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Groupon’s Starbucks offer showcases potential in frictionless mobile commerce

By
March 26, 2013

Groupon’s turnaround efforts got a much-needed shot of caffeine from a Starbucks offer last week, highlighting the significant potential mobile holds to drive seamless digital commerce experiences.

When Groupon offered users a $10 Starbucks electronic gift card for $5 on March 22, the response was so strong – there were more than 100,000 takers – that it crashed the Groupon site. While the daily deals provider has been struggling for a while, offers such as this show the power of the right deal coupled with easy mobile purchase and redemption to drive results for both Groupon and Starbucks.

“Consumers are so ready to adopt and ready to shop at a moment’s notice because of their mobile phones,” said Jeremy Jacobs, director of strategy for agency Resource, Columbus, OH.

“Putting the right offer in the right context in the right time frame is so much easier now than it ever was before, so consumers are responding by being willing to say, no matter where I am at  – whether at home watching TV or at my kid’s soccer game – I can make this purchase right away,” he said.

“It is really not that much of a shock that this was so successful and crashed Groupon’s site.”

Preloaded value
Groupon has been struggling lately, in part because retailers are increasingly questioning if daily deals attract consumers who can potentially become repeat customers or simply bring in bargain shoppers, in which the value of such offers is questionable.

Another reason Groupon is struggling is because consumers are getting weary of daily deals now that there are so many of them.

However, the Starbucks deal had wide appeal because the brand’s customer base is so wide.

For Starbucks, one reason partnering with Groupon on this offer makes sense is because the coffee house chain has built a strong mobile payments and loyalty platform that it is looking to attract more users to.

Attracting other big-name retailers that consumers want and are interested in leveraging Groupon to deliver a special offer is one of the challenges the daily deals site faces going forward.

The deal was delivered in value preloaded onto one of several online credit mechanisms, including Starbucks’ mobile payments and loyalty apps. The offer could be redeemed by a user engaging with Starbucks via one of these online mechanisms.

Groupon sent the deal to users who had opted-in to receive emails from the company the night before it posted it on its site.

Customer acquisition
The terms of the offer state that users could apply the $10 value to an existing Starbucks Card, use it online at starbucksstore.com or register it for use with Starbucks’ mobile applications.

“This is a brilliant customer acquisition move by Starbucks,” said Wilson Kerr, vice president of business development and sales at Unbound Commerce, Framingham, MA.

“[The mobile redemption] is why, in my opinion, this Groupon makes sense for Starbucks,” he said. “Starbucks is selling a Groupon and sacrificing revshare on the front side, but generating value by plugging the redemption mechanism into their highly successful preexisting ‘credit redemption’ solution that can be applied and redeemed via use the Starbucks mobile app.

“In this way, they dodge the Achilles heel of the Groupon model redemption headaches at point-of-sale  and drive usage of their mobile payment solutions.”

Starbucks recently reported that it is seeing three million mobile transactions per day, and is doing 10 percent of its revenue through the mobile channel.

“I would imagine that the lifetime value of a Starbucks mobile app user faroutweighs the percent revenue share that Starbucks sacrificed for a huge surge of their eGift program, not to mention all the free publicity,” Mr. Kerr said.

The Starbucks offer points to how mobile can both help Groupon build its business going forward and to one of the main challenges it faces, which is the proliferation of mobile wallets.

Mobile wallets such as Google Wallet and Isis are increasingly focusing on delivering daily deals in addition to mobile payments to give consumers another reason to use a wallet.

“Groupon has to be thinking about what is their long-term solution to deal with the mobile proliferation of wallets because so many of them are going after the deal end,” Mr. Jacobs said.

“Groupon has to figure out a way to get in deeper with merchants and maybe figure out a way to get into loyalty,” he said. “Mobile has to be the platform that does it first.

“Groupon is already pretty powerful on a mobile device. There are a lot of people that access Groupon only on a mobile device, in particular their smartphone.”

Final Take
Chantal Tode is associate editor on Mobile Commerce Daily, New York

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