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Starbucks – Mobile Marketing Monster

Starbucks is clearly leading all other brands when it comes to mobile commerce. They are driving massive amounts of revenue and brand loyalty through their mobile channel. How are they doing it? And why are they succeeding so much more than other brick and mortar stores?

Mobile is not a siloed channel for Starbucks

The core of their mobile strategy is that it is not their mobile strategy. It is a customer engagement strategy. What I mean by this is that they coordinate all of the various communication channels holistically. Mobile is just one facet. You will notice a drive to various promotions via physical signage, emails, TV, radio and digital ads. However, the key here is that all of the ads are coordinated and consistent.  They are hitting each user multiple times with a similar message, enhancing share of mind and actual conversion metrics.

Auto-reload / stored value 

Starbucks is great at making it way too easy to reload your mobile payment system. A user can have the system automatically reload or top up the card when you hit a certain balance like $10. The minimum recharge amount is $15. A $15 balance equals at least three of those fancy espresso based drinks or for most people 3 additional visits. This is an amazingly simple way of keeping people coming back to use value they have already paid for. However, I think most frequent coffee drinkers under a certain income threshold use this feature to budget their spending per month. This becomes the equivalent of a  monthly recurring cell phone bill for many households.

Gamification

The most significant differntiator between Starbucks’s loyalty program and other retailers is the gamification element. There are multiple status levels, shortcuts to earn stars, and most importantly the goals are attainable quickly. What this equates to is that people realize the benefits of the loyalty program quickly. The app and website consistently reminds you of where you stand in terms of stars. If you compare this loyalty program to Panera Bread, Panera comes up short big time. The threshold to get benefits is way too high and when you do get a benefit, it doesn’t seem to line up with the time or money spent. Panera also does not push shortcuts or seasonal promotions via email even though their bakery items change quite often.

Geo-Fencing

Many folks with iOS devices benefit from the geo-fencing notifications a person gets when they walk or drive by a Starbucks. This is the equivalent of a impulse aisle constantly following you. It is a great digital offensive that puts local coffee shops in a bind. People are constantly being reminded of the Starbucks but rarely see the local coffee shops ads or promos. This helps keep the Starbucks brand name top of mind when you think of coffee or a place to meet up. These geo fence notifications along with an excellent retail real estate strategy make it easy to make a quick diversion and earn more points at a Starbucks.

Universal Currency

To enhance the loyalty program, Starbucks allocates stars for your in home coffee purchases too. This way more budget conscious coffee drinkers are still driven to the store every once in a while to enjoy a freshly made drink.  The stars earned for a physical purchase are the same currency that is earned for purchase in a Starbucks. The unified system keeps it simple for any consumer and encourages brand interaction at any budget level.

Starbucks is clearly doing a great job in mobile and showcasing that mobile is not a beast unto itself. It is a channel that needs to work well with other marketing efforts. Simplicity and making everyone feel like a winner is something the other brick and mortar retailers should take notice of.

Starbucks is currently leading because they have executed a few things very well. However, I would argue that the consumers are going to demand more very soon.

How Starbucks could take their app to a whole new level

Offers in App and Enhanced Push Notifications

Right now, discount offers primarily come through email and ask users to show the cashier a picture or print out. This is time consuming and not that elegant. The offers should really be in the app and have a coordinating push notification to alert the user of the promo of the day or for that specific time window. This can also be enabled by a passbook integration for iOS users.

The other enhancement I would suggest here is that Starbucks starts to use more enhanced push notifications with sounds and more time based push notifications. This combined with the geo-location push could prove to have massive returns.

Personalization 

Right now, the concept of a gold card or black card is largely lost because the pride in presenting a shiny object is taken away when you simply put your phone in front of the scanner. Enabling a custom icon, app skin, check out sound or other minor touches to the UI of the app could help distinguish ultra-loyal customers.  Staff should also be trained to thank these users in a different way to make them feel special. Allowing Gold status or higher members to share the love with friends is also a way of enhancing the pride aspect. EG – “You and a 2 friends get a free drink today since you are a loyal gold member!”

Order from your phone

The line at Starbucks is probably the most archaic thing about the franchise. Frequent visitors know what they want and need a fast lane of sorts. Being able to submit your order from your phone so the drink is ready when you walk in is going to be a consumer need very shortly. It presents a host of logistical issues but people will pay more for the express lane.

