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Starbucks rolls out smart phone payments in Canada

Starbucks Corp. (SBUX-Q44.08-0.26-0.59%) wants to cash in on one of its customers’ addictions – to their smart phones – to profit even more from their other addiction – to java.

On Tuesday, the giant chain will break new ground in Canada in offering mobile payment, starting from an iPhone and, in the coming months, Android and BlackBerry devices. It’s betting that by transforming shoppers’ phones into mobile wallets, it will get consumers to splurge more – and return more often.

“Many of our customers leave home without a wallet, but almost never leave home without their phone,” said Adam Brotman, senior vice-president of digital ventures at Starbucks.

Starbucks’ mobile payment may be the tipping point for other merchants, along with telecommunications, technology and financial services players launching their own mainstream digital wallets, aiming to turn today’s checkout into a relic. Retailers are counting on new technology to make payment as easy as tapping a phone at a scanner, hoping to spur customers to make more impulse purchases while automatically offering coupons and loyalty rewards so they will buy even more.

But digital payment has been touted as the holy grail of improved commerce for years – and has yet to deliver in a big way. Current tests, such as the free Google Wallet app in the United States, are limited because they run only on single cellphone models, requiring a special “near-field communications” (NFC) chip that will become a widespread cellphone feature in the next few years. Starbucks isn’t waiting for NFC to take off, though; it’s rolling the dice with a mobile bar code app to take the hassle out of checking out.

A speedy checkout is vital for retailers so customers don’t abandon their purchase in a long lineup at the register. A mobile-payment purchase takes about six seconds, two-thirds faster than the time to do a credit card purchase, according to Bank of Montreal and MasterCard. Over all, mobile payments can rev up sales between 25 and 40 per cent, MasterCard says.

“Retailers want to move customers on quickly and move on to the next customer,” said David Heatherly, vice-president of payment products at Bank of Montreal, which in September introduced its own touch-less payment technology, enabled by placing a PayPass sticker on phones. “That is the future and that future is approaching quite rapidly.”

Starbucks’s free iPhone app requires users to enter their prepaid Starbucks card number and tap a scanner. The company learned from its experience in the United States, where it launched mobile payment this past January and has processed more than 20 million transactions digitally since, Mr. Brotman said. About 65 per cent of Starbucks’ U.S. customers have smart phones, which is similar in Canada, he said.

Starbucks customers tend to spend a bit more when they use mobile payment, he said. “You might be willing to pick up a CD or something else at the counter because it’s so easy.”

Starbucks will experiment with NFC chip technology as it becomes more mainstream, he said.

Already, Google is counting on its new phone software, Google Wallet, to become the alternative to real wallets. Other tests around the world, including in Canada, are also shifting payment to the phone.

“This probably has been the most overpromised opportunity,” said Richard McLaughlin, senior vice-president of global products at MasterCard Worldwide, which is a partner in Google Wallet. “We’ve been talking about the smart phone being a loyalty and couponing communication device for probably 10 years. It’s now ready to be a reality.”

Canada is a prime market for mobile payment because people here were early adopters of an array of financial-services technologies, from online banking to automatic teller machines, he said.

Retailers will be key beneficiaries of mobile payment, partly because of its potential to reduce their tab for handling cash or credit cards, he said. They now spend 1.5 per cent to 2 per cent of their sales on, for instance, handling, storing and depositing their cash, he said.

Thousands of stores in Canada under such banners as Loblaws, Sobeys, Tim Hortons and McDonald’s are equipping their scanners to accept NFC-enabled payments, he said. “By next year, there will be a lot of stuff on the go that is currently not on the go here in Canada.”

Why Pay Full Price?

It’s starting to feel like you should almost never have to pay full price.

With retailers’ rewards programs getting increasingly sophisticated, preferred customers can get discounts: points they can turn into store credit, coupons printed on sales receipts, the opportunity to buy merchandise before the general public—even secret password and birthday sales.

At Talbots, Black Card customers—anyone with a store-branded credit card who spends $1,000 annually—were given a sneak peek and chance to order the spring collection early. Old Navy, the bargain-priced division of Gap Inc., had a secret sale last year, with its $8.50 camisoles for $2. To receive the discount, shoppers had to flash a coupon or say to a sales associate “Cami for me.” The clothing store Anthropologie offers discounts to Anthro card members on their birthdays. DSW does as well, along with another coupon on shoppers’ half-birthdays.

