the chain would not simply target its broad membership, but would instead use each customer's past history to drive new sales.

"Over the next several years, we will continue to enhance and expand personalization, both in our app and in other digital channels," said COO Kevin Johnson. "We are now driving personalized offers through email, which are yielding extremely encouraging results. We are building a true, real-time, personalization capability which will begin to power personalized experiences and communications within our app."

CFO Scott Harlan Maw added that the personalized offers will be for "relevant products based upon what you've ordered in the past, daypart, your preferences."

Why is this important?

Through its app, Starbucks has a unique way to reach its customers. The chain has already proven that it can drive consumer behavior by getting people to pay with its app. In the third quarter, 5% of all transactions at its stores were via its Mobile Order & Pay.

The coffee house company has set the standard for loyalty programs and apps with rivals like Dunkin' Donuts and Panera Bread copying its every move. Both of those chains now offer mobile ordering and the ability to pay via their apps.

Going forward, there is every reason to believe Starbucks should be able to use what it knows about customers to drive more sales. That might be as simple as offering discounts during specific dayparts, or it could involve custom offers based on past behavior. Starbucks' past history has shown that it can leverage its app/loyalty program to generate more sales. That might not always be a smooth process, as we saw during the switch to spend-based rewards, but it should ultimately add to the bottom line.

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Daniel Kline has no position in any stocks mentioned. He drank a cold brew while writing this. The Motley Fool owns shares of and recommends Panera Bread and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.