News & Resources

Aquanow Digital Dives: Stars Are Aligning — Vol. 35

September 23, 2022

The topic of inflation can’t be avoided these days. Everywhere you turn, there are discussions about things getting more expensive and the rising interest rates meant to slow this pace. The markets have been tumultuous, with the classic portfolio of 60% stocks and 40% bonds on pace for its worst year since the Great Depression, as both assets have experienced losses. However, there are instances when higher consumer prices are something to be praised. 

At the turn of the century, the Harvard Business Review published an article called “The Starbucks Effect,” which detailed how the company reinvented coffee in North America. Howard Schultz imported the warmth and artistry of the Italian coffee houses he visited on vacation to provide a high-quality product, which was priced at a premium. In the 1990s, only 3% of coffee was priced above value brands, but when the HBR piece went live, this figure had swelled to 40%. 

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Underpinning Starbucks’ ability to command higher prices is a powerful brand built on consistency and compassion for its clients. Shortly after they were recognized as legitimate disruptors by the business community, and at the tail-end of the dot-com bubble bursting, the company rolled out free Wi-Fi across its network of cozy stores. Management understood that patrons wanted to remain connected, and this environment encouraged them to stick around after making a purchase. Attune to customer preferences for sustainability, the company began sourcing its beans ethically; since 2015, 99% of the product has been certified. 

The world pushed further into the digital age, and Starbucks demonstrated a remarkable ability to tap into social media for deeper relationships with clients. They have 18M and 11M followers on Instagram and Twitter, respectively. Even the Pumpkin Spice Latte has an account with 88K followers. When needed, the channels manage customer service issues, and the group typically responds to posts within a few hours. In 2017, the company only posted to Facebook 158 times but added 710K new followers. The content they generated saw huge engagement, which supports the idea that the firm is connected to clients and knows how to deliver what they want. 

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The organization’s “Digital Flywheel” strategy tapped into the power of cloud-based computing and advances in machine learning to enrichen the client experience while warding off competition from potential tech-savvy disruptors. The architecture permitted the collection of huge data repositories which could be analyzed to provide unique offers based on purchasing behaviour. It also allowed executives to manage inventory and store location more effectively. While there has been some controversy around the working conditions for baristas lately, management has said they’ll soon be able to balance workloads using the app as well

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When Starbucks first made a splash on the scene with cafés featuring cool music, warm atmospheres, and comfy seats, they tried to fit into people’s lives as the “Third Place” – a spot between work and home where people can unwind, socialize and be comfortable. In May, the group published a blog post explaining how they intend to extend this idea, given our propensity to connect with others online. Interestingly, the note was written by Chief Marketing Officer Brandy Brewer and an advisor, Adam Brotman (former Chief Digital Officer and EVP of Global Retail Operations at Starbucks, present co-founder of Forum3, a web3 loyalty program consultant).

Last week, the consumer giant launched the waiting list for Starbucks Odyssey – a digital experience that “will offer members the ability to earn and buy digital collectible stamps (NFTs) that will unlock access to new, immersive coffee experiences.” The project will aim to create a community where members and employees can engage with one another using web3. 

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There are several important takeaways from this meaningful announcement, which I think will go on to become best practices for traditional institutions who look to enable digital assets. Firstly, the program is using web3 rails, but they’re bridging the chasm for users who are unfamiliar with the space (more here). To avoid confusion, the NFTs are called “stamps.” While they’ll reside on the Polygon blockchain, users won’t need to know they even have a wallet. Odyssey members can earn stamps through “behavior in stores” or by participating in “journeys” (interactive and educational games and challenges). Certain limited-edition tokens will be available for purchase using traditional channels. There will also be a marketplace for trading. 

Two other important features of the project are that the incumbent is taking their time to understand how the emerging technologies can integrate with their customer-first ethos. Critically, Starbucks has chosen a partner with experience in their industry and deep knowledge about web3. The former provides executives and the Board with conviction even though token prices are down significantly and NFT activity has slowed to a crawl. The latter helps the organization stay up-to-date and remain nimble in a fast-moving environment. 

Newly introduced technologies tend to confuse many proponents of the status quo, which can cause internal frictions and frustrate other stakeholders:

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The Polygon chain uses a proof-of-stake consensus mechanism, so this Starbucks employee’s energy argument is misguided. Frankly, given all the hype and greed in the digital asset space, she’s understandably unaware of the customer engagement and social impact potential. It’s an emotional response and she’s not alone

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With the help of thorough research and support from a trusted advisor, the firm would have already evaluated the potential risks of launching such an initiative – you can see the potential pushbacks thoughtfully addressed in corporate communications. They likely anticipated a degree of pushback and then weighed it against the potential benefits. 

There are about 27M U.S. participants in Starbucks’ loyalty program, so if the project is well executed, then Odyssey could be a big win for web3 adoption. I spent a long time detailing the company’s previous success and consistency as it relates to client interaction to illustrate that there’s a good chance they’ll nail this. Such results would mutually benefit the digital asset ecosystem and Starbucks shareholders. Historical corporate-sponsored NFT projects have seen considerable variance, but the revenue opportunity is substantial. Here's a list of the top 10:

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It will take some time to see evidence of Odyssey’s success. That said, if you’re an executive at an organization contemplating digital assets and agree Starbucks’ approach is sound, please get in touch. Aquanow has a deep roster of seasoned industry professionals with experience enabling these emerging financial use cases.