The Starbucks card isn't your typical loyalty card. For one thing, the people who use it appear to be genuinely loyal customers of the coffee chain as evidenced by the fact that they keep using it without the promise of any privileged savings.
According to an Associated Press report, almost 100 million Starbucks cards have been activated since first being rolled out in Nov. 2001. Since then, cardholders have reloaded their accounts 38.6 million times. The top line on this: Starbucks has brought in $2.17 billion in revenue.
With the holiday selling season in full swing, Starbucks is looking to surpass its impressive performance from last year. In 2005, the chain activated 15 million cards and, in the process, generated $170 million in revenue. In percentage terms, the card business brought in 12 percent of the entire company's revenue for the fourth quarter.
"The card has exceeded our expectations, absolutely," said Sandra Stark, Starbucks' director of marketing program management. "We knew it would be a great program. We had no idea that we would reach 12 percent of tender."
Starbucks is not the only one that has found gift cards to be a boon to its business.
Wendy's spokesperson Bob Bertini, said, "Cards have become so commonplace in the retail sector that you really need to have one to be able to compete effectively."
According to the National Retail Federation, U.S. gift card sales will grow by $6 billion this holiday season to nearly $25 billion.
Many consumers, in fact, now prefer to receive gift cards so they can go shopping for themselves at their favorite stores. That's quite alright with many shoppers who simply can not decide what to buy.
"It's just such a home run not to have to pick out something for someone, which they're going to end up returning in 40 percent of the cases," said Howard Davidowitz, chairman of Davidowitz & Associates.
From a business standpoint, there is one major advantage in gift card sales: retailers can earn interest on unredeemed cards. The downside for retailers is that revenues cannot be booked until cards are redeemed.
Discussion Question: How have gift cards changed the retailing business in the lead up to the Christmas holiday and after?