Case Study: Starbucks' Web3 Odyssey
Case Study: Starbucks' Web3 Odyssey
Starbucks' Web3 loyalty experience is among the most recognized in the industry. This is the definitive case study on Starbucks' Web3 strategy and how it's creating the new "digital Third Place".
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Why Starbucks?
Starbucks is a leading consumer brand and urban lifestyle icon.
It launched its Web3 loyalty program “Starbucks Odyssey” in December 2022, and positioned itself as an industry benchmark for scalable Web3 loyalty activations for consumer brands.
How is Starbucks doing it? What can we learn from it? And is Web3 just a gimmick or loyalty’s next big thing?
Today, we’ll look at:
Starbucks & Loyalty
Starbucks Odyssey
Performance analysis, incl. on-chain data and financials
Why Web3
What other brands can learn from Starbucks
What’s next
Before we dive in, a thank you to my esteemed partner Magic.
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Executive Summary
Starbucks’ loyalty program “Starbucks Odyssey” was launched in December 2022 and has been very successful.
It lets users collect stamps by completing gamified, branded journeys. These stamps generate points that unlock rewards.
Odyssey still runs in “beta” and has about 35,000 members. That’s 0.04% of its 75m Starbucks Rewards members.
It generated about $1,040,000 of revenue in the first year and shows impressive revenue potential once rolled out to a broader user base.
Key strengths are its simplicity and focus, the user experience, the mechanism around collecting and gamification.
Starbucks executed its Web3 go-to-market exceptionally well by using a staged roll-out, infrastructure partnerships, and separation from its core business.
Starbucks: More than Coffee
Starbucks has established itself as more than just a coffee seller. Over more than 50 years it became a global symbol of urban lifestyle. Starbucks, which was established in 1971, has changed the way people enjoy coffee. They call it a "third place", a cozy spot between home and work where you can connect with others while sipping coffee and feel like you belong – just like in a typical Italian coffee shop (ok, almost. Nothing beats Italian espresso).
Known for its signature coffee-based drinks and consistent quality, Starbucks has grown into a global brand with over 38,000 stores across 84 countries.
Starbucks: A Loyalty Fairytale
Starbucks launched its first loyalty program, the Starbucks Card, in November 2001. Although gift cards had been available since 1994, Starbucks was among the first major retailers to offer a reloadable card. Customers appreciated the simple way to buy their cup.
The Starbucks Card was an immediate success, rapidly becoming one of the world's most successful loyalty programs. Within its first year, over 4 million customers joined, generating over $1 billion in annual revenue. It soon became a crucial part of Starbucks' overall business strategy.
Following the debut of Starbucks Card Rewards in spring 2008, the Gold loyalty program was introduced later that year. This program allowed any Starbucks cardholder to enroll, enabling "super users" to achieve an elite "gold" status, which came with additional freebies and in-store benefits.
The program's simplicity was a key factor in its success. Customers could earn stars simply by swiping their card to pay for their drinks.1
In January 2011, there was another leap forward with the national launch of mobile payment through the Starbucks card Mobile app. It turned any iPhone into a Starbucks card and assigned a persistent digital identity to each customer.
Today, Starbucks Rewards is one of the most successful loyalty programs:
Starbucks has over 75 million active global reward members within a 90-day period, nearly 33 million of whom are in the U.S., where the program is still growing at 14% year-over-year. About one in every 10 US adults is a member of Starbucks Rewards .
In Q4 2023, Starbucks Rewards grew by 4m 90-day active members, now contributing to 30% of total sales, up 9% in just one year. 41% of Starbucks’s U.S. sales come from its loyalty members.
Starbucks Reward members are 5.6 times more likely to visit daily compared to non-members. 71% of Starbucks app users visit a store at least once a week.
Starbucks boasts a customer retention rate of 44%, surpassing the industry average of 25%.
From Transactional to Experiential Loyalty
Before diving into Starbucks' Web3 journey, let's briefly review how loyalty has evolved over the past decade.
We can all agree that for almost every business, having loyal customers is better than having non-loyal customers.
