Blue Ocean Strategy – Starbucks Mobile Payments Application, Loyalty Rewards Program & Pre-orders

Starbucks redefined highly competitive coffee shop business and successfully created an uncontested market by turning the simple coffee drinking experience into a way of life experience by drastically redefining the coffee shop environment by adding music, Wi-Fi, relaxed seating and luxurious interiors. Till Starbucks disrupted the traditional coffee shop market most of the focus was on the price, location and quality of coffee shops. Starbucks innovative value proposition includes wide variety of mostly coffee based menu along with other types of drinks that catered to wide range of audience who are willing to pay top buck for the luxurious and relaxed interiors that are perfect environment for socializing with friends and relax. Another important aspect that Starbucks focused was on the quality of customer service with an exclusive aim of maximum customer delight and they meticulously recruited and trained the best talent in the industry that has added huge value to their brand reputation.

Starbucks successfully created an aspirational brand that created highly loyal and delighted customers who repeatedly come to Starbucks for the unique experience it is offering. W. Chan Kim, co-author of the book Blue Ocean Strategy, in an interview with SHRM.org said Starbucks combined the Mom & Pop Coffee shop with the comfort of a modern five star hotel lobby which is the most suitable environment for relaxing and socializing with friends. While it is true that Starbucks sells coffee, “what they are really selling is atmosphere,” he said. By changing the atmosphere in which coffee is sold, Starbucks created an uncontested market and made the competition irrelevant, he said. Starbucks “created and captured new demand,” he said.

For years Starbucks has been successfully maintaining its dominant position in the coffee shop market despite the market becoming the red ocean which is highly competitive with many players offering similar product and service offering of Starbucks. In order to hold onto its competitive advantage and create new value proposition for its customers Starbucks has started to focus on the use of information technology, mobility and particularly social media. One such innovative value proposition by Starbucks is the Mobile Payments Application. Starbucks launched its mobile card app in 16 stores in early 2009 and after customer’s adoption increased, Starbucks expanded it countrywide in United States and the mobile app allowed customers to pay by displaying a barcode that will be scanned in the store.

Starbucks mobile payments system is hugely successful based on the fact that 6 million average weekly transactions worth US$ 1.5 billion in the U.S that accounts for a full 15% of transactions made at the U.S. Starbucks-operated stores despite the fact many digital wallet service providers are struggling, according to BI Intelligence. The innovative mobile app has digital tipping options, dashboard showing the current reward or loyalty points level, points available with current transaction, pick of the week coffee, recent transactions and messages. The App can also integrate with social media sites like Facebook, Twitter, etc. where customers can proudly show case their reward level milestones with their friends and family. This will further add up to their brand reputation and brand loyalty. By simply shaking the phone customers can choose the barcode of the coffee drink they want to buy and pay accordingly. The app itself is modelled on the social media site interface where customers can see their regular purchases of Starbucks coffee and rewards points in a feed-style history and timeline.

Starbucks’ disruptive mobile strategy integrated its highly successful loyalty program called My Starbucks Rewards with payments by customers. Starbucks further incentivizes the customers who habitually buy and pay through mobile app and more reward points are awarded that are redeemed for free drinks and food. The app's success is not due to the ease of payment with a phone compared to cash or debit or credit card but the fact the customer can see the incentives and rewards he is going to get that will further increase his loyalty with Starbucks. In a way Starbucks is locking the customer for near future. Starbucks loyalty program was diligently crafted over the years and it has been the best in the coffee shop industry or any other industry.

With more than 12 million active users in United States and Canada, Starbucks have added one more new feature where customers can preorder their coffee using the mobile app and pick up the coffee later. A prime example of this is our forthcoming mobile order and pay initiative that will allow customers to use their phones and MSR (My Starbucks Rewards) accounts to order ahead of arriving at a store where we plan to pilot in a major U.S. market later this year," said Howard Schultz, Starbucks CEO. Customers wanted this functionality of preorder through mobile for the past few years, particularly since the mobile based cab hailing service Uber huge success.  Starbucks is able to offer this service right now as the company feels its technology and in-store operations are well equipped to handle such requests. Starbucks is also expanding the number of drive through express service outlets that are best suited for preorder system. Starbucks is also talking to partners and other businesses like retail outlets that will also allow the customers to use their mobile application payment system, rewards system and loyalty programs in non-Starbucks outlets.

Through its mobile payment system Starbucks eliminated the need to carry cash, coin change issues, tipping problems, reduced the time spent on ordering and making coffee, understanding the menu and coffee types, offers and rewards available, raised the customer delight, loyalty and rewards, number of visits, new customers and created a new revenue source for the company, helped in acquiring new customers and also created a uncontested space in the digital wallet market. The Eliminate Raise Reduce and Create gird and value proposition proves the fact that Starbucks is successfully defending its blue ocean market and using strategy to maintain its competitive advantage and dominant position in the industry. Starbucks is one Blue Ocean Strategy Book example company that is still maintaining the market dominant position through innovation and disruptive technologies.