4 1 Overview of Electronic Commerce
OPENING CASE
HOW STARBUCKS IS CHANGING TO A DIGITAL AND SOCIAL ENTERPRISE
Starbucks is the world’s largest coffee house chain, with 23,768 retail stores (July 17, 2016; see news.starbucks.com/
uploads/documents/AboutUs-Company_Timeline-Q42015.pdf). Many people view Starbucks as a traditional store where
customers drop in, place an order, pay for coffee or other products, consume their choices in the store, and go on about their
business. The opposite is actually true. Starbucks is turning itself into a digital and social company.
For a long time, Starbucks was known to be appealing to young people because of the free Wi-Fi Internet access provided
in its US and Canadian stores. However, lately, the company has embarked on several digital initiatives to become a truly
tech-savvy company.
The Problem
Starting in 2007, the company’s operating income declined sharply (from over $1 billion in 2007 to $504 million in 2008 and
$560 million in 2009). This decline was caused not only by the economic slowdown but also by the increased competition
(e.g., from Green Mountain Coffee Roasters), which intensified even during the recession. Excellent coffee and customer
service helped, but only in the short run. A better solution was needed.
Starbucks realized that better interaction with its customers was necessary and decided to solve the problem via
digitization.
The Solution: Going Digital and Social
Today, Starbucks considers itself as a technology company. Its CEO and major executives come from pure technology com-
panies! (See La Monica 2015). In addition to traditional measures to improve its operation and margin, the company resorted
to electronic commerce, meaning the use of computerized systems to conduct and support its business. The company
appointed a senior executive with the title of Chief Digital Officer to oversee its digital activities. It also created the Digital
Venture Group to conduct the technical implementation and maintenance. For details, see Sung (2014).
The Electronic Commerce Initiatives
Starbucks deployed several e-commerce projects; the major ones follow.
Online Store
Starbucks sells many of their products online at store.starbucks.com. These offerings include coffee, tea, and Starbucks
equipment and merchandise. The store has been in operation for years, using a typical shopping cart (called My Bag), but in
August 2011, the company completely redesigned the webstore to make shopping more convenient and easy. In addition,
customers (individual or companies) can schedule deliveries of standard and special items. Customers can order rare and
exquisite coffee that is available only in some US stores. Finally, online customers get exclusive promotions.
The eGift Card Program
Customers can buy Starbucks customized gift cards digitally (e.g., a gift card for a friend’s birthday is auto delivered on the
desired date). Payments can be made with a credit card, through PayPal, or the Starbucks app for mobile devices. The gift
card is sent to the recipient via e-mail or postal mail.
The recipients can print the card and go shopping at a Starbucks physical store and transfer the gift amount to their
Starbucks’ card or to a Starbucks electronic gift card (see starbucks.com/card).
Loyalty Program
Like airlines and other vendors, the company offers a loyalty program (My Starbucks Rewards). Those who reach the gold
level receive extra benefits. The program is managed electronically.
Opening Case: How Starbucks is Changing to a Digital and Social Enterprise 5
Mobile Payments
Customers can pay at Starbucks stores with prepaid (stored value) cards, similar to those used in transportation, or pay from
their smartphones using the Starbucks mobile app. Payment is made by selecting “touch to pay” and holding up the barcode
on the device screen to a scanner at the register. The system is connected automatically to a debit or credit card. The system
works only in company-owned stores (2016). The mobile payment is connected with the loyalty program. Over 25% of all
purchases in 2016 were made with mobile payments.
Social Media Projects
Starbucks realized the importance of social media that uses Internet-based systems to support social interactions and user
involvement and engagement (Chap. 7). Thus, it started several initiatives to foster customer relationships based on the
needs, wants, and preferences of its existing and future customers. The following are some representative activities. The
company develops their social relationship marketing via social media (Samuely 2015b).
Exploiting Collective Intelligence
My Starbucks Idea (mystarbucksidea.force.com) is a platform in which a community of over 300,000 consumers and
employees can make suggestions for improvements, vote for the suggestions, ask questions, collaborate on projects, and
express their complaints and frustrations. The community generated 70,000 ideas in its first year, ranging from thoughts on
the company’s reward cards and elimination of paper cups to ways to improve customer service. The site also provides sta-
tistics on the ideas generated, by category, as well as their status (under review, reviewed, in the works, and launched). The
company may provide incentives for certain generated ideas. For example, Starbucks offered $20,000 in prizes for the best
idea concerning the reuse of its used coffee cups. This initiative is based on the technology of collective intelligence, also
known as crowdsourcing (see Chaps. 2 and 8), and is supported by the “Ideas in Action” blog. This blog is written by
employees who discuss ideas submitted to blogs.starbucks.com/blogs/Customer.
Starbucks’ Activities on Facebook
Starbucks maintains a strong social media presence on Facebook (facebook.com/Starbucks/), with over 36 million “likes”
(as of February 2017). The company uploads videos, blog posts, photos, promotions, product highlights, and special deals.
