Starbucks: An Innovative Blend of Payments, Loyalty, and Customer Experience
There is no shortage of opinion on the future of payments innovation. Key topics are how mobile will evolve, at what pace, with what type of consumer value proposition, and with what companies emerging as winners. It would be perfectly logical to look no further than traditional industry incumbents to monitor the development and evolution of mobile payments. However, for a practical view into how mobile is currently being deployed in concert with loyalty and payments, Starbucks is arguably the most dynamic player with live applications in place on a national basis.
Well before the hype of mobile, Starbucks saw the value of leveraging electronic payments to engage its customers in a distinct and differentiated way. As context, a staggering 25% of its U.S. sales are on the Starbucks Card, the stored value card launched in 2001 and enhanced over time with additional features and functionality. To put that level of penetration in perspective, over $3 billion was loaded onto Starbucks Cards in the 2012 fiscal year. One could easily point out that Starbucks is uniquely positioned to drive such high penetration/engagement with its brand and frequency of visit, but there are many considerations that are highly applicable to other companies.
Starbucks may be in rare territory with its cult-like following, but the company has also taken a very progressive view of electronic payments with the integration of its My Starbucks Rewards loyalty program and now its latest mobile initiatives. While it is too early to judge its boldest move to date –the partnership with and $25 million investment in Square, the provider of a mobile payment app that stores a credit or debit card for mobile usage at the POS– there are aspects of the Starbucks payment journey that all industry stakeholders should consider:
- Payment products are highly strategic and the Starbucks Card has been a key building block over the past decade for loyalty, customer engagement, and the evolution to mobile
- Starbucks has a platform not just a product offering which has allowed for tight integration with loyalty, digital/mobile, and social media channels as well as robust testing and learning over time
- Starbucks’ strategy is multi-faceted with the recent integration of Apple’s Passbook and Facebook Gifts in addition to its digital presence with Twitter, Instagram, Pinterest, etc.
- Starbucks leverages digital for new use cases and the accompanying learnings – it tied egift cards to a “Jobs for USA” campaign in April 2012 and sold over 1 million egift cards in one day via a LivingSocial offer in September. This holiday season Starbucks teamed with Apple to launch a joint egift basket to benefit World Aids Day through Project (RED) containing a $30 egift card with $15 toward Starbucks and $15 toward iTunes; 5% of the proceeds go to the Global Fund to Fight Aids
- Payment-related initiatives have executive level commitment. Starbucks has appointed a Chief Digital Officer, invested in mobile POS functionality, launched and invested in Square, and developed global payments initiatives
- Starbucks invests in the customer experience over time. In addition to other features, rewards can now be redeemed instantly via mobile phone or a loyalty card at the POS (without the legacy postcard mailer) as a result of customer feedback
In the U.S., we are closer to the starting point than the tipping point on mobile payments. There will be more fits and starts, technology in search of practical applications, and plenty of questionable customer value propositions. While the business model of Starbucks is unique in many respects, its approach and journey to an integrated payments platform has far-reaching applicability to other companies.
For more information, please contact John Grund, Partner specializing in Credit Card Issuing and Retail Services, firstname.lastname@example.org
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