Integrate with health trackers

Since Starbucks represents a fairly affluent demographic, it is likely that a good portion of their customers already use health trackers. When you are serving drinks that frequently exceed 500 calories, it makes sense to have the Starbucks app “talk” to your fitbit, Jawbone Up or Nike. Also knowing when a person has exceeded their exercise goal is a good opportunity to present them with a treat or reward.

NFC / iBeacon / Bluetooth LE

Opening an app and showing a digital card is becoming a bit of a hassle especially if a person is on the phone while in line. Being able to tap your phone or receive special promos by being near the merchandise is where this app needs to go. It is faster, and payment tapping will get a major boost from the major credit card companies in 2014.

As CES 2014 kicks off, the retail sector should take notice not of the new gadgets but the willingness of the consumers to try them. How do you make a great app even better? Test new features aggressively constantly.

 

Passbook in the next 12 months

Apple is a media machine. They not only get great coverage for the release of their new devices, they get coverage for their software and their failures (Apple Maps).

A good portion of the media said they were unimpressed with the iPhone 5 update, partially due to the massive number of leaks prior to the launch and the relatively small changes made to the device.

In my opinion I think the customers and the analysts are missing the true value of the iOS6 update. Two features can help Apple get a foot hold in the social space as well as the mobile advertising space.

Facebook has no idea what just hit them – Photostreams

Shared Photostreams are a direct attack on Facebook and Instagram, two of the largest photo sharing platforms. Apple tried to create a social network based on music with Ping but the reality is that photos, not music are a major driver of social based traffic. These photostreams have the power to link friends directly, and ultimately decrease the need to share photos on Facebook. These streams are not only helpful for friend to friend interaction, I think that Apple will release an Enterprise level version of streams soon. Think about Gucci or Ferrari sharing a stream of photos with you from a recent event. When this happens, major brands will have a major incentive to duplicate their efforts on Facebook fan/brand pages.

Given the fact that Apple controls the physical device, this poses a major threat to Facebook’s mobile growth, especially within first world countries. I think the uptake in developing nations will take much longer due to device penetration.

PassBook was also part of the iOS6 release and a handful of major brands have already thrown their support behind it. If you haven’t had a chance to play with it, it is a virtual wallet or keychain that helps you store your membership cards, coupons, and tickets.

The major differences between your current plastic membership cards and paper tickets is how the app interacts with the phone itself. Passbook allows updates to be pushed to the coupons, tickets or membership cards. It also allows the device to push a promotion to you if you are within a certain location.

For example, if you are at an airport gate, and you have your ticket in Passbook, it will automatically tell you if the flight departure is delayed or if the gate is changed.

Another example is that if you walk in to Target and they have a special promotion on dog biscuits, they will push you a coupon that is only valid that day. By the way, Target’s system is pretty advanced and already has some data on who is in your family and what you regularly purchase.

One other major feature with Passbook is that you don’t need to have a branded app to get a passbook coupon. You can receive Passbook coupons via SMS, Email or via a download link at the moment.

What are the implications of Passbook on Mobile Marketing?

1) Passbook coupons are essentially new ad units. Two companies – WooBox and Socialize have already launched capabilities to send out Passbook coupons via SMS. Socialize is more of a shell coupon in some ways. It allows the coupon to be replaced daily by a central ad server.

I could see these new “ad units” being used for app distribution. There might even be a scenario where you are at Best Buy and Amazon pushes you a coupon to increase the “showrooming” effect. Dangerous stuff.

2) Passbook is a training vehicle for the mobile wallet. People are eager to get rid of all of those plastic key fobs and just dump the data into one digital place. This starts training users on having their phone ready to go when they are checking out. This is going to set up the NFC mindset in the coming 12-18 months. If Apple does not include NFC in iPhone6, there may be a contract dispute holding things up.

3) Passbook in some ways could be Groupon’s savior. However, if Groupon continues down the route of just pushing random deals to your device, it gives the user incentive to delete Groupon all together. Groupon essentially has to get smarter about how they distribute coupons/deals given the new capabilities of Passbook.

4) Passbook can be a post shopping cart experience. For instance you buy a plane ticket to Miami. Once you arrive in Miami, Passbook may suggest a better car rental deal, a place for dinner, and spa. This is essentially very similar to the deals you see upon checkout of Expedia or Orbitz. They are upsells but often times they are generic and too far in advance. This gives the airline or travel site the ability another chance at an upsell which is more timely or potentially even impulsive.

