By Aaron Mercurio and John Grund
Editor's Note: This article was first published in the May 2016 issue of First Annapolis Consulting's Navigator. Copyright © First Annapolis Consulting. Reprinted with permission. Starbucks recently made changes to its highly popular loyalty program, now branded Starbucks Rewards. The primary change centered on converting the Star accrual system (a star is the Starbucks version of reward 'points') from a per-visit model to a per-dollar spend model. Starbucks also announced it would be expanding the reach of the Starbucks Rewards program.
Weeks later, the company announced it would launch a prepaid Visa card in partnership with Chase, targeting a late 2016 launch. While many details of the Starbucks Rewards prepaid card have not been disclosed, we expect it to be a building block of the expanded loyalty program – creating opportunities for Starbucks to manage star-earning transactions outside of Starbucks channels (but with redemption only at Starbucks). Kevin Johnson, COO of Starbucks, commented "this new model is just the beginning of Starbucks opening up its digital ecosystem as well as extending its payment platform."
Sources: Starbucks public releases, earnings calls, and First Annapolis Consulting analysis.
Starbucks is one of the most progressive retailers in the world when it comes to payment innovation. Clearly, its focus is on building customer loyalty and expanding the reach of the Starbucks franchise – new channels, partnerships, experiences, etc. However, payments have played a meaningful role in the journey, including a fair amount of experimentation.
Starbucks had a legacy co-brand credit card, DUETTO, launched in 2003 with Chase and suspended in 2010. It had dual mag-stripe technology to enable credit card transactions outside of Starbucks and stored value transactions at Starbucks; creatively, the credit card transactions earned rewards which were then converted to the stored-value account.
The DUETTO product was complex at the time as it was pre-mobile and the program did not leverage the store channel for real-time account acquisition which remains the hallmark of most retail card programs. In another move, as Starbucks plotted its digital future, the company invested $25 million in Square in 2012, but the parties subsequently ended their brief payments relationship.
Today, the stored value card that powers Starbucks Rewards and its mobile payment features is a huge success with 20 percent of company transactions on the card driving an estimated 30+ percent of total spend at stores. Recently, Starbucks announced its decision to accept Apple Pay and will also participate in Chase Pay. Apple Pay, Chase Pay, PayPal, and Visa Checkout are all reload options for the Starbucks app as well.
During JP Morgan Chase's most recent quarterly earnings call, the company noted its broad partnership with Starbucks and touted the recent expansion in scope. Chase will be the merchant processor for all Starbucks non-mobile transactions in stores. In addition, the Chase Pay partnership will include both the Starbucks card reload in the Starbucks app as well as Chase Pay acceptance at the Starbucks POS. The Chase-issued Starbucks Rewards Prepaid Card is further evidence of the deep relationship between Chase and Starbucks. The prepaid card could be the first step in the next phase of the journey and open up broader possibilities considering where Starbucks would like to take Starbucks Rewards.
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