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Posted February 22, 2016

starbucks

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There’s a good reason Starbucks’ QR code-based mobile payment solution is considered “today’s runway success story,” according to, among many others, Hospitality Technology in their coverage of Packaged Facts’ report Mobile Payments in the U.S., 5th Edition. The coffee chain has struck gold combining innovative thinking, consumer loyalty, and digital technology into the mobile Starbucks app. You might say it’s just what their customers ordered.

Serving It Up Hot

While their mobile offerings are making headlines today, Starbucks has spent decades developing their programs. They’ve taken a research-heavy approach, funneling their insights directly into their solutions. By getting to know their customers—carefully watching them in their stores, studying their buying patterns and preferences, and understanding what’s driving repeat interactions with the brand—they’re doing a great job of anticipating (and meeting) their needs.

Case in point: the company found that most customers purchased gift cards for themselves—not necessarily for their friends—because they like the convenience of a “loaded” card when visiting the store to enjoy a latte, scone, and the coffee house’s free WiFi. Starbucks rolled this intelligence into the their app’s payment platform, making it easy for customers to reload their account balances with a few easy taps. Then, all they need to do is pull up the Starbucks app on their smart phone and scan a bar code at the register.

The company is constantly experimenting with new ways to create a unique “Starbucks Experience” for consumers. Most recently, Starbucks has been toying with its app’s Mobile Order & Pay capability, which enables customers to complete the entire checkout transaction in-app before setting foot into the store for pick-up. Starbucks’ President and COO Kevin Johnson stated in the company’s 1Q16 earnings call that they’re extending Mobile Order & Pay to include a delivery option for customers.

Unpacking the “Secret Formula” For Success

What does success look like? In the third quarter of 2015, as shown on Statista, Starbucks stores in the U.S. processed more than 9 million mobile app payments per week. Reported in Starbucks’ 1Q16 earnings call:

  • The number of active My Starbucks Reward members in the U.S. increased the to 11.1 million, up 23% over Q1 last year
  • 22% of total U.S. transactions were paid using the mobile apps in December 2015
  • Over 1 million customers in the U.S. used Mobile Order & Pay capability in the month of December and those customers averaged approximately 5 mobile orders in the month
  • The company is processing over 6 million Mobile Order & Pay transactions per month
  • Mobile Order & Pay exceeds 10% of total transactions in many of the busiest stores where morning peak demand is high

There are different ways to answering the question “Why is the Starbucks mobile payments app so successful?” Forbes.com sums it up like this: existing successful loyalty program + existing successful gift card program + simple 2D barcode on consumer device + sophisticated 2D barcode scanner at point-of-sale + perfect cloud merchant integration + simple to use consumer app = the most successful wallet app in the U.S. Let’s take a closer look at what sets the app apart.

  • Strong loyalty/payments proposition. “My Starbucks Rewards” loyalty program is far more than a punch card floating around in peoples’ wallets. It’s digital and incorporated into the mobile app so customers can keep track of rewards, redeem coupons, and see personalized offers. (Read Customer Loyalty Programs Sweeten the Mobile Payment Value Proposition for insights.)
  • Easy-to-use. Importantly, the app itself is simple to use. It’s phone-agnostic and its interface is streamlined and intuitive, incorporating a range of features.
  • Private label. The mobile app is accepted only at the coffee shop, keeping the customer inside the Starbucks experience—and out of third-party payment app. The Starbucks payment card, however, can be accessed through third-party wallets like Apple Pay.

Retailers, take note: as discussed in MobilePaymentsToday.com’s The Starbucks Mobile Model Could Be Difficult for Retailers to Duplicate, it won’t be easy for other merchants to follow suit, as most can’t claim loyal customers who tend to shop there every day—an addictive, caffeinated product notwithstanding. But this won’t stop brands like Target, Walmart, and Kohls, three companies developing mobile wallets with high hopes of achieving Starbucks-level success, from trying.

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Corporate Payments Insights

Corporate Payments Insights