With Starbucks' Grocery CRM Plan, It Had To Get Clever About Fraud

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When Starbucks (NASDAQ:SBUX) announced Wednesday (March 20) it would spread its CRM program to grocery stores that sell its bagged coffee, it wasn't merely an industry first. It was Starbucks' attempt to track shopper activity beyond the limits of the chain's stores, site and mobile app—as if CRM deployments aren't already complex enough.

Given that its program would deliver expensive value in the form of free food and drink at its stores, the first priority of the rollout was to try and discourage fraud. And that involved some creative packaging and identification mechanisms. And a choice to exclude mobile from the launch.

The idea of the program—slated to start May 12 ("although some bags will show up before that time," said Starbucks' Linda Mills, the chain's senior manager of global brand public relations)—is that shoppers will go into grocery stores and purchase select Starbucks bagged coffees. (Many Starbucks grocery products, including its Via instant coffee line and beverages, are excluded from the rollout's launch, but Starbucks said some of those excluded products will be included sometime in the Fall.)

Those coffee bags will have stickers with unique product codes. Every bag will have a different code, to help with both tracking and fraud prevention. That way, one purchase can't theoretically be counted repeatedly.

The customer is supposed to take that number and enter it into the Starbucks website. The points earned will be called Stars and can be redeemed for free merchandise at Starbucks' stores.

But what is to prevent a shopper from jotting down the number—or taking a picture of it—while the unpurchased product is still in the aisle? That's where the design kicks in. The sticker is adhered to the bag such that its removal is likely to puncture or otherwise mess up the bag. As for the number, it's not visible until the label is completely unwrapped.

"It's pretty difficult to take the sticker," Mills said. "It's a multi-folded sticker and you have to peel off the casing to get at the code."

In other words, it's a rather messy extraction process and one that is unlikely to be done in-aisle without attracting a lot of attention. Then again, how much of a hassle will it be for consumers to get at the number when the product is at their home?

If a shopper waits until the product is used up and it's an empty bag, then I guess destroying the bag to remove the sticker isn't such a horrible thing, but how many shoppers would wait? Or even remember to deal with the sticker when the coffee's gone?

For the initial launch, Starbucks' mobile app will not play a role, forcing shoppers to enter the data at the full website. Although the option for adding the mobile app still exists, Mills said her team didn't see it as initially necessary, given that anyone can simply access the Starbucks site from their mobile device.

That's true, of course, but it also undermines the all-in-one-place—the experience is completely controlled by the retailer—environment that is supposed to be the mobile app. That's triply true for a retailer such as Starbucks, which has fought so hard to be a true retail mobile app leader.Part of the explanation may be in the anti-fraud packaging. The very nature of a mobile app is to be easily usable in-aisle or anywhere the shopper happens to be. The design of this grocery CRM program is to make it difficult to work—messy to work with—outside of the kitchen table at home. Today, at-home still typically suggests a more comfortable desktop access.

The alternative to the messy packaging approach would be to perhaps scan register receipts or to—heaven forbid—try and share data across competing retailers. Plus, it pushes shoppers to enter as much CRM-friendly data at the site as possible. (I am going to try and resist suggesting that Starbucks' use of adhesive is making its site stickier, but I may fail.)

Another interesting aspect of this program is that this isn't really coming from Starbucks the retailer as much as it is coming from Starbucks the manufacturer. Although there certainly exist other manufacturers who are also retailers—Apple Stores (NASDAQ:APPL), Niketown (NYSE:NKE), M&Ms World, Disney Stores (NYSE:DIS), etc.)—they are overwhelmingly manufacturers first and dabbling in retail. Starbucks is that rare example of a retailer who is dabbling in being a manufacturer (specifically one whose products are sold in stores it does not control, as opposed to Costco [NASDAQ:COST] and Walmart [NYSE:WMT] selling their own re-branded products in their own stores).

As a manufacturer, Starbucks faces the same challenge as most manufacturers: figuring out exactly where its products end up. (JCPenney [NYSE:JCP] came up with the one of the more compelling tactics to track where its products end up being gifted.)

And with Starbucks, the goal is not solely to sell more products in grocery stores and warehouse clubs. It's to lure those shoppers into Starbucks stores, where the profit margins can be a lot higher and the revenue potential much brighter.

The sticky sticker approach has the added benefit that it requires zero cooperation from the retailer distributors, who might see themselves as quasi-competitors, especially if they perceive Starbucks as trying to compete with them in selling Starbucks products.