Private-label gift card programs can end up being a lot bigger business than you'd expect.
At least that is the impression one might get from the Starbucks Corp. gift card program.
Since its introduction in November 2001, the card has become more than just a gift for coffee lovers ("Stored-Value Cards on Caffeine," August, 2002). It has become a new business line for Starbucks, which is selling the cards as a budgeting tool for regular customers and is opening up a new business-to-business card operation. Additionally, the coffee chain is working on partnerships with other retailers to sell its card after having completed a deal with Safeway Inc. supermarkets.
In the first 10 months of the offering, the chain sold 6.3 million cards nationally, with an average load value of $12. "That was about double to triple of what we expected," says Anne Saunders, vice president of Starbucks Interactive. That would indicate that the firm's card business was worth nearly $90 million during the first year.
Additionally, Saunders says Starbucks has found that about one-third of the cards sold are being kept by the purchaser rather than given as gifts. These consumers typically reload the card with value when it is near depletion. Some customers even have tied the card to their credit card account so that when the balance hits a certain amount, the gift card is automatically reloaded with additional value and charged to the credit card.
"A lot of customers like to use this to budget their coffee purchases," Saunders says.
Another reason that consumers feel comfortable with using the gift card for this purpose is that Starbucks will replace the balance if a card is lost or stolen.
Starbucks cards are sold in increments between $5 and $500. The cards sold at Safeway are sold in $10, $25 and $50 amounts. To increase the attractiveness of its card, Starbucks offers 10 different designs, including ones for the major holidays.
The coffee chain has promoted the card through national newspaper advertisements as well as passed out samples at rock concerts, sporting events and other attractions. While most sample cards had a value of $1, a few were worth $500. Cardholders had to go to the store or call an 800-number to find out the value of their card.
What's the next venture for Starbucks with its cards? The B2B market. Already, the firm estimates about 10% to 15% of its sales are to businesses that use the cards as employee rewards or business gifts. "We had one law firm, for example, that sent out 1,700 cards as a thank you to its clients," Saunders says.
Because Starbucks' expertise has been in consumer marketing, the firm has had to hire some sales representatives who know how to approach the corporate market. As a result of this more aggressive sales effort, the firm expects the B2B market to grow rapidly.
A development that the firm is not talking much about is tying the card to a new loyalty program. Saunders will only say that such a test is underway, but would not reveal any details.
Authoritative analysis and perspective for every segment of the payments industry
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