Starbucks duetto visa

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>cases

In the very mature financial services industry, it is rare for a new financial product

to garner much attention, let alone be named one of BusinessWeek’s outstanding

products of the year. But what started as a way for Starbucks to add value to its

existing Starbucks Card program developed into a financial product that many

other institutions are interested in exploring. This case reveals the research that

was done to develop this new payment option for Starbucks customers.

www.starbucks.com; www.bankone.com; www.visa.com

>Abstract

>The Scenario

Starbucks Coffee Company is the leading retailer, roaster, and brand of specialty

coffee in the world, with more than 7,500 retail locations in North America, Latin

America, Europe, the Middle East, and the Pacific Rim.1 It has long prided itself

on offering an enriched customer experience as much as on great-tasting, high-

quality coffees. The company’s prepaid stored-value card, known as the

Starbucks Card, has been a tremendous success since its launch in late 2001. By

2002, Starbucks was looking to evolve the program. Colette Courtion, Director

of Starbucks’ global card services, indicates “We had been regularly enhancing

the Starbucks Card with new benefits for its ongoing use—like protecting the

Card’s balance and adding auto-reload [a process whereby the customer has his

or her selected credit card charged for reloading the Starbucks Card with spend-

able cash when the Starbucks Card reached a predetermined level], but we

wanted to build on the Card’s success in a way that would reward our loyal

customers.”2

Similar to other businesses’ cards, Starbucks prepaid, stored-value card can

be used in its stores to purchase food, beverage and merchandise. Many

Starbucks customers reload their Starbucks Cards for ongoing purchases at

Starbucks. “The success of the Starbucks Card gave us the idea of creating an

entirely new payment product.” This new payment product would marry the

functionality of a Starbucks Card with the functionality of a major credit card.

“With a dual function card we could reduce the number of cards our customers

carry. It was also an opportunity to reinvent an industry that was mature and

saturated and make it relevant and unique to our customers.” Early secondary

research indicated such a product did not exist in the credit services industry. The

card would also be entry into Starbucks first formal loyalty program. “Consumers

expect rewards from their credit cards. But we didn’t want to be too prescriptive

with our rewards structure. If something is expected, it doesn’t feel special.” Used with permission

of Pamela S. Schindler.

© 2006.

Starbucks, Bank One, and Visa

Launch Starbucks Duetto Visa

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>>>>>Finding and Assessing Card and Bank Partners

Starbucks set out to see if it could stimulate interest in a new financial services

product in the mature credit services industry. “We didn’t want to offer a standard

credit card.3 We wanted to leverage the success we had already established with

the Starbucks Card and provide our customers with something truly innovative in

the market place. To do that, we had to find the right partners.”

The right partner would be one that could share the Starbucks vision and

make a commitment to offering the top-quality customer service that a Starbucks

customer had come to expect. “Starbucks is known for its innovation so we had

to develop a product that would truly surprise and delight our customers,” ex-

plains Courtion.

Starbucks approached card services companies MasterCard, American

Express, and Visa. It conducted interviews with bank executives, visited call

centers, even listened in on phone calls to learn how each resolved customer

credit card problems. “Visa and Bank One shared our vision and excitement

about the new payment product, and our commitment to exceptional customer

service,” claimed Courtion. Visa and Bank One also brought extensive knowledge

of the credit card market and marketing expertise to the partnership. Visa cards

are accepted by millions of establishments, in more than 150 countries; one in

every eight dollars spent in the United States is spent with a Visa card.4 “People

who love Starbucks will love this card,” promises Carl Pascarella, president and

CEO of Visa USA.5 Bank One is the number-one Visa card issuer in the world,

with more than 52 million credit cards issued; it handles more than 1.8 billion

credit card transactions per year.6 “Bank One is excited to be working with

Starbucks to develop an innovative payment technology that makes life easier and

more rewarding for customers,” shares Jamie Dimon, chairman and CEO of Bank

One.7

>>>>>Concept Testing

Starbucks, Visa, and Bank One all have internal research operations. From

the beginning this was a collaborative research effort among all three companies.

