Starbucks made news earlier this summer when it began offering free Wi-Fi access to customers. At first glance this decision would seem to create an unintended outcome of some customers hanging out for extended periods of time, preventing turnover in seats that could actually result in potential customers walking away. But, further examination of Starbucks’ plans show this move goes beyond giving away Wi-Fi access to lure customers into its stores.
A new offering to be launched this fall, the Starbucks Digital Network (SDN), will feature premium content aggregated for Starbucks’ customers that can be accessed for free. Paid versions of sites like The Wall Street Journal and The New York Times are two SDN partners. Among other content providers are Apple and magazine publisher Rodale. Content will be organized into five channels: News, Entertainment, Wellness, Business & Careers, and My Neighborhood. Starbucks and the content providers will look to create up-selling opportunities on SDN that will be a revenue sharing venture between Starbucks and its partners.
The brand that set new standards for creating a great customer experience continues to innovate. Starbucks will always have as its main focus delivering great coffee, but it is not the coffee alone that brings customers to Starbucks. Drinking coffee while relaxing, working, or surfing the Internet is an escape for many people. Enhancing time spent at Starbucks by building a custom network of information valued by customers can lead to greater brand loyalty to Starbucks… and its content partners. This loyalty translates into more visits to Starbucks. Ideally, customers will purchase more items and do it more frequently, to the point that Starbucks is not a choice (“Should I go to Starbucks, Dunkin Donuts, or McDonald’s?”) but part of customers’ lifestyles.
Weaving brands into customers’ lives in this way is a powerful strategy for building customer loyalty. To reach this destination, a price for loyalty must be paid. It is not bought with frequent promotions or low prices, but with relevance to the consumer.
Yahoo News – “How Starbucks Plans to Capitalize on Free Wi-Fi”
It has been said that innovation is the lifeblood of a business. A company can leverage new products, services, or ideas in order to reach new customers, increase market reach, and grow profits. Appreciating the impact innovation can have on an organization is easy; establishing a culture that values and encourages innovation is often the challenge. Even significant investments in R&D and market research cannot guarantee that innovations will succeed… or if they will even come to fruition. Given the formidable obstacles to innovation, businesses are increasingly willing to use non-traditional methods to develop new ideas.
One approach to innovation that has gained notoriety is crowdsourcing, enlisting a community of customers or other interested persons to hatch ideas that could result in new products. Crowdsourcing has even been used to develop advertising campaigns such as the Doritos commercials that appeared during this year’s Super Bowl. The use of crowdsourcing reminds me of a quote by Woodrow Wilson who said, “I not only use all the brains that I have, but all that I can borrow.” Why not tap into the insight, inspiration, and expertise of other people to develop new ideas?
A recent crowdsourcing project intended to identify innovation opportunities was conducted by Starbucks. Its Betacup Challenge sought ideas to reduce the environmental impact of Starbucks’ iconic to-go cups. Entries vied for a piece of the $20,000 prize money Starbucks offered. The result was 430 ideas submitted online that generated more than 5,000 ratings and 13,000 comments from website visitors. While many ideas dealt with design changes for disposable cups, the grand prize winner had an idea that did not involve disposable cups at all. The winning idea focused on a rewards-based program for customers with reusable cups.
Crowdsourcing product innovation may not be a replacement for product managers, R&D departments, and market research, but it certainly brings a fresh perspective to the ideation process. Growth in any organization can be stymied by myopic thinking that comes from personnel being too close to issues and too familiar with “what can’t be done.” Starbucks did the right thing by pitching this innovation question to a broad community. Will the ideas generated in the Betacup Challenge ever be implemented? That answer is yet to be determined. More importantly, the quantity (and probably quality) of ideas from which Starbucks can pursue innovations are greater because it acknowledged it does not have all of the answers when it comes to reducing the company’s environmental impact.
Fast Company – “Winner of Starbucks’ Coffee Cup Challenge Isn’t a Coffee Cup”
Starbucks is streamlining its Rewards program in December, consolidating the two different programs it has now (one free, one fee-based) into a single program with tiered rewards. Good move on Starbucks’ part, a move that is long overdue. Each program offered certain perks such as the fee-based Gold program’s 2 hours of free wi-fi internet access per visit. At $25 per year, Starbucks realized $17.5 million from Gold card membership fees between November 2008-March 2009. With results like that, what was the motivation to consolidate the programs?
Reward programs should be rewarding to customers, not marketers! I posed a challenge to students in my Promotion class earlier this semester, asking them to critique Starbucks’ two-card program. Although they had been in class less than 3 weeks at the time, they already understood something about promotion: incentives should be structured so that they entice customers to take action. Students were nearly unanimous in their belief that Starbucks’ program did little to drive sales.
Customer reward programs are valuable for maintaining brand loyalty and even increasing customers’ purchase volume. Their impact can be maximized by keeping them simple and providing rewards that customers value and can access conveniently. I recall a rewards program for Baja Fresh restaurant in which I was enrolled. it gave a $5 discount for every $100 spent with the restaurant. A decent reward, except one had to go online and enter a 20-digit card number (no exaggeration – I counted) to access the reward. I thought that was bad, but it got worse when Baja Fresh ended the program. Not coincidentally, my visits have dropped substantially.
Marketing Daily – “Starbucks Reward Change Signals Strategy Shift”