Lawrence Gee | Marketing, Internet, Creativity, Strategy

Betting on Cyberlattes

Starbucks announced today that it was switching its store wi-fi service from T-Mobile Hotspots to AT&T Broadband.  It will allow customers to have 2 free hours of access with a drink purchase.  Existing subscribers of AT&T Broadband or U-Verse will get unlimited access.  Alternatively, customers can purchase a two-hour session for $3.99 (might as well buy a latte) or a monthly membership would cost $19.99.  This is a substantila reduction from T-Mobile Hotspot pricing, which started at $9.99 per day and ranged between $19.99 and $39.99 per month.

Let’s examine some of the strategy behind their reasoning:

• To receive the free wi-fi, customers must purchase their drinks with a prepaid starbucks giftcard.  This will obviously increase the number of cards sold and tie customers to spend more of their “coffee dollars” at Starbucks.  Giftcards are basically forward selling future lattes — that is Starbucks gets cash upfront without having to deliver the goods until later.  The revenue generated from giftcards can be used as investments and Starbucks can benefit greatly from the interest.  Imagine if Starbucks sells a million gift cards with an average of $10 on each card.  That would give Starbucks $10M in capital to invest.  If they received a conservative annual return of 5%, that’s an instant $500,000 in added revenue.
• Starbucks is also builing on the Apple, iTunes, and now iPhone connection.  Everyone is probably aware that the iPhone is currently solely on the AT&T Wireless network.  Some tie-ins must be in the works.  Last fall, Starbucks had already given free wi-fi access to iTunes and offered customers the ability to instantly purchase music playing in Starbucks stores and other special Starbucks music collections.  With nearly 36 million unique users of iTunes, having a strong tie with the customer base is probably a good idea.  They target similar demographics and Starbucks desperately needs to gain some of its fashionable charm after going quite mass market.
• Starbucks is also hoping that free wi-fi also means that coffee house goers with sit on the couch longer and buy more lattes.  Maybe they’ll average 1.5 lattes a day versus 1.  This could add up to quite a nice bump in sales.

No Comments » | Bookmark Me:

Why iTunes Should Be Worried

Yesterday, Amazon.com unveiled their new digital download service called amazonmp3.

Simply, this is great for consumers and troublesome for Apple.  The competition is great for the industry as it will create more incentives to be price competitive.  Consumers will benefit from lower prices, more promotions, and more innovation from both companies to keep or take away business from each other.

Amazon has positioned their product for success and it’ll be interesting to see Apple’s reaction. 

• Amazonmp3s can work with both iPods and other MP3s — will Apple finally succumb and allow iTunes music to be played on other non-Apple players?
• Amazonmp3s are DRM-free — this means that the files can be burned and transfers without restriction.  iTunes currently limits the number of times the file can be used and burned to CD.
• Amazonmp3 has 2 million songs right now - this is much less than the 6 million songs that iTunes currently has but record labels will be wise to negotiate deals with both companies.
• Amazon.com has a trustworthy name and the capital to keep this service going — unlike other failed mp3 sellers, Amazon has the money and branding to pull this off.  If purchasing music is as easy as iTunes, they can likely be a threat to Apple.

No Comments » | Bookmark Me:

The Golden “Touch”?

It seems like Apple has another hit on their hands.  Like Pixar, the other company Steve Jobs founded, it seems Apple can do no wrong.  Today, Steve Jobs unveiled Apple’s newest iPod.  It is largely based on their popular iPhone mobile device with similar navigation and design. 

Dubbed the iPod Touch, Apple’s new media player is more than just music and videos.  It is only 8mm thick and incorporates a Safari web browser and the ability to access a Wi-Fi iTunes stores.  This means that individuals will have the ability to shop, preview, and purchase music on the fly.  As we all saw with the iPhone frenzy, the new Touch should have a similar fan reaction.  At $299 for the 8GB and $399 for the 16GB model, it is pricy for the amount of storage.  But as Apple has shown before, people are more than willing to pay a premium for their unique designs and fashionability. 

I wonder if I’ll see the day when Apple isn’t seen as being cool.  So far they seem to be one step ahead of everyone else…

No Comments » | Bookmark Me:

Dude, Where’s My iCar?

As I mentioned in a previous post, it’s really important for brands to know who they are.  I came across an article today about VW and Apple discussing a possible “iCar”.  This sounds like a win-win for both companies. 

Apple wins because the demographics that VW targets (or should be targeting) is similar to Apple consumers.  They are youthful, technologically savvy, and like to be unique.  Integrating the iPod and iTunes into cars would be a great test case to show the automobile industry that it should be a standard fully integrated feature in all cars. 

VW wins because this is something they could promote that would resonate with its consumers.  Like its previous promotions, it could offer a free new limited edition iPod with each new car purchase.  A great selling point (or interest point) could be limited edition colors for both the iPod and “iCars”.

All in all this looks like a money maker for both companies and something we should look forward to in the future.

No Comments » | Bookmark Me: