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Starbucks hits $1B in mobile payment revenues in 2013, analysis says

Customer loyalty to Starbucks brand is behind mobile payment app's success

February 5, 2014 03:50 PM ET

Computerworld - According to a recent estimate, Starbucks was able to generate a staggering $1 billion in revenue from smartphone transactions used at sales terminals in its stores in 2013 largely due to the fanatical loyalty of its customers.

Starbucks won't comment on the $1 billion figure that was recently reported by Business Insider, based on a BI Intelligence estimate. The estimate was derived using Starbucks' admission that its mobile payment and loyalty app program is used by 10 million customers with an average of 5 million weekly transactions at U.S. stores as well as past mobile revenue numbers Starbucks had given BI Intelligence.

As for the overall $1 billion in mobile revenues, Starbucks remains mum. "We don't have that information and don't report those figures," said Starbucks spokeswoman Maggie Jantzen in a telephone interview. However, she conceded that Starbucks is pleased by how well its mobile payment system has worked.

Customers can pay for drinks and snacks with their smartphones loaded with a Starbucks card app. The app uses fairly old technology -- a barcode scanned at the point-of-sale register is used to read the stored dollar value on a user's virtual card to deduct the cost of a purchase.

A robust loyalty program behind the app makes offers to customers that include free drinks on a customer's birthday.

"In general, we're really encouraged that customers have embraced [the program]... and are keeping track of loyalty points," Jantzen said. "We very much value our customers and their loyalty."

Starbucks for years has tracked alternative payment technologies to barcode scanning, such as near field communications on smartphones, but the coffee seller decided to go with what was available and proven when it launched mobile payments in early 2011.

The concept still works. "We're always looking at new technologies or opportunities but don't have any details," Jantzen said.

Sheryl Kingstone, a Yankee Group analyst, called the Starbucks mobile payment program a "wake up call for companies still dabbling and piloting programs" in a recent blog.

While not discounting the barcode scanner as part of Starbucks' mobile payment success, Kingstone said Starbucks has been successful because it "looked beyond the transaction to understand the customer experience."

What has worked at Starbucks is a "combination of users' shifting to mobile, instead of pulling out cash or a card, along with loyalty programs that change user behavior," Kingstone said via email.

The core benefit of a mobile payment system like Starbucks is in "transforming the point of sale into a point of engagement," Kingstone wrote in a recent report. Successful vendors use mobile payments as a component of a "broader, dynamic interaction" with the customer.

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