What began as a barcode fob for grocery store coupons in the 1990s has evolved into a high-tech way for retailers to track the every move of their biggest, most-frequent spenders. Stores can market to shoppers directly based on the products they buy, aiming to win an even greater share of their wallets, in retailer parlance. Of course, to reap rewards, shoppers must first establish themselves as frequent customers. About three out of four Americans belong to a retail loyalty card program, according to ACI Worldwide, which handles electronics payment for hundreds of retailers and financial institutions.

This discounts are worth it to stores in order to keep the most loyal customers happy. Fifteen percent of a retailer’s most loyal customers can account for as much as half of its sales, says Keith Jelinek, director in the retail division of consulting firm AlixPartners. It takes between 12 and 20 new customers to replace a lost loyal customer, says Keith Colbourn, vice president, global loyalty practice leader at Dunnhumby, an analytics firm that works with retail giants Tesco PLC and Macy’s Inc.

CVS/Pharmacy connected its rewards program with its social media efforts. Just before Easter, CVS/Pharmacy asked its Facebook fans to vote on whether they liked Cadbury Creme Eggs or marshmallow Peeps. Coupons for the winning item—$1 off two eggs—were loaded into the in-store coupon center for one day. “We delivered real value, instantaneously, on the basis of their interests,” says Rob Price, chief marketing officer for CVS/Pharmacy, the retail division of CVS Caremark Corp.

To get discounts, shoppers must hand over personal data. Often, the more details given, the more discounts received, which brings up the issue of data privacy and the corresponding pitfalls.

Floor staff at J.Crew, Ann Taylor and other retailers routinely ask shoppers for their email addresses and nearly every chain store, from Walgreens to Wet Seal, has a spot on its website for consumers to sign up to receive store emails. It’s a quick, cheap way for a retailer to tell shoppers about deals and discounts—and arguably the least invasive piece of information a shopper can give a retailer.

In order to receive their emails, many retailers also will require a name and, in some cases a ZIP code or a date of birth. Some take it a step further and ask users to set up an online account that requires a login, allowing a retailer to track how often they visit the site, as well as what items draw their attention.

At J.C. Penney, shoppers can give a cellphone number to receive as many as eight mobile coupons a month. Old Navy shoppers can receive text messages with details on the featured item of the week.

To sign up for a retailer’s loyalty program usually requires name, mailing address and telephone number. These programs assign shoppers a number, often a barcode or a phone number, essentially applying a digital tracking number to each customer.

DSW uses this barcode-generated purchase data to make its marketing more relevant. “If someone is only interested in buying hiking boots, there’s probably not a lot of point in talking to them about the latest high heels that have come in,” says Derek Ungless, chief marketing officer.

Supermarket chain Kroger Co. sends individualized mailings to millions of its rewards program members several times a year. The packets of coupons from the store as well as its suppliers are based on each shopper’s habits. “Like snowflakes, no two are alike,” says Ted Sarosy, vice president of loyalty for Kroger.

Now, retailers are devising ways to track barcode holders outside the store. CVS, which has 67 million loyalty card members, recently offered fans of its Beauty Club Facebook page a free antibacterial product. For the voucher, shoppers had to enter their ExtraCare number and email address. “That’s another way for us to fingerprint the customer to give them more personalized value,” said CVS’s Mr. Price.

More than 7,100 CVS locations have in-store coupon centers, computerized columns that, when shoppers swipe a rewards card, spit out personalized coupons. The center is designed to “influence their shopping visit that day,” says Mr. Price. The deals attached to a receipt are meant to encourage another visit.

The most details a consumer gives are through a branded credit card, which provides detailed financial information. To encourage use of its credit card, Target Corp. began last fall offering shoppers 5% off every purchase with its branded credit card, the only loyalty program offered by the big box chain.

With Gap Inc.’s credit card program, shoppers get advance notice of sales, exclusive offers and 10% off all Tuesday purchases. Shoppers receive five points for each dollar spent at one of the company’s brands.

Neiman Marcus Group Inc.’s loyalty program, InCircle, is a credit card that can only be used at Neiman Marcus’s five divisions, which include Bergdorf Goodman and Last Call. The card allows the retailer to keep track of purchases, as well as shopping frequency and any cross-shopping among its brands. The loyalty program “can retain customers, it can get new customers, it could win back anybody who has lapsed,” says Maggie Lucas, director of marketing.