The millions of people who “like” Starbucks on Facebook verify that the company has one of the most popular fan pages (see
current statistics at (fanpagelist.com and at facebook.com/Starbucks/). Starbucks offers one of the best online marketing
communication experiences on Facebook to date as well as mobile commerce engagements. Starbucks posts diversified
information on its Facebook page, whether it is content, questions, or updates. The company also advertises on its Facebook
page (e.g., contests, events, new products).
Starbucks’ Presence on LinkedIn and Google+
Starbucks has a profile on LinkedIn site with over 767,000 followers (February 2017). It provides business data about the
company, lists new hires in managerial positions, and advertises other available jobs. Starbucks is also active on Google+. It
provides business data about the company, shows employee profiles, and advertises available jobs. Note that Starbucks is
regularly assessing the cost-benefit of advertising on social networks.
Starbucks’ Activities on Twitter
In February 2017, Starbucks had over 11.9 million followers (follow @starbucks) on Twitter (twitter.com/starbucks).
Whenever the company has some new update or marketing campaign, the company posts a tweet (e.g., discounted drinks).
By October 2013, Starbucks was the number one retailer to follow on Twitter. In November 2013, Starbucks gave away a $5
gift certificate to 100,000 customers who tweeted a coffee to one of their friends or followers (see blissxo.com/free-stuff/
deals/cash-back-and-rebates/free-5oo-starbucks-gift-card).
Starbucks’ Activities on YouTube, Flickr, Pinterest, and Instagram
Starbucks has a presence on both YouTube (youtube.com/Starbucks) and Flickr (flickr.com/groups/starbuckscoffeecom-
pany), with a selection of videos and photos for viewing. It also runs advertising campaigns there. Finally, Starbucks has
about 13.1 million followers (February 2017) on the photo-sharing company Instagram (instagram.com/Starbucks).
6 1 Overview of Electronic Commerce
Starbucks Digital Network
When customers are at Starbucks, they have more than Wi-Fi—they get access to the Starbucks Digital Network from all
major mobile devices, including tablets and smartphones (see starbucks.com/coffeehouse/wireless-internet/starbucks-
digital-network). The Network, in partnership with Yahoo!, features free premium online content, such as news, entertain-
ment, business, health, and even local neighborhood information channels. In 2014, Starbucks switched to Google Wi-Fi, to
give their customers faster Wi-Fi and network speeds.
Global Activities
Being a global company, Starbucks is known for its several country-oriented projects. For example, in December 2015, the
company launched e-commerce for China on Tmall (an Alibaba company). For more on how Starbucks is using mobile
commerce, see Strout (2015).
Early Adoption of Foursquare: A Failure
Not all Starbucks social media projects were successes. For example, the company decided to be an early adopter of geoloca-
tion by working with Foursquare (Chap. 7). The initiative simply did not work, and the project ended in mid-2010. The
company experimented in the UK with a similar location company called Placecast. As of fall 2011, Starbucks had a better
understanding of the opportunities and the limitations, so it may decide to try geolocation again with Facebook Places, or it
may revive the Foursquare project.
The Results
Starbucks turned sales around by effectively integrating the digital and the physical worlds. In 2010, its operating income
almost tripled ($1.437 billion versus $560 million in 2009) and so did its stock price. In 2011, the operating income reached
$1.7 billion. Since then, the operating income is increasing rapidly. Sales are lifting due to digital and social media promo-
tions. By 2017, sales increase sharply.
The company’s social media initiatives are widely recognized. In 2012, it was listed by Fortune Magazine as one of the
top social media stars (per archive.fortune.com/galleries/2012/fortune/1205/gallery.500-social-media.fortune/5.html),
and in 2008, it was awarded the 2008 Groundswell Award by Forrester Research. In 2014, the company’s strategy received
the top spot on many reviewers’ lists, driving sales to new highlights (see Samuely 2015b). The site is very popular on
Facebook, where it has millions of fans (sometimes more popular than pop icon Lady Gaga). Starbucks attributes its success
to ten philosophical guidelines that drive its social media efforts.
Sources: Based on Brohan (2015), Panagiotaropoulou (2015), Samuely (2015a, b), Sung (2014), Strout (2015), Moth
(2013).Welch and Buvat (2015), Allison (2013), mystarbucksidea.force.com, blogs.starbucks.com/blogs/Customer, and
starbucks.com (accessed February 2017).
LESSONS LEARNED FROM THE CASE
The Starbucks.com case illustrates the story of a large retailer that is transforming into a digital and social enterprise.
Doing business electronically is one of the major activities of e-commerce, the subject of this book. The case demon-
strates several topics you will learn about in this chapter and throughout the book. These are:
1. There are multiple activities in EC, including selling online, customer service, and collaborative intelligence.
2. The case shows major benefits to both buyers and sellers. This is typical in EC.
3. The EC capabilities include the ability to offer products and services in many locations, including overseas, to many
customers, individuals, and businesses. You can do so because you can have a larger customer base online and
people can buy from anywhere at any time.
4. In a regular store, you pay and pick up the merchandise or service. On Starbucks.com and other webstores, you
order and pay, and the product is shipped to you. Therefore, order fulfillment needs to be very efficient and timely.
5. Being digital can be very useful, but a greater benefit can be achieved by extending the conversion to lead to a
socially oriented enterprise. Both approaches constitute the backbone of electronic commerce.
