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Editor's Notes

• #2: Since the return of Howard Schultz as CEO of Starbucks in 2008, the company has been laser-locked on business analytics; which has fueled exceptional growth and profitability. Patel and Thompson of the SAS Institute know that “Success is based on your ability to discover more meaningful and predictive insights from all the data you capture” (Patel and Thompson, 2014, p. 1). This presentation will examine how Starbucks has leveraged technology and business analytics to successfully make use of its data.
• #3: In today’s data rich business environments there is certainly no shortage of quality data that organizations can use. What sets some companies apart is how they can process, analyze, and use the knowledge gained to make more effective business decisions on a shorter timeline. One example of an organization on the cutting edge of using data mining to inform their business analytics process resulting in superior business intelligence and sales growth is Starbucks.
• #4: Business Analytics (BA) is defined as the practice of iterative, methodical exploration of an organization’s data with emphasis on statistical analysis. Business analytics is used by companies committed to data-driven decision making (Rouse, 2010). Starbucks is one of the largest innovators in regard to applying business analytics in order to benefit the company.
• #5: Starbucks is competing in a heavily commoditized product category, and seeks an ultra premium price point for its product (Rose, 2013). In order to successfully execute this strategy, Starbucks needs to create points of differentiation between its brand and those of its competitors. Through its use of data mining and analytics Starbucks develops a coherent and comprehensive view of its most loyal customers, down through those who interact with the brand on a much less frequent basis (Bhasin, 2013). But what does that allow Starbucks to do?
• #6: In general, organizations that effectively process and mine their data gain 3 key benefits: Effective Customer Segmentation, Market Insights, and Customer Loyalty.
• #7: Customer segmentation gives Starbucks the ability to anticipate customer behaviors and needs by segment so they can more effectively market each segment with relevant products and services.
• #8: Market Insights from Business Analytics helps Starbucks gain insight into which products a customer is likely to buy allowing them to hone their messaging to high probability up-sell and cross-sell opportunities.
• #9: In terms of customer loyalty, data analysis allows Starbucks to develop and execute effective customer acquisition and retention strategies based on purchase patterns. All this has translated into increased sales, customer and employee loyalty and growth.
• #10: Starbucks has used business analytics to improve business operations in terms of customer satisfaction, employee satisfaction, and new store location selection.
• #11: Starbucks is able to collect large amounts of data from its consumers just from the loyalty program. Starbucks uses SQL Cloud Services and “Oracle Siebel customer relationship management service as its loyalty system, which is tied to the Oracle ERP platform. Siebel…delivers a combination of transactional, analytical and engagement features to manage all customer-facing operations” (Venkatraman, 2014, paras 2-3). A quarter of all company transactions made in 2013 were with Starbucks cards and the mobile app (Kaye, 2013). In January of 2015, it was noted that 16% of all Starbucks transactions were made on the mobile app (Dormehl, 2015). Utilizing loyalty cards and the mobile app, customers provide massive amounts of data for Starbucks to mine. Starbucks uses “card information to segment consumers and set up business rules based on purchase behavior, then pumps out offers immediately to them” (Kaye, 2013). Starbucks transformed their loyalty card program from an annoying business ploy to a convenient, consumer friendly tool on their smart phones that people actually want to use.
• #12: Starbucks hired Monitor 360 to analyze employee narratives on glassdoor.com to improve employee engagement and its employment brand to reduce turnover and enhance recruitment (Stein, Sakellariardis, & Cole, 2014). It costs $3000 to replace just one barista (Stein, Sakellariardis, & Cole, 2014), so reducing turnover has a major impact on company profitability, especially in a company that employees 190,000 people. The narrative analytics analysis yielded three major “takeaways” to improve employee engagement in its stores: 1) amplify the positive, 2) address middle management disconnects, and 3) identify triggers of new threats to the company’s specialty brand (Stein, Sakellariardis, & Cole, 2014). Utilizing this information, Starbucks is able to create an exceptional work environment for its employees.
• #13: With the help of the location analytics company Esri, Starbucks used mapping software and location analytics to optimize new store development opportunities—choosing new store locations without cannibalizing sales at existing locations in the vicinity (Thau, 2014).