Although the majority of apparel and accessories retailers tie their loyalty program to a credit card, some companies have begun to unbundle the two as skittish customers have shunned credit in favor of cash or debit payments.

By adding a non-credit-card loyalty program with free enrollment, retailers widen the appeal of the rewards program. Chains with non-credit card loyalty programs include Sears Holdings Corp., which includes Kmart, Modell’s Sporting Goods and teen retailer American Eagle Outfitters Inc.

Women’s clothing chain Talbots Inc. split its rewards program into three parts in 2009 as part of a brand overhaul. Along with its existing charge card, the company added a non-credit card, allowing it to capture information about its in-store shoppers similar to that of online shoppers. If someone makes a purchase online or through the catalogue, “we instantly capture her information,” says Lori Wagner, chief marketing officer.

Most systems dole out points based on the amount spent. Members of the DSW Rewards program earn a $10 certificate for every 1,500 points earned. (Points differ based on full price or clearance items, but equate to roughly 10 points per $1 spent.) Customers who rack up more than 6,000 points each year achieve Premiere Rewards status. That top tier of customers can receive triple points on purchases two days a year of their choosing.

The company mails out certificates to its 16 million rewards members because customers have said they prefer that method. “It’s not a bill,” says Kelly Cook, vice president of customer strategy and engagement. “It is happiness.”

Nielsen: 28 Percent of U.S. Wireless Users Have Smartphones

More people are opting for smartphones these days, with 28 percent of the U.S. mobile market snapping up the devices in the third quarter, according to Monday data from Nielsen.

The report attributed the growth to the popularity of Apple’s iPhone, RIM’s BlackBerry phones, and Android-based devices.
RIM and Apple are the top two operating systems in the U.S., with 30 percent and 28 percent of the market, respectively. Google’s Android platform, while growing, sits at third place as the OS of choice for 19 percent of smartphone subscribers. However, in the last six months, Android devices were the most popular choice for those purchasing a new smartphone.

Globally, the U.S. smartphone penetration rate is similar to that in the U.K. However, more users have adopted the advanced devices in Spain and Italy, with 37 and 33 percent penetration, respectively, last quarter. Nielsen said the Symbian platform is the most popular OS in the European market.

In terms of operating system demographics, Apple had the highest amount of users under 44 while RIM had the most users over 45, and half of Android users are younger than 35 years old. Broken down by race, Nielsen found smartphone owners to be more a bit more diverse than those with feature phones. About 62 percent of smartphone owners are white, compared to 76 percent of feature phone owners. About 19 percent of Hispanics own smartphones, compared to 9 percent with feature phones. There was not a huge difference between the percentage of African Americans and Asians with smartphones versus feature phones.

The study showed that the number of smartphone users has surged; in the last six months, 41 percent of those purchasing a new phone chose a smartphone rather than a standard feature phone, a 6 percent increase from last quarter.

More smartphone users mean more people online. According to a International Telecommunications Union study, two billion people will be online by the end of 2010, and increased smartphone penetration is a factor.

1 in 2 Americans Will Have a Smartphone by Christmas 2011

If you’re not ready to bid farewell to the feature phone just yet, you might want to start preparing your goodbyes. Nielsen today estimates that by the end of 2011, smartphones will overtake feature phones in the U.S.. One in two Americans will have a smartphone by Christmas of that year, Nielsen forecasts, compared to just one in 10 in the summer of 2008. I blame the iPhone, but there are plenty of culprits to point out — superphones packed with with more features than you can fit in a stocking over the fireplace.

According to the data, it took six quarters for the U.S. smartphone market share to double, moving to 21 percent of handsets sold from just 10 percent in early 2008. Nielsen expects acceleration of that growth rate due, which makes sense due to increased application availability, better native features and the declining prices for smartphone devices. These more capable devices are sure to increase the demand for mobile broadband infrastructure, but U.S. carriers ought to be happy with this situation. Mobile broadband plans for smartphones help generate higher ARPU through the data service, which offsets decreased ARPUs on the voice side.

