Starbucks’ Astonishing $1.171B Cash Gold Mine
It’s well known that the Starbucks’ app is very successful. Even when they made the rewards less valuable by changing them from one star per visit to stars based on how much money you spend, people still adored the app.
It’s even labeled as an “essential” in the app store.
I’m not entirely sure what the criteria is to be labeled an “essential” but Snapchat & Instagram aren’t labeled as one. Starbucks’ main product, coffee i.e. caffeine, is an addictive substance, and they have found a more efficient and valuable way to give their caffeine-addicted customer’s their fix.
Besides people having an incessant craving for their product, what makes the Starbucks’ app the holy grail of branded apps?
If I leave anything out feel free to mention it in the comments.
1. Unique customer insights & data
The raw data and view into who exactly their customers are, what they buy, where they buy it, how much they spend, etc. is beyond valuable to them.
Also, if you enable their location services to find a Starbucks’ they can tell where you are as well. When they aggregate all this data they can profile you (think Criminal Minds profile accuracy — okay, maybe not that well) and they can figure out what to offer you next to get you back into a store.
This is a massive amount of information collected about people and that can be off-putting, but on the other hand, it enables them to give you a unique customer experience tailored to just you. All companies are after this type of data because it can be used in numerous ways to enhance their business.
2. Non-Debit prepaid loyalty cards
Essentially, this just means you load money onto their app to take part in the program. On the surface its straight forward, but underneath, where the gears are in motion, lies some of the genius behind the app. When you prepay, at minimum $25 to participate, you provide huge value to Starbucks.
Your prepayments guarantee that you will return to spend the remainder of your balance or Starbucks’ gets free revenue.
Half of the struggle in the coffee/restaurant industry is getting people consistently back in the door and this app literally guarantees that they will. Furthermore, using the Starbucks’ app increases your spending. When using a prepaid balance on a mobile app “buying coffee does not feel like spending money and if you’re earning rewards too, the mental link between buying and your bank account becomes even more vague.”
They’ve guaranteed that you will come back and that you’ll probably spend more when you do.
3. Cash flow from prepayments
“The company discovered something of a minor gold mine when it began offering its own non-debit prepaid loyalty cards a few years ago. On these transactions, when cards are loaded, the coffee retailer receives funds instantly. It records accruals each month against liabilities for unused card balances, and even gets a small profit boost from the monies left on cards which aren’t redeemed after a reasonable period… That will give Starbucks an ever-larger pile of cash it gets to hold and can use to retire debt or invest.”
Starbucks’ is sitting on a massive pile of cash because of this app.
$1.1712 billion to be more exact, as per their FY2016 10-K. These prepayments get recorded as store card liability on their balance sheet.
In general terms, they are a deferred revenue, which is a liability until recognized.
Liabilities are located on the right side of the balance sheet and represent “a company’s financial debt or obligations that arise during its business operations.”
However, they get that cash right away to do whatever they want with. We all know in business cash is king, and apparently, Starbucks is the king of cash in their industry.
4. Mobile Payments
Their whole mobile initiative operates on mobile payments. I’m a believer that mobile payments are the future, it’s just taking longer to catch on then people thought. Nonetheless, Starbucks’ is accelerating mobile payment adoption through their app. Tying rewards to their app is key in making it valuable to engage in mobile payments.
Mobile payments are quicker, easier, cheaper and more efficient for Starbucks, thus saving them money. Moreover, if nothing else they save on transaction costs.
5. Brand
The Starbucks’ app has “first page” value to people. What I mean by that is: if you use an app often you’re not going to put it on the third page of your iPhone. The most important apps to you are on the first page, where it’s no more than three clicks or motions away.
In addition, seeing their app logo every time you open your phone (which is a lot) and then when you use it, you are being bombarded by their brand image. It’s 1960’s marketing 101, the more a brand gets in front of you the more likely you are to think of them.
6. Marketing
When you download the Starbucks’ app you give them a direct channel to you via the object that never leaves our side. They can send, to your app’s inbox, any special deals they’ve catered to you, based on collected data, or just anything they want you to see.
That’s a hell of a step up from a bus stop ad.
Starbucks’ released their app in 2011 when there was still a novelty around most apps and built up a mobile base. However, now that novelty has worn off and people are much harsher judges of apps. Coupled with the fact that the real estate on the screens of people’s phones is becoming an increasingly valuable commodity, people will most likely begin to expect even more value from established apps like this one.
A big issue with the Starbucks’ app is within their prepayment-rewards ratio.
When you prepay to a brand you are giving up a choice to spend that money elsewhere, and that is valuable. Furthermore, you are giving Starbucks a small loan that’s generated for them through their daily operations, resulting in a cash pile that rivals Smaug’s in the Lonely Mountain. Combining all the other benefits stated above it seems your return on investment isn’t quite fair and the scale is tilted in their favor.
To put it simply, the rewards you receive aren’t worth the prepayments required to get them.
Content marketing is becoming the number one way for brands to interact with consumers; just ask Gary Vaynerchuck. Look at Snapchat, they allow brands to push so much great content to users and the Starbucks app doesn’t have a native way to do that. Granted they are in completely different spaces with different main functionalities but if Starbucks could push valuable content via their app to its millions of users, it would only enhance their brand and the value of the app.
Additionally, the Starbucks’ app may not be properly aligned with the needs of the younger generations. Gen-Z and especially Millennials have been very specific with what they want out of apps like this. Could the established foundation of the app be enough to make them an exception and result in continued success? Absolutely. But time will tell and we’ll see how well they adapt to the ever-changing landscape.
Brands that want to try to replicate Starbucks’ success should heed what they have done right and what the app lacks.