• #14: Starbucks has been able to supply customers with exceptional service by gathering a great deal of customer information. Many companies use some form of Customer Relationship Management (CRM) software to keep track of customer information. Starbucks tracks customer information through their mobile app and loyalty cards. Starbucks continually tracks customer buying habits. Based upon buying habits Starbucks sends personally tailored offers to Rewards Member’s smartphones. On an iphone, these offers show up on the notification screen and in the Starbucks app. For regular Starbucks customers, these deals result in bonus stars. Stars are earned after each purchase. Twelve stars earn a customer a free beverage or food item of their choice. For infrequent customers, different incentives and deals are used like Buy One Get One free offers or other discounts. “These deals are targeted at customers whose purchasing habits show that they may not be coming back soon. Loyalists who constantly go to Starbucks don't get the deals, since the coffee-seller isn't worried about losing them” (Bhasin, 2013, para 6).
• #15: Further, the use of and increasing prevalence of the mobile app drives increasing loyalty and increasing sales—often by just informing rewards members of new or seasonal products, but also by speeding the payment process. “Through the scan-and-go mobile pay system, customers are able to pay for purchases the fast and easy way without the hassle. Since everything is electronic, it reduces the use of plastic gift cards, promote a more efficient ordering process whilst providing more advantages to customers” (Geisel, 2014, para 5).
• #16: The mobile app now allows for orders to be placed before a customer even reaches the store and eliminates waiting. “The idea with Mobile Order & Pay is to offer customers a faster alternative to waiting in line. Using a simple, touch-based interface, you can select food and beverage items from the in-app menu, choose which store you want to pick up from by referencing an included store list and map, then pay using your Starbucks card to complete the transaction” (Perez, 2015, para 3) before even arriving at the store.
• #17: Mobile Order & Pay provides Starbucks an enormous amount of data to increase efficiencies and store offerings in addition to eliminating wait times. Knowing what is purchased at each store will help fine-tune inventories and prevent over or understocking. Knowing what each customer orders down to the number of pumps in a chai latte improves product development and special offer targeting. It also allows store managers and employees to better understand the needs of their local clientele, which can result in specific training strategies to improve customer service in each market. Mobile app ordering enhances the company’s ability to compile customer data to provide patrons with exactly what they need—which will soon include delivery to homes and offices. In short, the Mobile app has been key to creating and improving Starbucks’ reputation as an unparalleled leader in customer service.
• #18: The mobile app has driven sales increases every year since it was introduced in 2009, and it continues to contribute huge profits for Starbucks. “The company mobile transactions exceeded $1 billion in 2013, according to one estimate. The company has revealed that its mobile payment and loyalty app is used by 10 million people and generates an average of 5 million weekly transactions” (Elgan, 2014, para 17).
• #19: In addition to its mobile app payment, rewards and ordering system, instore technology is also driving customer loyalty. Starbucks offers high speed Wi-Fi and wireless charging which entices customer to want to linger and spend time inside their stores, possibly resulting in additional purchases. Along with Wi-Fi and wireless charging, Starbucks is also embracing the internet of things. “Many Starbucks stores have super high-tech Clover coffee machines, which connect to the cloud to communicate their performance and track customer preferences” (Elgan, 2014, para 15).
• #20: Starbucks is also testing the use of Apple’s iBeacon Technology. This will further help Starbucks mobile app strategy. With iBeacon technology users who are close to a store will be sent messages and possibly promotions on their smartphones. Starbucks’ servers will be able to tell when customers are close to stores. Proximity will trigger the messages. With iBeacon location information, Starbucks will be able to analyze how much time customers spend in close proximity to a Starbucks location and determine if an association between purchase activity and proximity exists. Or, if customers are nearby but not entering the store, iBeacon messages can entice them to do so when without an enticement they otherwise might not visit a Starbucks on that day (Barris, 2014, Boardroom Insiders, 2014 and Elgan, 2014).
• #21: All of this technology, data and commitment to engagement for both Starbucks’ customers and its employees synergistically provides Starbucks customers with an outstanding experience that keeps them coming back, and helps Starbucks stay ahead of its competitors. From constantly gathering information and customer preferences through data mining and analysis Starbucks is able to find new patterns and relationships to inform its product offerings and fine-tune its service delivery. Starbucks uses business analytics to continually optimize their business processes and enjoy blue ocean strategic success.