Starbucks thought the idea of a dual-functionality card might be confusing. Bank

One and Visa shared that concern. “We wanted to know if customers could

understand the value proposition of the dual functionality,” shares Ajay Gupta,

senior group research manager for Bank One. They tested the idea of a dual-

functionality card with four focus groups, using the services of an independent

moderator. They chose Seattle and San Francisco, both with good Starbucks

coverage, for the focus groups, which involved two major groups of Starbucks

customers who owned a credit card: those who used the Starbucks Card and

those who did not. The purposes of the groups were to determine how well

customers understood the dual-functionality concept—a credit card and stored-

value card in one—identify areas requiring more clarification, and assess the

appeal of monthly rewards and how they might be delivered. “The focus groups

helped us refine the concept, and define what might comprise the ‘surprise and

delight’ features of the card,” explains Gupta. “We learned that the concept of

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dual functionality was difficult for some to grasp.” Being able to effectively com-

municate the value proposition of the card would be critical to the success of the

program. From one group to the next, the research team refined the value propo-

sition, until the participants understood they would need to carry only one card,

not two. “Once they grasped the concept,” shares Gupta, “while some thought it

was a great idea, others were not as receptive to the concept. They were not so

sure that it would replace a current credit card in their wallet.” Overall, the

findings from the focus groups were used to refine the concept and to restructure

the communication of the idea to minimize confusion.

Beyond dual functionality, Starbucks initially had two objectives for the focus

groups and later for the quantitative studies to follow:

• Brand Fit—Determine whether any negative connotations associated with

past credit card experiences would have potential negative

impacts on the Starbucks brand.

• Benefits—(1) Determine whether the customer valued the instant re-

wards8 feature of the Duetto Visa card:

o Could Starbucks explain the feature so that it would be

compelling enough for a Starbucks Duetto Visa card

holder to use it rather than another card that promised

perceived greater rewards, such as airline miles or hotel

stays.9

(2) Determine if the planned give-back-to-the-community

component of the new payment program had value to the

customer.10

Focus groups were followed by several quantitative studies. The first was a

product functionality study through an online survey, with participants recruited

from an online panel. The same groups as for the focus groups (Starbucks cus-

tomer—user of Starbucks Card; Starbucks customer—nonuser of Starbucks

Card) were used, and the sample size for each subgroup was between 200 and

400. The objective of this research was to understand which one of two credit

card concepts (the dual-function version or two separate cards) consumers

preferred. The survey was designed to determine the concept’s appeal and

future-purchase likelihood, impact on the Starbucks brand, barriers to card usage,

and specific attribute importance ratings. This study measured quantitatively the

level of understanding of the dual-function card using the refined value proposition

developed through the focus groups.

Once Starbucks and Bank One decided to proceed with the dual-function

card, a product optimization study was conducted. This second online study

comprised the concept evaluation/optimization as well as volumetric forecasting

measurements. Again, the same parameters were used to stratify the sample, but a

slightly larger sample size was used. The research addressed the following

objectives:

• Estimate “take rates” and usage for the new Starbucks card

• Determine the impact of different card features/benefits including the

“surprise and delight” features.

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• Profile the most likely applicants for the Starbucks Duetto Visa based on

demographics, Starbucks usage behaviors, and other targetable

characterisitics.

“We use a number of different standardized metrics when we test a concept,”

explained Gupta. Bank One is interested primarily in a participant’s likelihood of

applying and how the Starbucks Duetto Visa Card applicant envisioned using the

dual-function card. One purpose of this study was to understand the impact of

various features in driving application intent. “We wanted to know their sensitivity

to those choices,” shares Gupta. A trade-off technique was used to understand

the importance of the various features and the levels thereof in driving the pur-

chase decision. Bank One also wanted to know which feature offered the

greatest potential for “sales lift”—whether customers would not only apply for the

new card but use it once they were approved. The results from this study were

compared to norms that have resulted from more than 200 similar concept studies

by Bank One, using performance against those norms to predict the likely success

of the new payment product.

