Read the case study Starbucks, Bank One, and Visa Launch Starbucks Duetto Visa. Answer questions 1–3 at the end of the case study.

Aug 24, 2021 | Applied Sciences

Read the case study Starbucks, Bank One, and Visa Launch Starbucks Duetto Visa. Answer questions 1–3 at the end of the case study.
Business Research Methods, 11e, Cooper/Schindler 1 > 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 S tarbucks 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 thatwas done to develop this new payment option for Starbucks customers. www .st arbucks.com ; www .bankone.com ; www .visa.com > Abstract > T he Scenario Starbucks Cof fee Company is the leading retailer , roaster, and brand of specialty cof fee 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 cof fees. The company’ s prepaid stored-value card, known as the S tarbucks Car d, has been a tremendous success since its launch in late 2001. By 2002, Starbucks was looking to evolve the program. Colette Courtion, Directorof S tarbucks’ global card services, indicates “W e had been regularly enhancing the Starbucks Card with new benefits for its ongoing use—like protecting theCard’ 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 wewanted 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. ManyStarbucks customers reload their Starbucks Cards for ongoing purchases atStarbucks. “The success of the Starbucks Card gave us the idea of creating anentirely new payment product.” This new payment product would marry thefunctionality of a Starbucks Card with the functionality of a major credit card.“W ith 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 secondaryresearch indicated such a product did not exist in the credit services industry . The card would also be entry into Starbucks first formal loyalty program. “Consumersexpect rewards from their credit cards. But we didn’t want to be too prescriptivewith our rewards structure. If something is expected, it doesn’t feel special.” Used with permission of Pamela S. Schindler.© 2006. St arbucks, Bank One, and V isa Launch S tarbucks Duetto V isa Business Research Methods, 11e, Cooper/Schindler 2 >> >> >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 of fer a standard credit card. 3 W e 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 Starbuckscustomer had come to expect. “Starbucks is known for its innovation so we hadto 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 customercredit card problems. “V isa and Bank One shared our vision and excitement about the new payment product, and our commitment to exceptional customerservice,” 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 inevery eight dollars spent in the United S tates is spent with a Visa card. 4 “People who love Starbucks will love this card,” promises Carl Pascarella, president andCEO 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 billioncredit card transactions per year .6 “Bank One is excited to be working with Starbucks to develop an innovative payment technology that makes life easier andmore rewarding for customers,” shares Jamie Dimon, chairman and CEO of BankOne. 7 >> >> >Concept T esting 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. BankOne and Visa shared that concern. “W e 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 independentmoderator . They chose Seattle and San Francisco, both with good S tarbucks coverage, for the focus groups, which involved two major groups of Starbuckscustomers who owned a credit card: those who used the Starbucks Card andthose who did not. The purposes of the groups were to determine how wellcustomers understood the dual-functionality concept—a credit card and stored-value card in one—identify areas requiring more clarification, and assess theappeal of monthly rewards and how they might be delivered. “The focus groupshelped us refine the concept, and define what might comprise the ‘surprise anddelight’ features of the card,” explains Gupta. “W e learned that the concept of St arbucks-BankOne-V isa-Launch-Starbucks-Duetto-V isa Business Research Methods, 11e, Cooper/Schindler 3 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 theprogram. 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 itwas a great idea, others were not as receptive to the concept. They were not sosure that it would replace a current credit card in their wallet.” Overall, thefindings from the focus groups were used to refine the concept and to restructurethe 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- war ds8 feature of the Duetto Visa card: o Could Starbucks explain the feature so that it would be compelling enough for a S tarbucks Duetto Visa card holder to use it rather than another card that promisedperceived greater rewards, such as airline miles or hotelstays. 9 (2) Determine if the planned give-back-to-the-communitycomponent of the new payment program had value to thecustomer .10 Focus groups were followed by several quantitative studies. The first was a pr oduct 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 StarbucksCard) were used, and the sample size for each subgroup was between 200 and400. The objective of this research was to understand which one of two creditcard concepts (the dual-function version or two separate cards) consumerspreferred. 