Leading coffee retailer Starbucks offers a master class in customer segmentation that retailers across sectors can apply to boost sales and retention, according to loyalty program expert Lia Grimberg, Principal at Radicle Loyalty.
In a recent interview with 6ixRetail, Grimberg detailed how Starbucks customizes its marketing approach to address specific behaviours among different customer segments, driving targeted improvements in spend patterns through sophisticated personalization techniques.
“Understanding your customers’ actual behaviour patterns rather than just their demographic profiles is critical to modern loyalty strategy,” said Grimberg, whose 20+ years of loyalty experience spans roles at Canada’s top retailers including The Bay, Loblaw, LoyaltyOne, Home Depot, and American Express.
Customer Behavior Dictates Different Engagement Strategies
Starbucks’ strategy segments customers primarily based on visit frequency and spending patterns, Grimberg explained. This allows the coffee giant to create precisely targeted campaigns that address specific growth opportunities for each customer type.
“For customers who purchase simple items like black coffee on weekdays, Starbucks focuses on increasing transaction size and creating additional visit occasions,” Grimberg noted. “Meanwhile, for customers who visit less frequently but spend substantially more per transaction, their strategy shifts entirely toward increasing visit frequency.”
This personalized approach stems from Starbucks’ pivotal 2016 loyalty program restructuring, which shifted from rewarding visits to rewarding dollars spent—a fundamental change that better aligns customer incentives with business goals.
“Prior to 2016, the Starbucks loyalty program operated by giving a star for every purchase regardless of value,” Grimberg said. “This created an imbalance where customers spending $2 on black coffee received the same reward as those spending $40 on premium beverages and food items for their entire family.”
The Fine Line Between Personalization and Profitability
According to Grimberg, the central challenge in loyalty program design is balancing customer perception of value with business profitability requirements.
“From a purely financial perspective, loyalty programs work by driving incremental behavior change,” she emphasized. “But customers fundamentally want something for nothing—they want to earn rewards for what they already do.”
Successful programs maintain a careful balance between what Grimberg calls “thank you rewards” for existing behavior versus “stretch offers” designed to modify customer purchasing patterns.
“You need to have both types of offers in your portfolio,” she advised. “If customers don’t earn enough to receive valuable rewards within a reasonable timeframe, engagement plummets. Conversely, if your program only rewards existing behavior, it becomes a pure cost center without driving business growth.”
Customer Privacy Concerns Diminish When Value Is Clear
The increasing sophistication of personalization raises obvious privacy concerns, but Grimberg notes these concerns diminish significantly when customers perceive clear value in exchange for their data.
“About 65% of consumers initially express discomfort with sharing their data,” she said. “But that percentage drops dramatically when you introduce a value exchange—whether that’s discounts, loyalty points, or simply more relevant recommendations.”
Grimberg notes that younger consumers in particular have become accustomed to this value exchange, understanding that personalization requires data sharing.
“Customers know we collect transaction data,” Grimberg observed. “What they want is the assurance we’re using it to improve their experience rather than for purposes they didn’t consent to.”
Industry Shifts Creating New Challenges for Traditional Loyalty
Recent shifts in retail operations—particularly the growth of mobile ordering and third-party delivery services—have created new challenges for maintaining direct customer relationships.
“With the rise of delivery apps and mobile ordering, the question becomes: who truly owns the customer relationship?” Grimberg said. “Third-party services now control significant portions of the customer data that retailers once monopolized.”
These intermediaries create a barrier between brands and customers, potentially diminishing the effectiveness of personalization efforts and disrupting loyalty mechanics.
Starbucks has responded with strategic adjustments, recently expanding some benefits previously exclusive to loyalty members—such as free coffee refills for customers with reusable mugs—to all customers. According to Grimberg, this suggests a shift toward acquisition and transaction focus rather than relationship building.
Economic Pressures Leading to Loyalty Program Devaluation
As economic pressures mount on both consumers and retailers, loyalty programs industry-wide are experiencing devaluation, with brands reducing benefits or modifying terms to manage costs.
“Consumers are increasingly looking to loyalty programs to subsidize everyday purchases as they face economic challenges,” Grimberg noted. “Simultaneously, retailers are seeing their margins squeezed, which often leads to cutting loyalty program budgets because they’re highly measurable expenses.”
This creates a vicious cycle where program benefits are reduced precisely when customers need them most.
“We’re seeing devaluation across the industry,” Grimberg confirmed. “Sephora has modified their birthday gift redemption requirements, Starbucks has adjusted both earning and redemption rates, and many programs have shortened expiration windows or added redemption restrictions.”
The Future of Loyalty: Beyond Points and Discounts
Looking ahead, Grimberg suggests retailers will need to explore value delivery beyond traditional points and discounts, with convenience-enhancing features potentially offering a cost-effective alternative that still resonates with consumers.
“Retailers need to look for other means to deliver value beyond cash back and points,” she advised. “Convenience features are an underexplored territory that can be valuable to consumers while potentially being more efficient and less expensive for retailers to deliver.”
Examples include dedicated services that enhance the shopping experience without direct discounting—similar to IKEA’s supervised play areas that allow parents to shop without distraction or premium retailers’ personal shopping services.
For retailers looking to implement similar customer segmentation approaches, Grimberg emphasizes that strategy must precede technology.
“AI and generative AI are equalizing access to personalization technology,” she noted. “But they’re the ‘how,’ not the ‘what.’ You need to start with strategy and be clear about what behaviors you’re trying to drive among which customers before implementing technical solutions.”
Grimberg concluded that despite current economic challenges, personalization remains essential to retail success—with 33% of consumers abandoning brands that lack personalization capabilities, according to her research.
“The retailers who will win in this environment are those who can deliver relevant, meaningful communications that recognize customers as individuals with specific preferences and needs,” she said. “That’s the essence of effective loyalty strategy in today’s market.”
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Dustin Fuhs is the founder and Editor-in-Chief of 6ix Retail, Toronto’s premier source for retail and hospitality industry news. As the former Editor-in-Chief of Retail Insider, Canada’s most-read retail trade publication, Dustin brings over two decades of expertise spanning retail, marketing, entertainment and hospitality sectors. His experience includes leadership roles with industry giants such as The Walt Disney Company, The Hockey Hall of Fame, Starbucks and Blockbuster.
Recognized as a RETHINK Retail Top Retail Expert in 2024 and 2025, Dustin delivers insider perspectives on Toronto’s evolving retail landscape, from emerging brands to established players reshaping the city’s commercial districts.