3 Lessons Retailers Can Take from Starbucks' Embrace of Mobile Payments

The evolution of mobile payments technology can offer savvy retailers a crucial edge in the battle for customer loyalty. Providing quick, easy shopping and purchase capabilities via smartphones can drive more in-store traffic and sales from regular customers — and encourage new ones to return. It’s not just a matter of setting up mobile swipe technology at checkout, though; to achieve success, retailers need to offer the proper incentives and blend them seamlessly into their rewards programs.

U.S. consumers haven’t taken to mobile payments as quickly as those in other countries, due to several factors. Merchants have been slow to install the near field communication (NFC) equipment needed to accept payments via smartphones (and/or chip-enabled credit cards). As for consumers, over half of them aren’t familiar with mobile payments, and those who are have security concerns.

Nevertheless, in-store mobile payments are projected to grow very rapidly in the next few years, from $75 billion in 2016 to $503 billion in 2020. Newer smartphone models now include mobile wallet technology as a standard feature, and as awareness rises, so will usage. Indeed, consumers are increasingly eager to take advantage of paying by smartphone, as Starbucks has shown.

Once the coffee store began accepting mobile payments in 2010, the option grew more popular over time:

  • In Q4 2014, mobile payments accounted for 16% of all transactions;
  • In Q4 2015, they comprised 21% of its sales — including 10% of orders at peak hours; and
  • In Q4 2016, they were responsible for 27% of Starbucks sales.

Much of this growth is due to the company’s Mobile Order & Pay app feature, which lets customers submit and pay for orders before they arrive and thereby skip the checkout line. Starbucks (SBUX) rolled the feature out nationwide in September 2015 but made it available exclusively to members of its loyalty program, Starbucks Rewards. That decision has been vital to the program’s ongoing success. In fact, Starbucks’ approach offers three important lessons for companies looking to boost their loyalty efforts with a mobile payment component.

Reward the behavior you want

Starbucks obviously wants customers to come in every day — and not just for their morning caffeine fixes. Starbucks Rewards therefore offers members an extra incentive: Two “stars” (i.e., points) for every dollar charged to their registered, prepaid Starbucks cards (plastic or digital). Stars translate into benefits, which can only be redeemed in stores.

Make the program easy to use

Just by registering a card, Starbucks customers become Green-level members and instantly qualify for Mobile Order & Pay, free in-store refills, birthday gifts, and more. With the mobile payment option, they can walk in, grab their orders, and leave almost without breaking stride. After amassing 300 stars in a 12-month span (Gold status), they can claim a free drink or food item every additional 125 stars simply by informing a barista.

Keep testing and enhancing the program

The Starbucks loyalty program has undergone a variety of updates over the years. In February 2016, partly in response to customer requests, Starbucks tied stars to purchase amounts and reset the Gold tier to give members clear incentives to spend more (which better serves the store’s goals). While the changes angered some customers, program membership had grown 18% year-over-year as of December 2016, with a 94% retention rate. Starbucks is now working on tailored deals, based on the proven habits of individual members, that will help them earn stars more quickly.

Starbucks has built one of the top loyalty programs in the country. In fact, its mobile-ordering feature is so popular that it’s straining some stores’ ability to fulfill rush-hour requests, forcing Starbucks to add more baristas at peak periods. High demand isn’t a bad problem to have, of course. By embracing mobile payments, Starbucks Rewards makes it easy and convenient for members to get just what they want — and offers retailers a blueprint for turning the technology into a loyalty-building benefit.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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