>>>>>Measuring Early Intent to Participate

“We distributed a press release via Business Wire on February 21, 2003,

announcing the strategic partnering of Starbucks, Visa, and Bank One.11 In that

release we directed people to information on the Web site,” describes Courtion.

Starbucks also offered Web-site visitors the opportunity to comment on the new

payment product and receive e-mail notification of the card’s launch. “The

response was far beyond our expectations. Tens of thousands of people signed up

[to be notified].”12 And thousands of written comments confirmed that many of

the Starbucks customers would embrace the new card. “We read every single

comment; and while the themes were repetitive, it was exciting to see an idea

receive such an overwhelmingly positive reception.”

>>>>>Measuring Return on Marketing Investment

“The Duetto program is a large undertaking, with a high level of commitment

to information technology and operational changes,” explains Courtion. At each

Starbucks store, the payment system recognizes a Duetto Card differently and

allows the purchaser to choose whether to use accumulated Duetto Dollars (the

stored-value function of the card), charge the purchase to his or her Visa account

on the card, or do some combination of both. In a business where speed of

service is paramount, a system that can cut transaction processing time by two to

four seconds per patron can significantly affect basic customer service. “When the

patron uses their Duetto Dollars, just one swipe of the card is all it takes.”

The Starbucks Duetto Visa Card was launched in October 2003, and early

indications show the program is headed for success. Starbucks plans to evaluate

the program with data from each quarter. It has several criteria for success:

• Brand enhancement. Does the card enhance the Starbucks

customer experience? How satisfied is each customer? Do custom-

ers feel appreciated?

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o Early feedback via customer comments was favorable.

o Tens of thousands of First Edition cards (issued only to those

who signed up via the Web site between February and October

2003 for advance notification) were issued as of the October

launch date.

o Surprise and Delight. An in-store Customize Your Drink

booklet plus 7 to 10 Duetto Dollars were loaded on every

Duetto card at the end of the first quarter, and each Starbucks

Card Duetto Visa holder received a one-pound bag of Starbucks

Organic Serena Blend coffee at the end of the second quarter .

• Can Starbucks give back to the communities in which it operates in a

significant way?

o The program has generated funds in line with expectations for

Jumpstart, Conservation International and Earth Day Network.

• Will the card prove valuable to all partners?

o Preliminary results indicate that the Duetto card has proved to be

successful for all three companies. Metrics such as the number of

cards issued, the percent of Starbucks Card Duetto Visa holders

using it as their primary credit card, and the dollar value of

purchases made with the card all are exceeding expectations.

Additionally, Bank One has a complete set of metrics it uses to measure return on

marketing investment (ROMI) for all new products, including:

• Number of accounts booked—the actual number of applications

approved as accounts.

• Approval rate—the ratio of approved accounts to applications.

• Cost per account—the total marketing cost of acquiring accounts

divided by the number of accounts.

• Number of activated accounts—the number of accounts used to

make actual purchases.

• Spend per month—trends related to dollar activity on the card per

month.

• Continuity of spending—the pattern of spending activity on the

account over time.

Starbucks and Bank One are coordinating the nature and timing of additional

marketing ventures in their continuing efforts to market the Duetto card. Just six

months after launch, a brand tracking study was completed to determine if the

launch increased awareness and understanding of the card’s benefits. This study

was done though an online survey, measuring participant awareness of promo-

tional materials, whether participants had applied or considered applying, and why

or why not. “We considered an intercept study outside the Starbucks store, but

since we don’t own that space, it was discarded [as a methodology],” says

Gupta.

Plans for the future include extensive research on customer brand loyalty,

research on what role the card plays in customers’ decisions, as well as metrics

like whether they use both functions of the card or only one and whether they are

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using the automatic reload feature of the card. “We want to understand the

[Duetto card] user, who they are, their engagement with the loyalty program, and

whether and how they are using credit,” elaborates Gupta.

