(Business 2.0) – By the close of business today, more than 3 million caffeine-craving Americans will have made some kind of purchase at a Starbucks cafe, in every state except South Dakota. The most dedicated java-heads among them will make 17 return trips during the course of a month. In four weeks' time, Starbucks will have rung up another $320 million in sales and opened 80 new cafes.

For a business that grows one $3 transaction at a time, customer loyalty like that offers a bigger boost than a triple espresso. In Starbucks's case, it's what fuels the coffee-store chain's hyperdrive expansion--6,600 stores and counting--in an era when many retailers feel blessed just to cover payroll.

The great irony of such good fortune? Because so few people pay for their lattes and mochas with credit cards--80 percent of transactions are conducted with bills and coins--Starbucks knows next to nothing about its millions of adoring patrons. But recently, that's begun to change. Starbucks chairman Howard Schultz thinks he's hit on the means of not just finding out who his most loyal customers are, but ensuring that they'll be making even more return trips to his stores in the future.

Since late 2001, Starbucks has been selling a simple prepaid card that customers can use instead of cash. Conceived as a way to save customers time in line (and as a clever stocking-stuffer when it was announced before the holidays), the card does a lot more than a traditional retail "gift" card a la Barnes & Noble, Home Depot, or Macy's. Recipients typically spend those, then toss them in the trash.

In the first month of the program, Starbucks customers purchased 2.3 million cards worth $32 million. Since then they've snapped up another 11.3 million cards. While hard numbers are tough to come by, industry experts rate the Starbucks card as one of the most successful launches of its kind: It already accounts for 1 of every 10 transactions at Starbucks stores, and--to the surprise of Schultz--about a third of cardholders are reloading the cards to use again. "I dramatically underestimated the take rate," he says. In the first quarter of this year alone, the chain recorded 1.3 million reload transactions, with an average value of $24.

That level of return business suggests that Starbucks is transforming a relatively dumb prepaid convenience card into a smart device that identifies its most loyal customers--and guarantees they'll be coming back for more.

"We ask ourselves, As we get big, how do we stay small?" says Anne Saunders, a company vice president and head of Starbucks Interactive, the group that manages the card and the chain's wireless hotspot network. "Our baristas know the customers. The card allows the company to finally know them."

The way Schultz tells the story, no one at Starbucks expected much from the card. Startup costs were minimal--cash registers had to be upgraded with card-reading software; some full-page ads were placed in the New York Times. Beyond that, Starbucks relied on its own employees and in-store signs for promotion. But when the reload numbers began to accelerate, Saunders realized she had a hit. "That first Christmas it was clear the card resonated as a gift," she says. "When we saw people reload the cards and use them as a form of tender, that was the turning point."

Saunders began devising ways to build on the momentum. In September 2002 the chain introduced online registration that allows users to replace lost cards, reload their current ones, and view transaction histories. One in five cardholders now register online--a remarkable statistic, given that they have no real incentive to do so.

That success has emboldened Schultz and Saunders to take the concept a step further. This fall, in partnership with Visa USA and Bank One, Starbucks will launch the first-ever dual-purpose credit card for a retailer--one that functions both as a prepaid cash card at Starbucks outlets and as a standard credit card anywhere else. But instead of earning airline miles or periodic cash rebates, users will accrue coffee credits at Starbucks. Because the cost of a cup of joe is so small compared with something like a round-trip airline ticket, even conservative card users won't have to wait long before their freebies kick in. Habitual users, the thinking goes, may never again have to pay for their morning coffee. "Every time they spend money somewhere else," Schultz says, "we're going to benefit, and the customers will have an inherent sense of reward."

For those who value quick service, the company envisions a system in which the consumer swipes the card, orders on a touchscreen, and simply waits to pick up the order; that'll nick a few precious seconds off the purchase process. In addition, the card will store the user's previous orders, so when the card is swiped through the reader, the screen may be scripted to ask, "Would you like your usual decaf caramel frappuccino?"

Starbucks can go even further if the user opts to provide personal information when he or she registers the card. For example, the card might alert the store to the fact that it's the customer's birthday, allowing Starbucks to offer her a freebie. If there's a role model for this kind of reward system, it's Harrah's, which uses similar cards in slot machines to tailor comps like hotel rooms and meals to individual players (see "Welcome to Harrah's," April 2002). More than 70 percent of the gaming that takes place at the Harrah's chain is now tied to these loyalty cards.

Schultz isn't considering anything so pervasive. And at Starbucks, you'll only be able to redeem your points for small-ticket items like coffee and pastries. Which raises the key question: Will the occasional gratis slice of lemon cake be enough to keep you charging up your card? Saunders, for one, thinks it will be. "It can take a couple of years to earn yourself a free airline ticket," she says. "I think the idea of rewards you can use immediately is something customers will like a lot." Rick Ferguson, editorial director of Colloquy, a print and Internet publication that examines virtually every aspect of marketing, isn't so sure. "Customers' wallets are already packed with credit cards that have rewards attached," he says.

As for what Starbucks is learning behind the scenes from its first true customer database, Saunders claims it's just the basics: name, address, and e-mail--and that's only if the customer chooses to register online. "We're not asking for your shoe size or anything," she says. "It's really just a method for us to communicate." And as long as the chain continues to open four new stores a day, maybe there isn't that much to talk about. --ROB HOWE