Why Starbucks dominates mobile transactions

coffee grains and coffee measuring cups on wood

Starbucks was one of the first companies to embrace using an app, launching theirs in 2011, three years after the launch of the App Store. Within a year, they had over 26 million mobile payment transactions, proving their early adoption was a worthy investment. Since 2011, Starbucks has continued to invest in their mobile experience, making it the most convenient way to order coffee. They’ve capitalized on their investment, adding features such as Mobile Ordering or Shake to Pay in 2014 and incorporated their rewards program as a significant part of the mobile experience.  

The Starbucks app excels due to its ease of use, the seamless inclusion of its loyalty program, and the flexibility of mobile purchasing. While these areas are the core of their app and their business, they’ve led to Starbucks becoming a powerhouse in transactions, lending to credit to the argument they function similar to a financial institution.

Loyalty program

Without getting into the details of how to get rewards (refer to the Starbucks reward website for such info), they help set up the ecosystem for gamification. Their rewards program motivates customers to gather 125 stars to gain a free drink which equates to about $62.50. Whether you’re participating in opportunities to earn double rewards or not, this indicates a considerable investment into the Starbucks brand.

The rewards program has about 15 million members, which translates to a consistent number of people who buy from them yearly. The program also became a way for Starbucks to stabilize their traffic throughout the day. Most of us have been in a Starbucks during their morning rush and wondered wasn’t there a better way to do this? Well, Starbucks uses double rewards opportunities during their off peak hours to balance out this traffic and get consumers to try menu items. Getting more consumers in throughout the day is better as it stabilizes business against outside factors that impact foot traffic and physically accommodates more people.

Mobile purchasing

Starbucks leads the U.S. with in-store mobile payments as more than 40% of in-store mobile payments (about 22 million people) come from their stores. Not surprising, given they launched this system in 2014, and this is the benefit of being an early adopter. Rewards Members can earn their stars paying within the app at the register or through their pickup orders, and now anyone can checkout on the app.

Looking back, Starbucks started off with reloadable physical gift cards, so making the jump to pioneering the virtual prepaid and reloadable card was the evolution of their business. Furthermore, it capitalized on their bottom line of trying to make their experience more convenient to the consumer. Meanwhile, the flexibility to pick up an order through the app saves the trouble of waiting in line at the register, but depending on the time of day, may still lead to delays at the pick-up counter. Starbucks’ mobile payment and reward program and its incorporation into the app were a huge success, so much so it’s been emulated by companies such as Chick-fil-A, Dunkin Donuts, and Chipotle.

There are all sorts of ways to incentivize customers to use and return to your app, but it starts with notifications which enable you to send out discounts, info on new items or features, and anything else that might entice them. Overall, mobile purchasing is about convenience, giving frequent consumers the fastest way to get their order and collecting information to find the best way to market to customers.

Data collection

What drives the Starbucks machine is their ability to know their customer. With 15 million Rewards Members and the 22 million people who make purchases within their app, they have a large user group to consistently gather information on and product test with. It becomes easy to track purchases via the digital ordering and enable things such as one click ordering, where users can immediately purchase their usual order.  Also, it means they have contact information for all of their mobile ordering consumers, making it easier to market to them and build advertising to target similar demographics of people. The Starbucks customer base isn’t necessarily growing, what they have done is influence their customers to buy more which in turn has lead to them spending more.

Starbucks a financial institution?

The company encourages customers to pre-load their rewards card with money, so even if it isn’t spent immediately, they have technically already been paid. The benefit of already having this money allows them to earn interest on it and makes it more valuable than buying as you need to get your caffeine fix.

Along those same lines, the volume of their transactions accounted for 12% of all U.S. transactions in Q1 for 2018 and  14% of all U.S. transactions in Q3 of 2018. They have already found a value for their stars (remember 2 stars for $1) and offer a credit card. Similarly, they beat out Apple Pay, Google Pay, and Samsung in mobile transactions (same link as earlier) and don’t show any sign of slowing down. Once again, Starbucks is benefitting from their earlier risky bet on mobile technology, which has lead to years of convincing consumers of the safety and reliance of paying with your phone.

Looking ahead

Does this mean they are a financial institution? No, much like the way their competitors in mobile payment aren’t, but the way they have assigned real value to their rewards, gamified that system, and incentivize their customers to join their rewards (akin to a loyalty or preferred customer at a bank) program, the argument is there. Evidently, they still sell coffee, but executive chairman and former CEO, Charles Schultz, has discussed a secure digital currency in reference to future consumer behavior.

What does all this mean for your business?

It’s unlikely you are going to become a leader in mobile payments like Starbucks at this point in the game (that’s the benefit of early adoption). However, the effectiveness of reaching your customer and streamlining your product experience remains the same. What new technology may catapult your business to emerge as a leader?

Unsure on where to start? Drop us a line to schedule a consultation, and we’ll point you in the right direction.

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