Do preliminary results indicate this product has staying power? Business

Week named the Duetto card one of the best products of 2003; it was the only

financial services product recognized. The Duetto card was also named

CardTrak’s top card of 2003. In addition, the public relations teams of

Starbucks, Bank One, and Visa received the 2004 Silver SABRE (Superior

Achievement in Branding and Reputation) award in the financial industries cat-

egory for the Duetto card launch.13 Additionally, the Duetto card is meeting the

varying expectations of all the players. “It is performing as we would expect a

retail affinity card to perform,” shares Mike Bordner, Bank One’s relationship

manager on the Starbucks’ account. Inquiries from other businesses in developing

a similar card is further evidence that research helped Starbucks, Bank One and

Visa make some very effective decisions.

1. What types of research were done at each stage? Discuss the strengths of

each different type given the stage of the project.

2. Build the management-research question hierarchy for this project.

3. Discuss the choice of an online survey to assess Starbucks’ three objec-

tives of functionality, brand fit, and benefits. What are the pros and cons

of choosing this survey method?

4. The Duetto Card team turned to Greenfield Online to recruit a panel for

one of its online surveys. How might you build a sample frame of appro-

priate participants for future online or phone surveys?

5. What measurement questions would you use to assess the effectiveness of

the Starbucks Duetto™ Visa in a future customer survey?

1 The store count and sections of the world are as of May 2004. 2 Colette Courtion, director of Starbucks’ global card services, interviewed April 26, 2004. 3 Visa and Bank One offer numerous cobranded cards; airline companies, oil companies, hotels, and

specialty retailers are just a few of the categories of such cards. A cobranded partner, for example, an

oil company, could have rewards associated with buying its brand of gas, and the cash rewards could

be reflected on the customer’s Visa statement. But a dual-functionality card is very different. Think

of it as being like multiple cards that look the same. Sometimes, when you hand it to the retailer, you

specify that it is a credit card. Other times, when you are in a Starbucks store, you specify that it is

a debit card, deducting the amount of your purchase from its preloaded value. No matter how it is

used, it always serves as a loyalty card, tracking the purchases that earn you rewards. 4 “Fast Facts,” Duetto Visa Press Kit jointly issued by Starbucks, Visa, and Bank One, October 2003

(http://www.piranhaproductions.net/sbux/duettopress/). 5 “Starbucks Coffee Company, Bank One, and Visa Team Up to Develop the Next Evolution of the

Starbucks Card,” Visa USA press release, February 21, 2003. (http://usa.visa.com/personal/

newsroom/press_releases/nr149.html). 6 “Fast Facts.” 7 Ibid.

>>>>>Discussion

>>>>>Notes

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8 Initially, new card holders each received $10 worth of Duetto Dollars to spend on anything in a

Starbucks store. Additionally, 1 percent of all purchases made with their Starbucks Duetto Visa

cards would be immediately credited as Duetto Dollars to their Starbucks’ accounts. Each quarter,

each Starbucks Duetto Visa card holder receives a special gift based on his or her quarterly pur-

chases. 9 Research provided by Starbucks’ card partner, Visa, indicated that mileage card holders had a high

perceived value for their cards, even though at average card charges of $4,000 to $6,000 per year, it

would take the average customer four to five years to earn a single reward ticket. 1 0 Three percent of a card’s purchase amounts are donated to the Starbucks Foundation. 1 1 Business Wire is a service that reaches most press rooms and news Web sites nationwide. While

the press release was written in a way that would be of interest to the financial/business media, it

generated stories in the general press as well. 1 2 Those innovators would ultimately be rewarded with a First Edition Duetto Visa card and special

rewards that later adopters would not receive. The First Edition card would give the holder instant

recognition as a special customer to every Starbucks ‘barista’. 1 3 The SABRE awards, sponsored by the Holmes Group, recognize the best programs within specific

industries with either reputation or branding objectives. The awards are judged by some of the most

senior public relations professionals in the industry—in corporate communications and public

>>>>>Source

relations agencies.

This case was developed for Business Research Methods 9/e © 2006 from interviews with the

principals and materials provided by them, as well as press releases posted to their websites. Used

with permission of Pamela S. Schinder.

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