Coffee? Gold more like…
I’m writing this from a coffee shop in London.
It is a pleasant experience to sip coffee and watch the world go by, the endless rushing to and fro from trains to work places. I watch as people come in to the coffee shop, order their morning fix, pay for it, pick it up and leave. Few hang about inside the store as I’m doing, which makes the experience all the more fascinating.
What strikes me more though is the sheer volume of custom that this small, slightly nondescript coffee shop gets each morning. Granted it is in Marylebone, situated between a major rail station, Marylebone, and a major underground station, Baker Street. But even so, the passing trade it gets just never stops, the door keeps opening and the orders keep getting called while waiting for it to be made the customer stands looking into space or into his or her phone until someone hands their beverage to them.
It got me thinking back to something I read last year. It is this that Starbucks has around $1.6 billion in stored value card liabilities outstanding.
What is that you ask? Well that is the figure put on all the gift cards and electronic balances held by all the Starbucks customers who are stood looking into space. Literally so in these cases as it is they who have not redeemed their gift cards nor have they used up the cash balances on their Starbucks Mobile App.
By the way, the mobile App payment scheme is pure genius. Why? Each payment made through the app is not made via credit card. A credit card payment would cost Starbucks 1-2% in exchange fees paid to the relevant card network and bank charges on top. With this scheme the company saves money – a lot of it by the looks of things – by gently guiding its customers to the handy and ever so efficient Starbucks Mobile App as the preferred method of payment. It’s so good of them! Isn’t it just.
But back to the Starbucks monies. Yes, I can tell you are thinking just as I’m thinking that this all sounds like a pretty good deal, for Starbucks that is. Those “loyal” customers are storing up a small fortune for Starbuck. Remember the sum involved is $1.6 billion. Now that is not an inconsiderable figure.
In fact, that figure is a small fortune but it is even better than just that. Effectively out of nowhere Starbucks has been loaned over a billion bucks by Joe and Jane Doe on Main Street, America. A Billion point six dollars that the company pays no interest on, does not have to service as a form of debt, does not involve having to negotiate a deal on, and so on. It’s just money given to the company. And the real clincher is this – how many people will never redeem their gift vouchers? How many will never use all their outstanding balance on the Starbucks Mobile App? And if the balance falls below a certain amount, it becomes an amount of money by which the customer is unable to buy anything then that balance becomes a gift rather than a loan to Starbuck, and forever.
Not bad work if you can get it!
But, of course, it’s not just Starbucks that do this. They’re all at it! Take PayPal for instance. Last year it was reported that a similar scheme to the Starbucks model had amounted to over $20 billion deposited with PayPal. The difference though is that there is US government regulation regarding how PayPal holds that money. The company is required to hold these funds in in a segregated bank account or invest them in US Government bonds. By all accounts, however, the actual interest on the PayPal money is pretty small.
Not so with Starbucks though. There appear to be no regulations in that regard. That money in their account is deposited there on the promise of a future cup of coffee. However, looking at the redemption rates of this scheme it turns out to be a cup of coffee that may never be made, never mind ever drunk.
But back to that friendly mobile app for a moment. That app is not only saving money for Starbucks it is also providing something else and something which may be just as valuable. For it provides information to Starbucks about you. This all-important and yet so hard to obtain customer information goes on to help Starbucks shape and form its company strategy and resultant marketing. Remember Starbucks is not providing you with just a much needed cup of coffee in the morning, no, it is selling you something. Something they want to continue selling to you so they more it knows about you the better for Starbucks.
Others are catching on to this. Gift cards are becoming a big business. It’s the same model as that outlined above, namely, a great way to get free money from future customers, build loyalty to the brand, as well as collecting lots of personal data – to say nothing of the interest to be gained on the money deposited in high yield accounts if used wisely.
Now apply some of this to your business model. How efficient and imaginative are you being with your customers – both existing and future? How are you leveraging brand loyalty? Are you doing it as Starbucks is in a way that is truly lucrative? Take some time and have a think. These figures did make me think.
Sitting in the coffee shop watching the crowds come, pay and go. I began to see that the money made here was not just at the till, not just hearing the sound of “pennies” hitting the counter, but in the sophisticated electronic systems that backed them up. It was all done with the same systems that appear to make life simpler for the customer but that in reality help the retailer grow more wealthy by the cup – whether it ever appears on the counter or not.
It is a case not so much of making coffee as of minting gold.
