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Starbucks is not only about coffee anymore!

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A look back at the digital journey of Starbucks as mobile payments makes its headway.

Starbucks is undoubtedly at the forefront in terms of technological advancement. The company’s mobile payment system is considered as one of the most successful solutions offered by a retail chain in the world. Mobile and gift card payments now account for over 30% of total U.S. payments for Starbucks. Nearly 10 Million customers now pay through the mobile app of Starbucks which brings in about 5 Million transactions a week. In 2012, purchases through Starbucks’ mobile app were $250 Million and recent studies revealed that it reached $1 Billion range last year.

February 2008 was a significant landmark for the global coffee chain. Starbucks closed all its stores in United States to train their staff after identifying many weaknesses. It was a very tough decision for then CEO Howard Schultz who made a comeback to take active control of the company he built from scratch. It was with great patience that Schultz progressed with the initiative of rebuilding the core values of Starbucks. Though the decision was heavily criticized by Wall Street media, focus on enhancing customer experience has brought tremendous success.

In this success journey, improvements to the digital experience has been pivotal for the Seattle based company. The stepping stone for the digital journey was the launch of “My Starbucks Reward” program in 2009. A closed loop mobile app was launched in 2011 as an initial effort with the basic functionality of making payments by redeeming the reward points with the Smartphone. This was facilitated through a barcode mechanism linked to the Starbucks card account. Since then, many services were introduced around the rewards platform which uplifted the customer experience.

In this success journey, improvements to the digital experience has been pivotal for the Seattle based company.

As Starbucks felt responding to the changes in the external tech environment is vital for the continued success, a new role of Chief Digital Officer was created in 2012. This move gave Starbucks a great opportunity to work on digital developments continuously. Starbucks soon identified the increasing use of mobile wallet based solutions among its customers. In order to facilitate mobile based credit and debit card payments, Starbucks entered into a partnership with digital payment startup Square Inc in 2012. Square is a simple digital wallet solution which was Co-founded by Jack Dorsey who also Co-founded Twitter. The partnership came in the form of a funding of $25 Million by Starbucks which made CEO Schultz a board member of Square. Proving the predictions of Schultz right, the Square wallet has complemented the usage of existing Starbucks payment systems. However, Schultz left Square’s board late 2013 and was replaced by a former Goldman Sachs Chief Financial Officer.

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Over the years, Starbucks has created what Schultz call as a “3rd place” between home and work place for its customers. This symbolizes that customer retention has been considered as a top priority. Similar to customer retention, creating stickiness in a mobile payment service is a big challenge for many solution providers across the world. This is where Starbucks has taken an edge over most of its peers.

Another wise move of Starbucks was that they were prepared to cater to both traditional customers who prefer card based reward redemptions and tech savvy mobile users.

Enabling mobile payment stickiness demands high level of effort from the company to create constant interaction with its users. The distinctiveness of Starbucks solution is that it has used the reward platform, social media, in store experience to complement the payment mechanism. The reward program is a big draw and the mobile app has brought in a gaming experience to it. Each time a customer grab a grande they earn a digital star. Five stars get them to the green level, which is good for free refills and coupons. When they have collected 30 stars they become eligible for a free drink for every 12 and more bonus offers.

Another wise move of Starbucks was that they were prepared to cater to both traditional customers who prefer card based reward redemptions and tech savvy mobile users. The creation of proprietary world class digital mobile payment and card technology today has placed Starbucks in a strong position. There are more than 7 Million active Starbucks reward cards in the U.S. The company launched the cards in China early this year and reported that the card has been well received.

Thriving on these innovations, the latest addition was the “Digital Tipping” feature on its mobile app for Apple users. This service was launched in March this year for its customers in US, UK and Canada. Customers using the app have the option to leave a tip for the baristas through their mobile at more than 7,000 stores. Starbucks reports that this feature would further expand the digital experience of customers and stimulate mobile usage for transactions which is currently at 11%.

Starbucks reports that it has lot more in their pipeline in terms of technological application to enhance customer experience. These services are also supported by its existing initiatives such as augmented reality app, wireless charging at the outlets and “Tweet a Coffee” campaigns. Managing these initiatives while serving 60 Million customers a week through nearly 20,000 stores across the world is a challenging task. The case of Starbucks is a great example to symbolize how mobile payments can attract customer interest and improve stickiness when offered in connection with related other facilities.

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