Starbucks Coffee

Learning leson from digital transformation in Starbucks

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The newly opened Starbucks on Duy Tan Street, Cau Giay District, Hanoi has attracted a great deal of attention recently. This is one of the new stores opened in Vietnam, out of a total of more than 28,000 global Starbucks, marking a high growth in both numbers of stores and sales. However, few people know that Starbucks experienced a crisis in 2008, with the slump in the revenue and closed stores. “Digital transformation” is the magic pill to put Starbuck back into growth orbit.

It is quite surprising that Starbucks leaders have stated Starbucks is a technology company that sells coffee. Indeed, Starbucks has sharply transformed itself after the crisis above with its effort to embark on digitalization.

First of all, Starbucks established the Starbucks Digital Ventures (SDV), an internal incubator for digital projects in 2008. The SDV is an independent unit with an independent vision and autonomy. The fact that this unit does not under control of other departments in the company facilitate the project go faster and disrupt the market. As a result, hundreds of initiatives addressing customer problem and collaboration with partners have flourished from SDV. With Starbucks expanding rapidly and becoming quite slow in process, SDV helps the company to be agile and adapt quickly to the market.

My Starbucks Idea Website
My Starbucks Idea Website

Also in 2008, Starbucks launched My Starbucks Ideas page, which aims to engage with far wider customers. Through My Starbucks Ideas will let customers know what the company is doing and take advantage of their abundant ideas. Therefore, the customer will feel at home. The page layout is simply designed with new ideas submissions, view and vote for the best ideas, and ideas in action. (Starbucks abandoned the community part and only keep the submitting new ideas part). The most voted ideas will be judged by a panel and then relay to Starbucks leaders for reviewing and deploying. Hundreds of thousands of ideas were submitted and hundreds of ideas were put into practice, such as new flavors (Mocha Coconut Frapuchino, Halzelnut Matchiatto, etc), free Wifi, simplifying payment process with drive thrus, Happy Hour, etc.

Starbucks’s visitors will have the opportunity to enjoy premium content from major media outlets such as The New York Times, The Wall Street Journal, The Economist via the Starbucks Digital Network. In addition, Starbucks provided free Wifi at that time. Taking advantage of this, It will have more customer information (from login email to get free Wifi) and interact with customers later.

Starbucks focuses on mobile in the new digital strategy. The Starbucks Mobile Card app for iPhone and iPod launched in September 2009 is a breakthrough for Starbucks Card customers, allowing them to manage their Starbucks card through the convenience of their mobile device. With the Starbucks Mobile Card app, customers can manage their card accounts, reload their card balance directly from their smartphone, check Starbucks bonus status, find Starbucks stores around, Also barcode displays that can be used like Starbucks Cards to make purchases. Up to now, more than 30% of Starbucks sales are made via the mobile method.

Starbucks coined the term “digital flywheel” for its digital strategy. CEO of Starbucks, Mr. Johnson stated that” Our digital flywheel is a powerful proprietary asset that is driving deep customer engagement, revenue, and profit growth around the world“. There are 4 pillar around the mobile platform:

  • Rewards Program.
  • Payment feature developed by Starbucks.
  • Personalization: promotional information, news will be sent to customers with personalized content.
  • Order: Starbucks makes this experience smoothly.
Starbucks’ Digital Flywheel Strategy
Starbucks’ Digital Flywheel Strategy

Reward programs – loyalty program of Starbucks is long been taught as a case study for customer engagement By 2018, there are 15 million monthly active members using this program (out of a total of 75 million members visiting Starbucks every month). With every $1 spent, customers will earn 2 “stars”, in addition, customers will also get the point (star) when buying Starbucks products through the system of grocery stores, affiliates and via email login. Stars will be converted into free food/beverages. Members who earn a certain star rating will also be promoted.

Mobile payment brings a great experience to Starbucks customers. As the “third location” behind home and work, customers have a very pleasant experience when it comes to cash or cashless options through Starbucks (putting to the card $5 – $500 a time) or on a Starbucks wallet. This wallet can be linked to a credit card, Apple Pay, Paypal, Chase. More importantly, this wallet is linked to the barcode payment system. Customers only need to scan the barcode and do not need to pay cash at all

Barcode payment process through Starbucks application
Barcode payment process through Starbucks application

Customers can also choose to order through Starbucks and pick up items at the store later (Mobile Order & Pay). This reduces peak queues, saves time for customers, and “partners” of Starbucks (the way Starbucks calls its employees). In particular, all members, not only members of the Rewards program can use this feature. This method now accounts for 11% of US transactions. This is quite a wise strategy to take advantage of all customer base. McDonald’s also tested this program in 2017, learning from the success of the program. A number of other US retailers, including Taco Bell, Dunkin ‘Donuts and Walmart, also followed this successful model.

Personalized experience is an integral part of the “digital flywheel” strategy. We are quite familiar with personalization through every time you enjoy Starbucks with your name on the cup. Starbucks has one step further when the personalization is based on historical customer data on the application. Through this operation, Starbucks can upsell (according to research, people ordering over the mobile often spend more per order). Based on, customer data such as order history, product placement preferences, location, email, objective information such as weather, from third parties, etc. Starbucks can also provide personalized one-on-one customer promotions which encourage customers to purchase more (in some cases to make customers buy things they do not know before) of products at Starbucks.

In 2016, Starbucks tested AI technology for sending personalized e-mails: Before adopting AI technology in personalization, Starbucks sent only 30 variant of email templates to customers. After applying AI. , Starbucks was able to automatically generate and send 400,000 personalized variants of email templates to customers, all in real time basis.

Experience the Starbucks with My Starbucks barista virtual assistant
Experience the Starbucks with My Starbucks Barista virtual assistant

By 2017, Starbucks caught up with Industry 4.0 trend by releasing a virtual assistant called My Starbucks Barista that allows users to order and pay by speaking with this virtual assistant. Starbucks also partners with Amazon in making a new skill, which allows users to reorder their favorite products. This emulates the experience to interact with the real barista in real life.

To do this, Starbuck invested heavily in the cloud computing platform, in the words of CTO Starbucks, which will be the foundation for seamless integration of the experience across countries. Starbucks is also developing the Digital Order Manager (DOM), a barista-like tablet device that tracks incoming orders and manages real-time orders better. In addition, Starbucks also uses AR technology in its stores.

The Digital Transformation has helped Starbucks to reclaim investor’s trust after the crisis. According to Johnson, Starbucks CEO, there is a seismic shift in the behavior of the customer, changing to digital platform and retailers must be agile. Other retailers who cannot take advantage of this trend will struggle to survive. With Starbucks, digital transformation is not just a marketing channel but a way to make the positive impact on the user experience. With such rationale, Starbucks is a pioneer in transforming the traditional retail industry, bringing the best value proposition to its customers.

From FPT Tech

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