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 thelevel of understanding of the dual-function card using the refined value propositiondeveloped 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 forecastingmeasurements. Again, the same parameters were used to stratify the sample, but a slightly larger sample size was used. The research addressed the followingobjectives: •Estimate “take rates” and usage for the new Starbucks card • Determine the impact of different card features/benefits including the“surprise and delight” features. ) Business Research Methods, 11e, Cooper/Schindler 4 • Profile the most likely applicants for the S tarbucks Duetto Visa based on demographics, Starbucks usage behaviors, and other targetable characterisitics. “W e use a number of dif ferent standardized metrics when we test a concept,” explained Gupta . Bank One is interested primarily in a participant’ s likelihood of applying and how the S tarbucks 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. “W e wanted to know their sensitivity to those choices,” shares Gupta. A trade-of f 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 thegreatest potential for “sales lift”—whether customers would not only apply for thenew card but use it once they were approved. The results from this study werecompared to norms that have resulted from more than 200 similar concept studiesby Bank One, using performance against those norms to predict the likely successof the new payment product. >> >> >Measuring Early Intent to Participate “W e distributed a press release via Business Wire on February 21, 2003, announcing the strategic partnering of S tarbucks, Visa, and Bank One. 11 In that release we directed people to information on the Web site,” describes Courtion. S tarbucks also of fered 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 S tarbucks customers would embrace the new card. “W e 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), char ge the purchase to his or her Visa account on the card, or do some combination of both. In a business where speed ofservice is paramount, a system that can cut transaction processing time by two tofour seconds per patron can significantly affect basic customer service. “When thepatron uses their Duetto Dollars, just one swipe of the card is all it takes.” The S tarbucks Duetto Visa Card was launched in October 2003, and early indications show the program is headed for success. Starbucks plans to evaluatethe 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? St arbucks-BankOne-V isa-Launch-Starbucks-Duetto-V isa Business Research Methods, 11e, Cooper/Schindler 5 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 Y our Drink booklet plus 7 to 10 Duetto Dollars were loaded on everyDuetto card at the end of the first quarter , and each Starbucks Card Duetto Visa holder received a one-pound bag of S tarbucks Organic Serena Blend coffee at the end of the second quarter . • Can Starbucks give back to the communities in which it operates in asignificant way?oThe program has generated funds in line with expectations forJumpstart, 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 besuccessful for all three companies. Metrics such as the number ofcards issued, the percent of S tarbucks Card Duetto Visa holders using it as their primary credit card, and the dollar value ofpurchases 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 whyor why not. “W e considered an intercept study outside the S tarbucks store, but since we don’t own that space, it was discarded [as a methodology],” saysGupta. Plans for the future include extensive research on customer brand loyalty , research on what role the card plays in customers’ decisions, as well as metricslike whether they use both functions of the card or only one and whether they are St arbucks-BankOne-V isa-Launch-Starbucks-Duetto-V isa Business Research Methods, 11e, Cooper/Schindler 6 using the automatic reload feature of the card. “W e 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 W eek 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 CardT rak’s top card of 2003. In addition, the public relations teams of S tarbucks, 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 aretail af finity card to perform,” shares Mike Bordner , Bank One’s relationship manager on the Starbucks’ account. Inquiries from other businesses in developinga similar card is further evidence that research helped Starbucks, Bank One andV isa make some very ef fective decisions. 1. What types of research were done at each stage? Discuss the strengths ofeach 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 forone 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 ofthe S tarbucks 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 S tarbucks’ global card services, interviewed April 26, 2004. 3 V isa and Bank One of fer 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 V isa statement. But a dual-functionality card is very dif ferent. 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 isa debit card, deducting the amount of your purchase from its preloaded value. No matter how it isused, it always serves as a loyalty card, tracking the purchases that earn you rewards. 4 “Fast Facts,” Duetto Visa Press Kit jointly issued by S tarbucks, Visa, and Bank One, October 2003 (http://www .piranhaproductions.net/sbux/duettopress/). 5 “S tarbucks Cof fee Company , Bank One, and Visa Team Up to Develop the Next Evolution of the S tarbucks 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 St arbucks-BankOne-V isa-Launch-Starbucks-Duetto-V isa Business Research Methods, 11e, Cooper/Schindler 7 8 Initially , new card holders each received $10 worth of Duetto Dollars to spend on anything in a S tarbucks store. Additionally, 1 percent of all purchases made with their S tarbucks Duetto Visa cards would be immediately credited as Duetto Dollars to their Starbucks’ accounts. Each quarter, each S tarbucks Duetto Visa card holder receives a special gift based on his or her quarterly pur – chases. 9 Research provided by S tarbucks’ card partner , V isa, 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, itwould take the average customer four to five years to earn a single reward ticket. 10 Three percent of a card’ s purchase amounts are donated to the S tarbucks Foundation. 11 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, itgenerated stories in the general press as well. 12 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’. 13 The SABRE awards, sponsored by the Holmes Group, recognize the best programs within specificindustries with either reputation or branding objectives. The awards are judged by some of the mostsenior 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 .St arbucks-BankOne-V isa-Launch-Starbucks-Duetto-V isa

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