Starbucks' digital loyalty strategy cares much less about how customers pay

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Much of the shift towards digital shopping and payments is likely to outlast the coronavirus pandemic, giving Starbucks an extra reason to open its incentive marketing to broader payment methods.

The coffee chain will allow consumers to use more payment options without having to preload a gift card card to pay for its Starbucks Reward program, which is linked to its mobile payment app. This fall it plans to add PayPal, credit, debit cards for in-app payments, or mobile wallets to pay in person. Cash is also an option, though Starbucks has mostly focused on expanding mobile and other digital payment options in the recent past.

There’s still extra incentive to use the preloaded Starbucks Card. The “points,” or Stars, accumulate at twice the rate for Starbucks cards. Starbucks’ language also suggests not all of the major wallets will be available — or that their participation has not yet been secured. Starbucks did not make an executive available for comment.

Starbucks has taken a hit during the pandemic, reporting declines that began in China early in 2020 and continued through the most recent quarter. Starbucks reported same-store sales fell 10%, and warned of further losses for the quarter ending in June.

Its loyalty program has been a bright spot, with nearly half of Starbucks' sales by the end of May coming from Rewards members, up from 44% at the end of March. Starbucks' reward program has about 19 million members. Starbucks did not link the expansion of its loyalty program to the pandemic, but there is a potential benefit of adding more contactless and digital options given the broad and rapid trend toward digital payments across retail.

The coronavirus-driven store closures and fear of contagion have accelerated the trend toward digital commerce, but consumers and retailers were already moving in that direction. Writing for PaymentsSource, Daniel Kornitzer, chief business development officer at Paysafe, said 5G mobile data networks will add more use cases for mobile wallets while reducing connection issues and errors.

The card brands have increased limits for contactless transactions, creating adisadvantage for companies that do not embrace contactless cards and mobile wallets as mainstream options.

“Intuitively it makes a lot of sense. Even as the lockdowns are lifted, with so many people working from home or losing their jobs altogether, many retailers are experiencing lower footfall, and even Starbucks is not immune to that,” said Zil Bareisis, a senior analyst at Celent.

Starbucks in 2019 entered a deal with Brightloom, one of Starbucks’ equity investment partners, in which Brightloom would license Starbucks’ mobile and incentive marketing technology to develop cloud-delivered products for Starbucks. Around the same time, Starbucks removed two of the tiers in its points-based redemption system in an effort to bring more members into the program. That’s helped Starbucks add about 3 million members over the past year to its Rewards program, and it’s also contributed to the chain’s overall technology development.

Starbucks was a pioneer of mobile payments technology, which was a good fit for the demographics of its customer base, which include office workers stopping in for their daily coffee fix. As other quick serve chains, such as McDonalds and Dunkin Donuts, added similar technology, Starbucks focused on improving its mobile ordering options, adding Uber as a delivery partner and testing new store concepts in China.

The pandemic, which has hit the economy and drawn a large part of Starbucks' patrons away as they work-from-home, caused the coffee chain to close about 400 traditional stores, redesign others and place more emphasis on pickup.

That also makes it more important for Starbucks to change its incentive marketing to rely less on in-store visits and its own branded plastic card.

“In these difficult times, you want to expand your loyal customer base, and the last thing you’d want to do is limit payment options to those that still come through the door,” Bareisis said.

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Loyalty and rewards Digital payments Mobile payments Starbucks Retailers Coronavirus