Loyalty Trends

Call it the loyalty craze. According to Jupiter Research, more than 75 percent of consumers now have at least one loyalty card, and the number of people with two or more is estimated to be one-third of the shopping population. Cap Gemini Ernst & Young CTO John Parkinson says his family has 37 loyalty cards, and surveys by information technology analysts Gartner Inc., Forrester Research Inc., and META Group Inc. suggest the data-for-dollars explosion is showing no signs of letting up anytime soon. According to Gartner analyst Adam Sarner, U.S. companies spent more than $1.2 billion on customer loyalty. While loyalty cards and prizes have always been, first and foremost, a cheap way for businesses large and small to start tracking their customers’ shopping habits, more customers than ever now consider themselves entitled to special treatment, a marketplace psychology spawned in the 1970s by the airline industry’s invention of frequent-flier miles, one of the first modern-day loyalty programs. Originally devised to generate better data on the most popular routes, the airlines broke what was a one-price-fits-all standard and introduced a some-people-are-more-special-than-others psyche that has changed the American, and global, marketplace forever. Says Brian Woolf, president of the Retail Strategy Center in Greenville, S.C., and author of Loyalty Marketing: The Second Act, “Loyalty programs are now a price of doing business.”

What are Loyalty Programs?

Loyalty programs are structured loyalty marketing efforts that reward, and therefore encourage, loyal buying behavior — behavior that is potentially beneficial to the firm. In loyalty marketing generally and in loyalty retailing more specifically, a loyalty card, rewards card, points card, advantage card, or club card is a plastic or paper card, visually similar to a credit card or debit card, that identifies the card holder as a member in a loyalty program.[2] Loyalty cards are a system of the loyalty business model. In the United Kingdom, it is typically called a loyalty card, in Canada a rewards card or a points card, and in the United States either a discount card, a club card or a rewards card. Cards typically have a barcode or magstripe that can be easily scanned, and some are even chip cards. Small keying cards (also known as keytags) that serve as key fobs are often used for convenience in carrying and ease of access.

A retail establishment or a retail group may issue a loyalty card to a consumer who can then use it as a form of identification when dealing with that retailer. By presenting the card, the purchaser is typically entitled to either a discount on the current purchase, or an allotment of points that can be used for future purchases. Hence, the card is the visible means of implementing a type of what economists call a two-part tariff.

The card issuer requests or requires customers seeking the issuance of a loyalty card to provide a usually minimal amount of identifying or demographic data, such as name and address. Application forms usually entail agreements by the store concerning customer privacy, typically non-disclosure (by the store) of non-aggregate data about customers. The store — one might expect — uses aggregate data internally (and sometimes externally) as part of its marketing research. These cards can be used to determine, for example, a given customer’s favorite brand of beer, or whether he or she is a vegetarian.

Where a customer has provided sufficient identifying information, the loyalty card may also be used to access such information to expedite verification during receipt of cheques or dispensing of medical prescription preparations, or for other membership privileges (e.g., access to a club lounge in airports, using a frequent flyer card).

Loyalty programs are predominantly run by retailers and the service industry, but recent advances in proof of purchase systems and supporting technology is now increasing participation by manufacturers of consumer products.

Loyalty Secrets

It’s the new normal in speaking to your target, right? Engage them. Give them a reason to return. Keep them loyal to the community.

The thing is, for loyalty programs like Aeroplan, Air Miles and Shoppers Optimum, the idea of giving to get back is not at all new. In fact, some of Canada’s largest loyalty programs have tapped into the distinctly Canadian obsession with rewards programs for more than a decade. And for good reason: 94% of Canadians belong to some type of loyalty program. That’s the highest on the planet only after the sensible Brits. Given the potential for unique made-in-Canada insights around our collective loyalty, it’s somewhat surprising that no one has attempted a comprehensive consumer analysis that reveals why Canadian consumers prefer to spend a lot when offered a little back through a loyalty program.

Enter Maritz Canada’s first-of-its kind national study of Canadian reward loyalty program members with a focus on three key areas: reward programs and their influence on Canadian shopping behavior, how and why Canadians choose one reward program over another, and what drives superior member engagement. And there were plenty of surprises. “We knew loyalty markets were popular in Canada,” says Maritz Canada president Bob Macdonald. “ But the extent to which Canadians are willing to admit that loyalty programs influence their loyal behavior blew us away.”

He didn’t expect how few programs are effectively communicating and building relationships with their customers . “Ultimately the end purpose of loyalty is to identify these communities and reach out and communicate with them in a way that’s meaningful to them,” Macdonald says. “We were surprised to the degree that this wasn’t happening.” The 75-page study offered a lot of lessons to Canada’s marketing industry.

© 2016 Akela Inc.