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Spotify Starbucks Mobile Advertising

Starbucks’ plan to turn Spotify (and other brand partnerships) into new revenue sources

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By Seb Joseph | News editor

May 28, 2015 | 4 min read

Javas and Jams may not be natural bedfellows but Starbucks sees the tenuous link between the two as a chance to use Spotify as a way to turn its loyalty program into a sustainable revenue source.

The two brands united earlier this month to offer a democratic solution to years of corporate-issued playlists.

Moving forward, Starbucks baristas will create custom playlists using the streaming service’s premium memberships to lull customers with trendier tunes while ordering their favourite cup of joe. Those coffee lovers still not happy with the experience can use their Starbucks points to ensure their favourite song gets played.

It poses a win win for both brands; Spotify gets access to Starbucks reward program, potentially opening up 10 million new subscribers and with the streaming service already boasting 15 million paid subscribers, while the tie-up shows Starbucks’ willingness to trade loyalty points for revenue sharing with another global brand.

Starbucks chief executive Herbert Schultz brought the latter point into sharp focus yesterday evening (27 May) at the Sanford C. Bernstein Thirty-First Annual Strategic Decisions Conference. He told delegates Spotify would buy its loyalty points as currency at a wholesale level, which in turn will provide Starbucks with a new source of revenue.

But this isn’t the source of revenue that’s going to move the needle. Instead, Spotify will become an incentive for people to sign up to the loyalty program to receive stars as rewards, added Schultz. The idea is that the incremental revenue will stem from Starbucks stores being the only places in the world – for now – where people can redeem those stars for tunes.

Its not just tunes Starbucks wants to monetise and over the next 12 to 18 months it will reveal similar partnerships across other verticals. The pitch to potential partners is the chance to dip into Starbucks’ vast loyalty database and use the Stars currency mechanic to bring added value to their respective relationships with customers.

Starbucks’ rush for more partnerships is a drastic change in tact for a company that has been fastidious over the years in protecting the equity of its brand. However, the need to drive incremental value throughout the day, with a particular reliance on technologies such as mobile payments and pre-order services, has made it more amenable to outside help.

To put that in perspective almost $2bn was loaded either on someone's phone or their Starbucks gift card in the Christmas quarter ending December 31 and then over $1bn in the following quarter. A fifth (19 per cent) of all sales at Starbucks are happening via mobile payments, claimed Schultz with almost 20 million occurring each week.

“We believed that once we got to scale that Stars as currency would have as much relevancy outside of the ecosystem of Starbucks that it has internally,” he continued.

“What I specifically mean by that is that we could demonstrate to a perspective partner that if in fact you rewarded your respective customers with stars that your business would probably go up and if you were in the subscription business you would have less churn and you would get more customers.”

Starbucks' tie-up with Spotify kicks off in the US before launching in Canada and then the UK. It suggests partnerships will play a key role in the next phase of the company’s digital journey, which is centred on monetising and building a loyal user base around its mobile services. Starbucks has acknowledged the importance of stores and what its digital investments are doing are paving the way for a transition away from traditional bricks and mortar stores toward smaller style formats where technology is at the core of the experience.

Spotify Starbucks Mobile Advertising

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