Starbucks' digital transformation: The takeaways every enterprise needs to know

As every enterprise goes digital it's worth dissecting Starbucks' digital strategy and pondering the key takeaways about mobile, 1:1 marketing and developing a technology ecosystem.
Written by Larry Dignan, Contributor

Starbucks' fiscal 2015 is now in the books and besides strong same store sales and record revenue and earnings, but the biggest takeaway is that the company's digital efforts are generating stunning returns.

Simply put, Starbucks is a digital innovation machine. The company's Mobile Order and Pay rollout has juiced sales. Its apps are driving sales velocity and technology partnerships are bolstering the vibe in Starbucks' locations.

For fiscal 2015, Americas comparable stores were up 7 percent due to a 3 percent increase in traffic. China and Asia Pacific comp sales were up 9 percent. Revenue for the year surged 17 percent to $19.2 billion as $3.6 billion flowed to the bottom line.

CEO Howard Schultz said on Starbucks' fourth quarter earnings conference call:

By anticipating and beginning to invest many years ahead of the mobile technology curve, Starbucks today is defining customer-facing and apartment-facing mobile and retail experiences of the future. And the technology innovations we are introducing are further strengthening our brand, improving our efficiency and in-store execution, increasing our profitability, enabling us to further extend our lead over competitors, and, most importantly, enabling us to deliver an elevated Starbucks experience to our customers.

Starbucks occupies a front-row seat at the intersection of the physical and digital worlds like no other company anywhere in or out of retail. Our unique combination of assets that includes a growing global physical footprint of now over 23,000 stores, deep consumer engagement and trust in our brand, millions of customers every day, and breakthrough mobile and digital technologies are together enabling us to extend our reach and deepen our emotional connection to customers everywhere in ways that were not imaginable even a few years ago.

Schultz continued to add that Starbucks' mobile and digital experiences will only become more important. And partnerships with the likes of Lyft, Spotify and The New York Times can offer further monetization.

Add it up and mobile payment now accounts for 21 percent of all transactions at Starbucks. Starbucks' loyalty program, My Starbucks Rewards, has more than 20 million members around the world.

What can we learn from Starbucks, which should be a case study for every enterprise trying to go digital? Here's a crib sheet on the major Starbucks takeaways:

  • Digital efforts have to be customer first. Starbucks was able to raise its outlook partially based on the initial reaction to Mobile Order and Pay. Through one lens, Mobile Order and Pay boosts velocity of sales for Starbucks. But the technology to the customer is about what Jefferies analyst Andy Barish calls "line avoidance."
  • 1:1 marketing is the Holy Grail. The mobile apps for Starbucks coupled with the loyalty program gives the company an avenue to up sell, pitch and market to customers. Starbucks will ultimately know as much about your day as Google and Facebook do. The difference is Starbucks is tied in directly to your consumption habits. In other words, Starbucks' digital strategy equates to 1:1 marketing relationships with its customers.
  • You can't cut your way to digital transformation. Starbucks' major partner and technology investments will increase from about $145 million in fiscal 2015 to $250 million to $275 million in fiscal 2016. Every company needs to become more digital and every one of them needs to hit its quarters and hit its budget. To some degree, the digital haves of the future will be the ones who decided to spend on transformation efforts.
  • Think mobile and technology ecosystems. Starbucks' mobile and digital strategies all revolve around its loyalty program. Starbucks saw early on that its digital footprint was part of an ecosystem that connected to its physical presence. Now contrast that to dozens of retailers who are just now getting around to connecting digital and physical silos into an omnichannel approach.
  • Digital and physical nirvana is about balance. Starbucks was pummeled in the last recession in the U.S. because it grew its stores to quickly while having high prices. Starbucks is more disciplined about adding stores and remodeling because it sees digital as a growth avenue. However, Starbucks wouldn't be Starbucks without its stores. Starbucks also doesn't scrimp on its logistics and supply chain either. No matter how fancy your apps are you can't drop the ball on the physical infrastructure that goes with it.

ZDNet's Monday Morning Opener is our opening salvo for the week in tech. As a global site, this editorial publishes on Monday at 8am AEST in Sydney, Australia, which is 6pm Eastern Time on Sunday in the US. It is written by a member of ZDNet's global editorial board, which is comprised of our lead editors across Asia, Australia, Europe, and the US.

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