Can Microsoft's Loyalty Program Turn Starbucks Coffee Into Free Windows Devices?

By Markets Fool.com

Microsoft wants to put Windows devices in people's hands, and it's testing a novel new program to do that.

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The company has launched a rewards program in Massachusetts, Arizona, and Washington that works like the ones typically associated with credit cards. While many brands and stores have loyalty cards that incentivize purchases in their stores -- like Starbucks' plan, where you earn free beverages -- the Microsoft plan rewards users for buying things in partner stores.

It's a very different take on a rewards program that makes it easy for customers to earn discounted, or even free, Microsoft stuff.

You can use the earned rewards on anything sold by the company. Source: Microsoft

How it works
To enroll in the program, people have to fill out a very simple form on Microsoft's website. If you already have a Microsoft login, it takes under a minute to type in some info and associate a credit or debit card with the program.

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Dubbed "Earn," the plan awards customers 5%-10% back on purchases made at partner stores, including Starbucks, PetSmart, Whole Foods Market, Papa John's, 1-800-Flowers, 7-Eleven, and a number of local restaurants in the test area.

This is not the first rewards program from Microsoft. It already has Bing Rewards and Xbox Live Rewards. It is, however, the first time the company has offered incentives for purchases made in stores not owned by Microsoft.

The earned credits can currently only be redeemed in the company's physical stores and not on its website. That, like other aspects of the program, could change, since Earn is in an early test phase.

"We're committed to delivering the outstanding choice, value and service that our customers expect, and part of that is focusing on this initial pilot program and evaluating its success," a Microsoft representative told GeekWire.

Why is Microsoft doing this?
In some ways, the program resembles a traditional credit card rewards system -- except that credit card companies have a reason to incentivize any purchase. Microsoft does not have as direct a benefit from a customer buying a latte at Starbucks and earning rewards points.

That makes Earn -- at least on the surface -- seem like a peculiar program. But while the benefit to Microsoft may not be as direct, the company stands to gain big from this offering.

The main purpose of Earn is getting people to make purchases in Microsoft's stores. Redeeming earned points requires visiting a physical store, which is good for Microsoft. What's even better is that Earn can be used to offset the cost of Windows computers, tablets, phones, and even Xbox consoles.

Microsoft may lose money on the initial transaction, but in the long run it increases its user base. Think of it as a subsidy plan for Windows devices that also increases customer loyalty. (It's possible that the Windows-maker gets a kick-back from its partner brands as well, but that would be a secondary benefit.)

It's a work in progress
Of course, the above scenario only works if people redeem their Earn points for new hardware. If they purchase Xbox games or accessories for existing PCs, Microsoft will not have increased its customer base.

Seeing the purchase pattern and determining whether people use the rewards program as a way to offset the high cost of buying new computers, tablets, phones, and game consoles may well be one of the things the company is testing during the limited trial. Offering the program in only three states mitigates risks and lets Microsoft work out the kinks for something that could be a game-changer.

For now, Earn offers customers in Arizona, Massachusetts, and Washington a something-for-nothing deal. Use your enrolled credit or debit card in a partner store and the rewards just amass. That's a great deal that might make someone who is on the fence about Windows or Xbox give Microsoft another look.

The article Can Microsoft's Loyalty Program Turn Starbucks Coffee Into Free Windows Devices? originally appeared on Fool.com.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fools board of directors. Daniel Kline owns shares of Apple and Microsoft. He has already enrolled in Earn but lives in Connecticut (though he visits Massachusetts a lot). The Motley Fool recommends Apple, Starbucks, and Whole Foods Market. The Motley Fool owns shares of Apple, Starbucks, and Whole Foods Market. 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.