Starbucks brews the right blend of mobile payment and customer loyalty

Profile picture for user slauchlan By Stuart Lauchlan November 2, 2014
Summary:
Starbucks long-term investment in customer loyalty programs sits well with its new push into mobile payments, reckons CEO Howard Schultz.

While Apple Pay has put mobile payments high up on the tech agenda, coffee giant Starbucks is about to kick off its own initiative that CEO Howard Schultz reckons is different than anyone else's thanks to the firm's investment in customer loyalty.

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Next month Starbucks begins to roll out its Mobile Order and Pay service, trialling in Portland, before being rolled out to the rest of the US in 2015. It will be a major strategic mobile apps push for the beverages firm, but one which Schultz argues is entirely in keeping with the customer zeitgeist:

Consumers today are no longer willing to accept convenience only around the purchase of readily available or commodity based products. They want convenience around the purchase of premium products like Starbucks as well.

Our research confirms that we can drive even more traffic and incrementality and offer even more customers more convenience in more locations by allowing them to place orders ahead of time via their mobile devices and pick their orders up without waiting in line.

Hence Mobile Order and Pay, which Schultz pitches, as he would perhaps, as:

a totally unique technology. It seamlessly integrates mobile ordering and our proprietary loyalty program with point of sale and store operations enable us to enhance our customer experience, exceed our customer’s expectations or convenience and extend customer loyalty.

No company in any industry offers any technology remotely like Starbucks’ Mobile Order and Pay, plus we get the added benefit of increased store throughput and speed of service for all our customers.

Schultz also posits that this will be represent a step change in customer loyalty and engagement:

Imagine the ability to create a standing order that Starbucks delivered hot or iced to your desk daily. That’s our version of ecommerce on steroids.

Customer connection

It’s early days of course in the mobile payment market, he admits, but the introduction of Apple Pay among other iniatives has kicked life into sector. Schultz argues that this is only the beginning and that Starbucks has a first mover advantage:

In 2013, payment for purchases by use of all mobile devices in the US totalled $1.3 billion. That was the entire market.

With over 90% of those purchases taking place in a Starbucks store, that means we had 90% share of mobile payments in 2013, while bricks-and-mortar commerce in 2013 totaled more than $4.2 trillion.

Already close to 7 million transactions per week, 16% of all transactions conducted in US Starbucks stores, occurs via customers use of a mobile device. No company and no retail store domestically or internationally even comes close. And while that figure has been growing by almost 50% per year, the real growth is yet to come.

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Schultz argues that the ace up Starbucks sleeve is being able to link its mobile payment drive with its established customer loyalty card program:

Every tech in financial service company in the world is chasing the mobile payment opportunity.

Yet while these companies may have vast hardware and software development capabilities, Starbucks is the only local, national or global business of any kind to succeed in crossing both the most difficult and the most critical chasm standing between success and failure in mobile payment - transforming consumer behavior.

We’ve accomplished this by integrating the convenience of mobile payment to a compelling and enjoyable program that gives our customers rewards.

We continue to see consumers favor retailers who improve their customer experience through the integration of convenient mobile technology.

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There’s a lot more to come, says Schultz, citing the new Starbucks app for Android with Shake to Pay functionality in the US, UK and Canada as well as the ability for digital tipping in the US:

While Starbucks is today an uncontested leader in mobile, we will continue to innovate and lead around all things mobile in order to attract additional users of our app and provide an enhance and simplified experience for our customers. Innovations that will drive traffic and incrementality and create further attachment and customer engagement.

Overall, Starbucks continues to benefit from what Schultz defines as:

the cultural shift in time allocation, away from retail experiences people have felt forced to undertake and towards retail experiences that people want to enjoy with convenience as the key enabler.

Starbucks is uniquely well positioned to benefit from this convergence as the destination experience. Visiting Starbucks has always been an elective choice, a place people choose to freak with and as a result the place that is vastly less dependent on intercepting retail traffic for sales growth.

My take

Digital tipping? This is something as a Brit I’m going to need to get my head around!

But’s it’s clear that Starbucks canny investment in digital and mobile tech ahead of the curve positions the firm nicely for the new wave of interest in mobile commerce that’s been kick-started by Apple.

It really is difficult to find fault with the coffee giant’s digital foresight, a lesson to so many others.

Their Pumpkin Spice Latte on the other hand…