25 April 2012

Value Proposition & Loyalty: The Starbucks Card



Overview
A brand well-known to the globe, Starbucks is one of the few business concepts that did not conform to standard business practices. Founded in 1971, it defied the rules of business when it placed two outlets direcly in front of each other. Not fearing the fact that market cannibalism may exist, Starbucks’ boldness was instead well accepted.

It turned out that one of the outlets catered to a more hip and younger crowd while the other catered to a more elderly and working class market segment. Being able to challenge the norms of business is what enabled this coffee company to be on the list of the most admired companies according to Fortune Magazine.

Today, not only is the brand a public listed company, it also exudes its business creativity by diversifying its income portfolio through the sale of merchandises, establishing itself as a lifestyle store and also having a tool to increase customers’ stickiness to the brand; the Starbucks Card.





Business Standpoint: Nothing New but Essential

The Starbucks Card is not at all a new idea or a breakthrough. However, what makes it interesting is the simplicity and the integration of the card to its overall business concept. Here’s how:

·      Loyalty: The choice of a coffee store is easy for consumers. But not when they’re faced with a strong competitor in the same market (e.g. Coffee Bean). What makes the cut for consumers are tools such as the loyalty cards which pulls loyal customers back to the store and rewarding them for their effort through complimentary beverages and perks.

·      Value Proposition: It may not seem like a whole basket of benefits, but there is no doubt that the loyalty card adds value to the value proposition basket which is offered to consumers.

·      Locking in Future Revenue: Whenever customers add value to the card regardless of whether a purchase is made, income is already locked in and this helps the business to tie consumers’ “future spendings” down with the coffee company.

·      Keeping Up with Competitors: Another way that the loyalty and prepaid card adds to its business acumen is that the company simply has to keep up with other substitutes/ competitors who are offering the same card concept.

·      Additional Income Stream: Last but not least, the card serves as a direct income stream for the corporate segment. The cards not only serves customers directly but it also caters to the corporate segment (B2B market), gearing in even more innovative profits for the already established brand.


Brand Leverage

A concept that has been around for ages. What pushes the coffee company to introduce such a system, knowing that it will succeed? Its Brand.
An important point to note here is that a company has to be pretty well established as a brand before it is able to introduce a card payment system as the concept serves more as a supplementary business tool. Otherwise, it would not be able to gain traction on the market and the total implementation cost would far outweigh the benefits.

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