Starbucks' new Gold Card part of holiday savings strategy

ByABC News
October 12, 2008, 10:28 PM

— -- Nope. No $1 cappuccinos. But several ways for folks to save a bit. "We're putting ourselves in a position to navigate though this very difficult environment," said CEO Howard Schultz, in a phone interview from Europe.

The strategy is simple: Reward frequency and make holiday gifts cheaper. The key link to this holiday strategy is a Starbucks Gold Card for its best customers that assures them of 10% off most purchases. It will be rolled out nationwide Nov. 4.

One consultant says it's about time Starbucks pandered to its core. "It takes their best customers and makes them feel coddled and cared about," says Michael Silverstein, senior partner at Boston Consulting Group.

Starbucks also has its first-ever Costco tie-in, which offers five, $20 Starbucks gift cards for $80. And it's pricing many holiday gifts several dollars lower this year than in 2007. "The trick for Starbucks is to remain a premium brand but stay within reach of most consumers," says analyst David Palmer at UBS.

The wind is not at Starbucks' back. Palmer estimates its same-store sales will be down 6% for its fiscal fourth quarter ended Sept. 30. Starbucks previously announced the closing of 600 U.S. stores and layoffs of about 1,000 employees. It posted its first quarterly loss $6.7 million for the quarter ended June 30. (Starbucks announces fourth-quarter earnings on Nov. 10.)

Its holiday "value" moves:

Gold card. The loyalty card, which costs $25, has been tested in Denver and Vancouver. Holders get 10% off most items, except gift cards and digital downloads. Several thousand free cards already were mailed to the chain's best customers, Schultz says. Each store manager will be given three gold cards to hand out to customers deemed the best.

Schultz expects to sell "millions" of gold cards. He says many holders of regular Starbucks cards which are free will make the switch because it will save them money.