Starbucks hits $1B in mobile payment revenues in 2013, analysis says

Customer loyalty to Starbucks brand is behind mobile payment app's success

According to a recent estimate, Starbucks was able to generate a staggering $1 billion in revenue from smartphone transactions used at sales terminals in its stores in 2013 largely due to the fanatical loyalty of its customers.

Starbucks won't comment on the $1 billion figure that was recently reported by Business Insider, based on a BI Intelligence estimate. The estimate was derived using Starbucks' admission that its mobile payment and loyalty app program is used by 10 million customers with an average of 5 million weekly transactions at U.S. stores as well as past mobile revenue numbers Starbucks had given BI Intelligence.

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As for the overall $1 billion in mobile revenues, Starbucks remains mum. "We don't have that information and don't report those figures," said Starbucks spokeswoman Maggie Jantzen in a telephone interview. However, she conceded that Starbucks is pleased by how well its mobile payment system has worked.

Customers can pay for drinks and snacks with their smartphones loaded with a Starbucks card app. The app uses fairly old technology -- a barcode scanned at the point-of-sale register is used to read the stored dollar value on a user's virtual card to deduct the cost of a purchase.

A robust loyalty program behind the app makes offers to customers that include free drinks on a customer's birthday.

"In general, we're really encouraged that customers have embraced [the program]... and are keeping track of loyalty points," Jantzen said. "We very much value our customers and their loyalty."

Starbucks for years has tracked alternative payment technologies to barcode scanning, such as near field communications on smartphones, but the coffee seller decided to go with what was available and proven when it launched mobile payments in early 2011.

The concept still works. "We're always looking at new technologies or opportunities but don't have any details," Jantzen said.

Sheryl Kingstone, a Yankee Group analyst, called the Starbucks mobile payment program a "wake up call for companies still dabbling and piloting programs" in a recent blog.

While not discounting the barcode scanner as part of Starbucks' mobile payment success, Kingstone said Starbucks has been successful because it "looked beyond the transaction to understand the customer experience."

What has worked at Starbucks is a "combination of users' shifting to mobile, instead of pulling out cash or a card, along with loyalty programs that change user behavior," Kingstone said via email.

The core benefit of a mobile payment system like Starbucks is in "transforming the point of sale into a point of engagement," Kingstone wrote in a recent report. Successful vendors use mobile payments as a component of a "broader, dynamic interaction" with the customer.

It is hard to guess what portion of the estimated $1 billion in mobile payments might have been lost to Starbucks if it did not have the loyalty program tied to a smartphone app that can be read by a barcode scanner, analysts said. Starbucks' success is not primarily because of their mobile transactions as much as its customers' loyalty to the product and brand that was improved by the use of mobile payments.

"What's most important to the Starbucks success is the loyalty and rewards for customer retention and their incremental spending," Kingstone said. "It's irrelevant whether its NFC-based, QR-code based or Beacon based. It's about providing value across the customer journey. The future is all about driving down the customer friction from ordering to paying and rewarding for frequent purchases."

Jordan McKee, also an analyst at Yankee Group, said Starbucks was smart to use available technology with barcode scanning to lure customers into a loyalty program as soon as possible.

"Much of Starbucks success is a testament to their brand, but they were able to pull people into this mobile payment system quickly," he said. "It's not necessarily about the barcode scanning, but the app they built that ties in loyalty and offers, which absolutely pulled more people in. The people who tend to use it are already loyal."

McKee said that if and when Starbucks upgrades its barcode scanning capability, it might be to use Bluetooth Smart (previously called Bluetooth 4.0) technology, where smartphones communicate wirelessly with payment terminals. NFC is considered more secure because it is a near-touch technology, but Bluetooth Smart is not only secure, it has added benefits beyond the payment terminal. Those benefits include sending pop-up notices to a customer's smartphone or tablet when the customer passes an area in a store with a Bluetooth transmitter.

"Bluetooth is ubiquitous, more so than NFC, and that's all that anybody in retail seems to be talking about these days for mobile transactions or marketing in stores," McKee said. "There are so many use cases and that's what makes it attractive."

This article, Starbucks hits $1B in mobile payment revenues in 2013, analysis says , was originally published at Computerworld.com.

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His email address is mhamblen@computerworld.com.

See more by Matt Hamblen on Computerworld.com.

Read more about Mobile Payments in Computerworld's Mobile Payments Topic Center.

This story, "Starbucks hits $1B in mobile payment revenues in 2013, analysis says" was originally published by Computerworld.

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