Does the Starbucks app suggest a future for mobile payments?
Does the Starbucks app suggest a future for mobile payments?
Stand in the queue at Starbucks for your morning cup of coffee and you see a sight that is pretty unusual in most coffee stores. Instead of proffering cards or money to pay for their lattes, quite a few Starbucks customers are paying via their mobile phones. In a world where mobile devices are so ubiquitous, it perhaps seems a little strange that this is an unusual phenomenon. But despite the proliferation of cards and technology most of us carry around, we still live in a cash-based society, with an estimated 85% of consumer transactions still undertaken via cash. The use of mobile payments barely registers outside of Starbucks.
Starbucks are clearly the poster child for mobile payments. They now have more than 9 million people signed up to using their mobile app. Which translates into their customers using a smartphone to make a purchase an astounding 7 million times per week which means that mobile payments now account for roughly 16 percent of Starbucks’ total transactions. This led chief executive Howard Schultz to call the program one of Starbucks's most important business drivers. In his view, "new members contribute not only short-term increases in revenue and profit, but also long-term loyalty for years to come."
It is therefore of little surprise that a variety of players are trying to replicate this success. Apple Pay is the latest and probably highest profile entrant into the market, with a proposition that runs on top of existing payment networks. Whilst a lot has been invested by Apple to help ensure success there have been a lot of casualties before them, most notably Google Wallet. There are many reasons that might explain why that mobile payment has struggled, not least because it often requires a network of participating merchants (which Apple has usefully managed to work around). However, there are plenty of brands that have failed to achieve take-up of mobile apps for payment on their own estate. Issues that have been used to explain this include trust, security, user experience, integration with rewards scheme – I could go on. But the point is that there are plenty of examples of payment apps which have apparently ticked the boxes on the different elements of their design but have still nevertheless failed to get anywhere near the success of Starbucks.
Perhaps, therefore, we need to look somewhere else to understand the success of the Starbucks app. The place I think we need to look is in fact close to home, by exploring the psychology of the Starbucks app. One area of consumer psychology that is receiving a lot of attention and seems very relevant is the role that emotion plays in decision making. There is increasing recognition that emotion is a key ingredient to pretty much all decisions that we make. When we are faced with a decision, then the emotions from our prior related experiences mean we assign values to the options in front of us. So our emotions create preferences which in turn lead to our decision.
So what are the emotions in play when it comes to Starbucks? In my mind there is a strong emotional appeal to the aspirational tone of the Starbucks brand. To many it is the epitome of West-coast cool, the place of choice for the young, hip and upwardly mobile. Whether or not that represents the composition of the customer base is not relevant here, it is the brand values that the customer base want to reflect in themselves that is important. The use of mobile payments in this context does not feel like a big stretch. In fact the activity is so in-sync with the brand values that using the app brings the customer much closer to the brand.
So if this is the case, what can other brands do to replicate Starbucks’ success? Fundamental is an understanding the emotional appeal of the brand. What story are consumers telling themselves when they choose that brand? Consumers using a burger outlet may see themselves as knowing how to treat themselves and others to guilty pleasures. A sports retailer may be able to link it into the emotional stories around personal effectiveness and optimisation, particularly if it can be linked through to other data sources tracking their personal activity and fitness levels. The point is that we need to understand the emotional identities that customers are adopting by choosing that brand and then design the positioning and user experience to reflect that identity. Starbucks are surely a great case study in successfully pulling that off – the jury is out whether this is something that can be leveraged by other brands.
And before brands leap too quickly into mobile payments (with the associated loyalty scheme that this implies) it’s perhaps worth considering some cautionary points. First, Byron Sharp, author of the highly influential book ‘How Brands Grow’ suggests that loyalty schemes are of limited value. In his view this is for two reasons. The first is physical and mental availability – it is easier for more loyal Starbucks buyers to notice the scheme as they are more exposed to in-store promotions). Second, the economic incentive for joining is much stronger among loyal customers – they are rewarded for something they already do so why would they not join? His somewhat trenchant view, therefore, is that loyalty schemes are wasting money as they are not really changing behaviour. The challenge for any brand, Starbucks included, is can they encourage heavy coffee buyers who do not currently shop with their brand to join their loyalty scheme? Research by Sharp suggests that this is generally not successful and such loyalty schemes have an at best marginal influence on buying behaviour. This somewhat pessimistic tone should perhaps be tempered by the way that since Sharp developed his thinking, the digital economy has moved on significantly so having a channel to the consumer has become one which is much more agile and engaging than ‘loyalty schemes’ of old.
So to the second cautionary point; perhaps we should consider the extent to which the success of the Starbucks app is related to something much more prosaic. I notice that when queuing for their coffee, a lot of people are holding their mobile phones – browsing, messaging and so on. It’s the sort of thing you do when you are taking a break. That’s one hand taken care of. I need my other hand free to pick up my coffee. So the basic construction of the experience of buying a coffee is therefore made much simpler if I don’t have to use a hand to fumble around with my wallet / purse at this point. As this behaviour is typically a daily (at least) habit then after dropping money or coffee a few times or simply feeling a bit awkward then we learn to keep it simple by using one hand to hold the mobile phone and pay. How many other situations can this be applied to? Some maybe, but perhaps it does not apply to the average retailer.
Whilst it is very tempting to explain success in a way that fits with our agenda, is it really possible for Starbucks to identify their mobile apps as driving ‘short-term increases in revenue and profit, but also long-term loyalty’ as Howard Shultz suggests? Because whilst the app is clearly popular, it is hard to determine how ‘successful’ it is. There is currently no hard evidence that shows it is responsible for driving customer loyalty or for bringing new customers to Starbucks. We cannot even say with certainty that it is delivering a more ‘meaningful experience’ for consumers, as Howard Schultz hopes. Verve is currently undertaking research which explores spending patterns before and after usage of the Starbucks app, to understand the degree to which it influences spending patterns (i.e. does it encourage people to spend more with Starbucks?).
Finally, as with so many business challenges, it is important to understand the human side of our consumer behaviour. Starbucks may offer some clear lessons for brands around the emotional aspects of the successful introduction of a mobile payment app. But its popularity may also be a function of something much more straightforward – having a hand free for your coffee. Research of the consumer experience is needed to carefully unpick what is actually going on before assuming we know the answers. Because unless we learn the real lessons of what is going on for consumers, then despite the huge investments that are being made we may well continue to see mobile payments services fail.