Starbucks: The Secrets of Success with M-payments
Why is the coffee giant seemingly the only one to get mobile payments right? Susan Kuchinskas examines why so many customers use the Starbucks app to get their caffeine fix, and what other companies may divine from the coffee company’s success.
Are you tired of having Starbucks held up as the pinnacle of app and m-payment success? Or just jealous? There's no doubt the old-school purveyor of coffee is a mobile juggernaut.
"No company has gotten mass use in the same way. Starbucks is definitely an outlier," says Yoram Wurmser, retail analyst at eMarketer.
In its most recent earnings report covering its Q4 and the entire 2015, global store traffic was up 4 percent -- leading to an 8 percent increase in sales. In its quarterly report, the caffeine king said that Mobile Order & Pay accounted for 10 percent of transactions at its busiest stores, helping drive that total sales growth.
On September 22, 2015, Starbucks Mobile Order & Pay expanded to U.S. company-operated stores nationwide. More than 6 million transactions a month go through the service. The company’s service currently processes over 6 million transactions each month and the coffee giant has begun an international rollout.
It's important to remember that Starbucks' mobile app debuted in the early days of mobile mania, back in 2009. That first, simple app did just two things: It tracked purchases for the My Starbucks Rewards loyalty program, and it enabled coffee junkies to pay with their phones. In fact, the loyalty program was tied to mobile payment.
Thus began the canny process of training customers to use the app. But that's not the only success factor at play here.
Now that the app has been around for close to seven years, it has added a full menu of features: You can find nearby stores and then navigate to them via a maps application. You can download receipts and add tips. You can check your balance and reload your card. And, with the rollout of Mobile Order & Pay, you can use the app to order at the store of your choice and have your order waiting when you arrive. You can download free music. And you can track and use your loyalty points.
Starbucks didn’t initially load up its app with all these features. Back in 2009, that might have seemed overwhelming to less sophisticated users. It may have also resulted in a clunky, non-functional app.
"They took an iterative approach to their app and the loyalty program," Wurmser says. "People were already used to having their app and having it connected to the loyalty program. By the time they introduced the payment part, it was a natural extension of using the app at checkout. Then, as people used it, they honed it and – and it got better and better."
Almost unique case
Starbucks may be almost uniquely suited to surmount that usage problem faced by so many app developers. According to Google, one in four installed apps is never used.
Here's what else the coffee purveyor has going for it:
Ubiquity: How many other retailers have so many locations? That old saw about seeing the next Starbucks from inside of one is true in many cities, but the company has long gained global footholds--from Brunei to Monaco, Vietnam to Colombia, many people are never far away from one of Starbucks' 23,043 stores. For comparison, of the top 150 global retailers per the National Retail Foundation, in 2015, Walmart had 11,453 stores globally; Carrefour had 12,296; and Costco had 698.
Consistency and constraint: Many people visit a Starbucks every single day; it's part of their daily routine, notes Seth Lippincott, a research analyst at Nucleus Research. He adds that most people order the same thing day after day, reducing the brainpower it takes to use the app.
Low risk: Buying a coffee and a croissant is a way to get used to making mobile payments without a perception of risk, Wurmser says. "The trust factor is built up by the amount of people using it once or twice a day for small amounts."
Payment versatility: Starbucks lets you have m-payments your way; it continues to add new payment partners to the roster of ApplePay, Visa Checkout, PayPal and credit cards. It recently said it will incorporate Chase Pay.
There may be another, more profound success factor: The principal of reward first identified by Ivan Pavlov.
Yes, there still is the loyalty program where you can get free drinks and food. But think about it: Every time you use Starbucks Mobile Order & Pay you get an instant, Pavlovian reward in the form of sugar, fat and caffeine.
"That's called reinforcement, when something you do is met with a reward," says Jason Hreha, an applied psychologist and founder of Dopamine, a behavioral science consultancy that helps businesses build more compelling and engaging products. "The most basic thing going on is, you use this app and two minutes later, you're drinking this delicious thing. So there is an association created in the mind," he says.
Starbucks mobile payments also may take advantage of three other psychological phenomena, according to Hreha. The first is loss aversion: You've charged your card with money, so you feel compelled to use it. "You don't want the money to go to waste."
The second phenomenon is reframing the purchase. Even though you've transferred money to your Starbucks card, it's rather abstract. Using your phone to pay for your purchase, "It feels free," he says.
Finally, there's the human drive towards achieving status. Cardholders can achieve higher levels by purchasing more. Eventually, they receive a personalized card. Even though we control our level by our spending, it makes us feel cool.
Psychologically speaking, says Hreha, "They've thrown everything at the wall."
Should your company try to be the next Starbucks?
It's worth noting that, while Starbucks did pretty much everything right, a mobile app and mobile payments were the right fit for the business. Not every retailer should worry about rolling out a mobile app, let alone mobile payments, according to eMarketer's Wurmser. If the app doesn't provide a clear enough use case, he says, customers won't download the app – or they may download it and forget about it.
The cost of delivering mobile apps has greatly fallen, Lippincott points out. While Starbucks handled development internally, he says that apps now can be had as an add-on service to the retailer's enterprise platform. He agrees, however, that no app will be successful if it's not useful. "It's unrealistic for most companies to strive for something like Starbucks' app, but is realistic to set up an app that might send customers push notifications." He adds, "The thing advertisers always need to worry about is exhausting the customer. You have to be strategic about it."
Wurmser says, "The average consumer uses five or six apps a day. Unless you can get into a fairly frequent rotation, it doesn't make sense to develop an app that only a few of your customers will download."
The newest generation of retailer apps no longer focuses on m-commerce, providing a mobile catalog, or offering a mobile-friendly version of the website. Instead, he says, successful apps are more focused on enhancing the pre-store or in-store experiences. For example, Wurmser notes, Target's app focuses on providing coupons as people shop.
If you can find that compelling use case, your mobile app might give sales a Starbucks-style jolt--especially if you find a way to sweeten the deal.