Why I spent over $500 on Starbucks this summer

As I sat down to add how much I spent this quarter, I was shocked at my second highest recurring expense. Starbuck Coffee☕ I have tried most of the drinks on the menu.

I plan on discussing how Starbucks uses it’s CRM, digital, loyalty, experiential marketing, and rewards strategy to drive revenue, retain customers, and decrease marketing spend.

Starbucks Mobile App

The Starbucks app has got to be one of the most refined and easy to use mobile apps, it’s faster than the McDonalds, Tim Hortons, and Bubble Tea apps on my phone. The “Starbucks experience” is the exact same on the app and in-store (not annoying). From a user experience standpoint, the app lets you do exactly what you want it to do, find the closest store, select your drink, pay for your order.

The entire process takes about 1 minute if you know what you are getting.

This next feature that makes the app remarkably seamless is the payment, Apple Pay, saved Credit Cards, Gift Cards – a quick face ID scan and you have loaded up your card for the week. Their authentication takes seconds if you load up right before you buy. This got me thinking how many people load their Starbucks cards for long periods of times – essentially “lending” money to Starbucks for days/weeks at a time.

The Starbucks 10-k filling painted a good picture. They hold $1.27 B in these cards with about $140M of that will never be redeemed. This means Starbucks makes about 10% if pure profit just by storing customer dollars. (I know this is essentially borrowing at a negative interest rate from customers) Brilliant

Starbucks Reward Card Stored Value

Starbucks CRM Strategy, Loyalty and Rewards Program

The other part of the Starbucks app that drives increased app usage and in return spend is their loyalty programs.  (The word loyalty was mentioned 17 times in their annual report) So unlike the Tim Hortons privacy scandal, Starbucks has stayed out of the limelight for their data practices. Starbucks gives a free drink on your birthday (their most expensive drink is about 7 dollars) that piece of information is worth that much to them. Using age, they possibly leverage product usage (what types of drinks are popular with certain age groups), marketing efficiency by targeting the right products to the right age cohorts.

The small details on the app like, “Good Morning, Taha” are touches that show the app experience is personalized, a small strategy to make customers feel more comfortable using the app.   

Starbucks has customized offers, my sister and I have had separate offers show up, different drink recommendations – which could possibly be based on previous behaviour. But the key component is the “Stars” – every loyalty combo is basically a way for customers to spend more to gain rewards – the age-old CRM strategy still works. I bought a combo 8 times this summer thanks to this strategy.

Their “Stars” rewards keeps you engaged with two key points.

  1. Point Tracking and redeeming. This is the first screen you see when you open the Starbucks app and it gives you the “dream” what you’ll get.
  2. The checkout stage gives you a dollar equivalence for your points. i.e 2 Stars/1 Dollar. Making a user think they are “saving” or “earning” by spending.

It’s happy hour! The iconic Thursday 2-7PM offers BOGO’s and 50% off. This was one of the best ways to get the Store busy during low times and get more users on the app. The happy hours are not always marketed in-store or on marketing channels. You need to have the app to know what the week’s happy hour offer is.  

Starbucks has also perfected their email marketing strategy; I get personalized offers that I miss on my phone on days that I don’t open the app right to my email. It’s not annoying since their emails are not daily, rather well-timed and not too often. That seamless cross channel experience stays the same.

Starbucks Experiential Marketing Genius

I have an alert set up for the day that starbucksforlife.com goes on sale so I can pick it up off GoDaddy Auctions.  The Starbucks experience has always stayed consistent, I love their slogan. “That first sip feeling” because it’s true. With the global pandemic and decreased time in stores, Starbucks pivoted to a digital experience, gamifying the rewards program.

Every year, Starbucks has a summer game that they give out some cool rewards, the first entry to the game each day is free but you can get more than one entry by purchasing. The one part of the game that was not unique was the concepts taken from the gambling industry. The games resembled those that you’d see in a casino, drop the ball, pull the lever… it works. The reason that millions go back to casinos each year is proof that instant gratification works.

Starbucks has perfected its programs to a point where they keep growing in terms of revenue, numbers of stores, brand awareness – essentially achieving the Brand Halo Effect. BUT they have reduced advertising spend. About an 8% decrease in advertising, their revenue grew by 8% too! From $24.7 B to $26.4B

From their annual report:

We expense most advertising costs as they are incurred, except for certain production costs that are expensed the first time the advertising takes place. Advertising expenses totaled $245.7 million, $260.3 million, and $282.6 million in fiscal 2019, 2018, and 2017, respectively.

Last Thoughts.

This is Why I spent $500 on Starbucks this summer, their marketing, loyalty program and app experience is second to none. They have achieved “delight” the customer.  I have two books from Howard Schultz on my reading list (From the ground up and Onwards: How Starbucks Fought for Its Life Without Losing Its Soul). I always admired his leadership and the effects that strong leadership has on a company’s performance (they grew from $4 per share in 2008 to over $54 when he retired as CEO in 2017).

“We built the Starbucks brand first with our people, not with consumers. Because we believed the best way to meet and exceed the expectations of our customers was to hire and train great people, we invested in employees.”

Howard Schultz