5) Passbook will get smarter, a lot smarter. Given the amount of data it may collect, and the fact that Facebook has some OS level integration, it might be able to suggest places around you with incentives. For instance, your Facebook profile knows you like Bobby Flay from the Food network, and you are in NYC near his restaurant. It could potentially recommend going to his steak house and offer you a free desert.  Passbook may also integrate social features – eg – I redeemed a coupon and shared it with my friends. This can be facilitated by the Twitter or Facebook integration.

6) Passbook brings relevancy back to QR codes. For the past few years QR codes have struggled in America to gain popularity since you usually needed an external app to read the code or people just didn’t understand what they are. Passbook will make QR codes a standard and help bring the concept to the masses.

7) Retailers may see compressed margins due to the increase usage of coupons. In the past major brands put out coupons for two reasons, one for branding the other to increase sales. They always assumed that only a small portion of the coupons would actually be redeemed. If people are always armed with a coupon, retailers may need to adjust their margin forecasts.

8) Passbook starts to push coupons and membership cards into the male market. Traditionally coupons have always been redeemed at a higher rate by women. This app is genderless and will start to allow men to have their info without having to carry around bulky cards or coupons.  This change in demographic could inherently change what types of coupons we see and will necessitate advertising agencies to re-assess persona profiles.

9) Passbook’s secret weapon is its ability to push notifications to your locked screen. This allows people to know what the deal is without even opening an app. This instant push information is incredibly powerful for influencing purchasing decisions. Think of it like the specials board at a restaurant.

10) In the developer documentation for Passbook they have reserved a template for “Generic.” This wildcard placement will be the hot bed of innovation and/or scammers.

11) Apple has issued design “guidelines” around how your passbook should look. This limitation is good in some ways but I think advertisers may need to learn how to boil marketing messages down significantly.

12) Since Passbook is also time aware, this may allow certain retailers to offer various promotions throughout the day. This will ultimately lead to a much heavier workload for small businesses but hopefully it will also result in more business throughout the day. For instance, Burger King offers free super sizing on Saturdays from 2 to 4 pm. As soon as it turns 2 pm and you are near a Burger King, Passbook may push a notification to you.

13) Passbook takes a lot of fluffy social metrics like engagement and amplification and adds a layer of performance to them. REDEMPTION or in other words REVENUE. Brands looking to see real returns on mobile marketing initiatives are going to love Passbook. It will finally give them more concrete data on how their marketing incentives are working. It may also give them insight into location specific improvements, persona validation etc.

Where does Passbook fall short?

I think Passbook has a long way to go. First, it really needs to integrate with a payments service or a major bank to set up the mobile payments part of the strategy. Without that integration, it may end up being a novelty app.

Passbook is an Apple product. If this were available on Android, I would certainly use it. This isolation may make certain large brands hesitant to integrate with it since it only touches a portion of their customers.

The major issue that I see is that Passbook is not a simple experience. The Target App is integrated with Passbook but it is relatively hard to find, and requires a SMS authentication procedure. If Apple can make the integration process easier, adoption and usage rates could skyrocket. Right now, the process of adding a card or coupon to your Passbook is too convoluted. If you are wondering how to get the Target app into Passbook follow these directions.

Passbook is not supported in the iPad at the moment. I see tons of people traveling with their iPad and I know I would be likely to put my plane ticket on there. If the iPad mini comes out, there is a reason to open up Passbook to other devices in the Apple portfolio.

Right now Passbook uses a stacked tab layout. It seems reasonable for 5-10 passbook items but once people start getting the hang of it and the brands realize the power, I could see people having too many options. This may require a UI redesign or create the need for folders or a search function. At the end of the day, I am sure Apple will find a way around the UI issues but I could see it getting messy fast.

The last major issue I can see is that this app will create too many expectations from consumers and force everyone in to the Bed Bath and Beyond model of offering 20% off all the time. American consumers are highly price sensitive and once they get in the rhythm of getting a good deal, it starts to eat into brand loyalty. This was evidenced by Groupon and its impact on small businesses. Many small businesses never saw any repeat customers from their initial offering partially because there was a competing deal going on the next week.

Overall, Apple has the ability to really revolutionize mobile commerce with this app. It may also unlock a whole new mobile advertising model which will trump the standard banner model.

I highly encourage all the analysts to read more on the Passbook app, it will be the new iTunes for Apple.

Here is a list of current apps that support Passbook:

http://appshopper.com/search/?cat=&platform=ios&device=all&sort=update&dir=desc&search=passbook&whatsnew=1