What Starbucks Can Teach Product Managers About How People Pay For Your Product

by drjim on June 25, 2012

When you give your customers a card, then they'll spend more

When you give your customers a card, then they’ll spend more

By now everyone knows who Starbucks is – they are the company that sells coffee, a lot of it, and makes a ton of cash doing it. What you may not know is that they have some very sharp product managers working for them and as they follow the product development definition they are always looking for new ways to boost the company’s bottom line. It looks like they’ve succeeded once again – this time they’re going after how their customers pay for Starbucks products.

What’s Up With That Card?

The way that it works for a Starbucks customer is that they somehow come to possess a Starbucks card. They could get it a as a gift or they might just buy one for themselves. No matter, once they get it they can use it to buy Starbucks coffee and anything else that the retailer happens to be selling.

Just in case you might be thinking that this card is just another card that people get and thrown into their wallets or purses, think again – it gets used. In 2011 over US$2.2 Billion dollars were loaded onto Starbucks cards. It turns out that according to John Jannarone who follows such things, this is an increase of 151% since 2006. Now that’s an accomplishment that I suspect that we’d all like to be able to put on our product manager resume.

How big of a deal are these cards for Starbucks? Once again, according to the Starbucks products managers, purchases made on the card now account for 18% of the company’s revenues.

Why The Card Is So Very Valuable

In order to motivate their customers to not only start to use the card, but to also go to the effort of adding more money to it once it runs out, the Starbucks product managers have come up with a plan. What they’ve done is to come up with ways to incentivize their customers to use the card. Use of the card provides customers with free perks, such as free coffee, and this motivates them to keep using it over and over again.

The card is valuable to the company in a lot of different ways. One is based on the company’s discovery that once customers add money to their card, they tend to start to spend that money right away. This allows the product managers to better forecast sales.

Customer loyalty is something that every product manager wants more of. By having the card and getting customers to commit to the card and the brand by loading money onto the card, Starbucks product managers now have a way to have their loyal customers drive more sales.

Time marches on. Cards are becoming so early 2000’s. Now everyone uses their cell phones for everything. Starbucks realizes this and so their product managers have created an Android app that customers can use to access their Starbucks card account.

Even though not everyone has a smartphone, the app is still proving to be popular. In its first year of use customers had used the app to load over $100M into their Starbucks accounts.

What All Of This Means For You

The Starbucks product managers are in a great spot – everybody wants their coffee products. The challenge that they are facing is that they need to find ways to keep the company growing. It appears as though they’ve done just that by making it easier for their customers to pay for their products using a Starbucks payment card.

Studies have shown that once customers get the card, they are always “topping it off” to keep money on it. Shortly after they add money to it, they are in a Starbucks spending that money. Cards are helping the Starbucks product managers to predict sales and they are causing customers to be even more loyal.

No, creating a payment card for your product wasn’t a part of your product manager job description and it won’t solve all of your product management problems. However, it just might make it easier for your customers to buy from you. If this is true, then perhaps they would end up buying even more of your product. Follow Starbuck’s lead and look into carding your customers.

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Product Management Skills™

Question For You: Do you think that a card program could be used if you are managing a B2B product?

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What We’ll Be Talking About Next Time

Just imagine if you were a product manager who was in charge of film for cameras. Your world used to be great: everyone needed film and so you could improve your product, roll it out, and customers would snap it up (sorry for the pun). However, then along came digital cameras and almost overnight the market for your product vanished. Kodak has filed for Chapter 11 bankruptcy because of this. However, Fujifilm is still going strong. What did their product managers do that nobody else did?

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