Starbucks, Technology and Human Connections

On Data, Personalization and Loyalty

With over 24,000 stores and 75 million customers, Starbucks is the largest coffee chain in the world. Throughout the years, Starbucks managed to distinguish itself from other coffee chains and shops by taste and quality. Nevertheless, as new coffee businesses, both chains (like Dunkin’ Donuts and McCafe) and specialty coffee shops, flourished and started to bite into Starbucks’s market share, maintaining customer loyalty became an important issue. One of the main strategies Starbucks chose in order to deal with this issue was to adopt real life and digital personalization to gain and boost customer loyalty.

Well then – how can a global coffee giant like Starbucks achieve personalization?

Starbucks’s emphasis on personalization is nothing new: From the beginning, there was the name on the cup. The power of using a person’s name in sales is a well-known secret. Writing the name on the cup (instead of using the order number, like most chains do) allows multiple uses of the customer’s name both written and spoken.

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The process also allows the barista to make a stronger connection with customers by learning regular customers’ names and greeting them by name when they enter the store. But while this name using tactic is perfect for your local Starbucks store, how can you bring personalization to a larger or even global scale? That is where digital technology starts to play an important role.

Personalizing through technology

Over the last decade, instead of putting its entire budget on advertising, Starbucks had invested heavily in digital technology. As mentioned on the December 2016 Biennial Investor Day, Starbuck finds a growth opportunity in digital engines:  Its vision is to deliver technology that would enhance the human connection. 

In April 2016, Starbucks launched its new Rewards program. The new program rewards the most loyal customers by basing rewards on how much they spend rather than on the number of their visits. One very innovative trait of the program is that it rewards customers on Starbucks products (like packaged coffee) purchased both in store, and outside of Starbucks stores.

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Starbucks enables customers to redeem rewards within the ordering process (the use of stars for various perks – including Uber/ Lyft rides and Spotify downloads – is a story of its own). This compelling program helped Starbucks gain many new reward program members: Between Q1, 2013 and Q4, 2016, the number of active users in Starbucks rewards program more than doubled, jumping from 5 million to 12 million users and making the Starbucks program one of the leading reward programs in the world. Despite this impressive increase in the number of active members, only about 1/6 of Starbucks’ customers are reward program members. Therefore, there is still huge potential for growth.

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The vast amount of data, collected through the Rewards program and through the 90 million transactions Starbucks customers are making per week, helps Starbucks create a personal connection with its customers. Using the Rewards program, Starbucks knows, among other things, what you order, how often you visit, what time of day you prefer to visit, and where you live. Starbucks combines this costumer information with contextual data, like weather, holidays and local events in your region, to achieve hyper personalization. This way, each customer’s digital experience is personalized just for that customer.

Nowadays, the company’s customers receive one of 400,000 personalized emails per week. This targeted communication is based on what Starbucks knows about their tastes and interests. The emails push personalized products and incentives to costumers. In the future, each customer will receive an entirely personal and unique offer – achieving complete personalization.

Starbucks’ goal is to allow personalization through any screen.  Computers, mobile devices and even wearables are used to deliver customized information and offers to the customers in order to surprise and delight them. Technology allows the company to tailor experiences to customers’ preferences regardless of which store they visit. The day you arrive to a new Starbucks location and the barista, who had never met you before, would greet you by name and offer you the food and beverages you love, based on the information that barista had just received from your smartphone or smartwatch, is not far away. Technology has made global personalization reachable. In the future, customers will most likely enjoy personalized menus, automatic orders and VIP service anywhere.

The Future is Personal

What does the future hold? With the smart use of technology, and the Internet of Things (IoT) in particular, the sky is the limit. Starbucks already uses advanced technology at its stores, like internet-connected ovens and coffee machines. These machines receive automatic orders to change the temperature, based on new products and customer feedback, to create uniformity and ensure standards are kept throughout the chain’s stores. No matter where you order your coffee, it will always be prepared the same way.  Combining the information Starbucks collects on its customers with this technology might enable Starbucks, in the future, to personalize the temperature, texture, and even the design of a product to meet each customer’s preferences. No matter where you order your coffee, it will always be prepared the same way, for you – exactly how you like it, reinstating the theme of “your home away from home” wherever you go.

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In summary, Starbucks’ key success factors in data, personalization and loyalty are –

  • Using data to enhance personalization for growth with ultra-personalized offers as well as clustering
  • Convergence of channels – digital and physical – to benefit the customer whether they are making a digital or physical purchase
  • Collecting and leveraging data via loyalty and Internet of Things

Further Reading:

Starbucks Annual Shareholders Meeting – March 2016

Starbucks 2016 Biennial Investor Day – December 2016

Starbucks website

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