No business can make money on customers who are chronic switchers. Loyal customers spend more, more frequently, and for longer.
To illustrate this with a stat (out of many): Keeping an existing customer is five to 25 times less expensive than acquiring a new one.
And in general, loyalty is working very well: 93.1% of companies that measure ROI (return on investment) for their loyalty program have a positive ROI.
However, there are two significant challenges:
The end of third-party cookies is a big deal for the nearly $1 trillion global advertising industry, as it cuts off access to much of the third-party data. Less data means less personalization. This forces brands and advertisers to collect first- and zero-party data; and loyalty programs can help with that.
The transactional relationship of many loyalty programs fail to establish meaningful, long-term relationships with customers. They often fall short of the demands of hyper digitized younger consumers seeking richer digital experiences. This results in low emotional engagement. In fact, 61% of consumers switched some or all of their business from one brand or provider to another in the last year.
This is why, in recent years, brands started to experiment with more sophisticated forms of loyalty, such as richer storytelling and experiences and a shift the focus from shop-to-earn to participate-to-earn.
Thanks to Web3 and blockchain technology, users can control and transact digital assets without relying on a third-party platform. This facilitates genuine digital scarcity and ownership.
These two key mechanics of Web3 enable unique loyalty experiences.
Owning, collecting, and transacting digital rewards strengthens customer connection, long-term engagement, and buy-in. It also gives consumers more agency in the projects, communities, and ecosystems they participate in.
For the full Web3 loyalty deep dive, read more here.
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Starbucks’ Web3 Odyssey
Strategic Context
Before delving into Odyssey, it's crucial to understand the strategic context of its launch:
Starbucks’ history with new technology: Starbucks has consistently succeeded in making new technology mainstream. Its innovations in rewards programs, mobile payment and ordering, and Wi-Fi access in stores have taught Starbucks to effectively engage customers at scale using emerging technologies.
Extension, not invention: Starbucks already operated a highly successful digital loyalty program. Web3 wasn't seen as a reinvention but as an extension of its existing loyalty experience.
Simplicity in loyalty: Starbucks' loyalty approach has always been straightforward: customers load their accounts, spend money, and earn stars. The key is simplicity. Any new addition should enhance this core mechanic, not change it.
Community focus: Since becoming a global brand, Starbucks' mission has extended beyond coffee to "nurturing human connection." This has involved localizing its stores to reflect neighborhood culture, exemplified by initiatives like the Starbucks Art Program.
Digital ambitions: Starbucks views its digital experience as a strategic priority and a differentiator. Highlighted in multiple earnings calls, digital has been identified as a key growth driver. With 75 million Reward members, there's potential for significant expansion (3x) given Starbucks' total customer base. The focus for its digital initiatives is on convenience and connection, with Odyssey enhancing the latter.
In the context of Starbucks' strategic priorities, this is where Odyssey finds its place:
This is why Starbucks recognized Web3 as a digital opportunity and announced Odyssey as follows:
“What if Starbucks could create a new, global digital community – a community defined by collaboration, experiences, and shared ownership – all centered around coffee to start, and then perhaps expanded into the many of the areas Starbucks has played in over the years as a coffeehouse; art, music, books and beyond?”
Excited? Let’s explore this further.
Timeline
2022, May: Starbucks announced its plan to create a new, global digital community using Web3 technology, including NFTs, that would offer exclusive content and perks to its members and partners. They called it the “digital Third Place”. Link
2022, August: At its Investor Day event, Starbucks revealed it would unveil its Web3 initiative in the following month.2 Link
2022, September: Starbucks launched Starbucks Odyssey. Link
The brevity and focus of this timeline are notable. Unlike other major consumer brands like Nike or Gucci, which adopted an experimental approach to Web3 with multiple initiatives across platforms, Starbucks' strategy is more streamlined.
As we’ll see later, this approach is key to making Odyssey a success.
Starbucks Odyssey: How It Works
Here’s how it works, in simple terms:
Journeys
Members engage in "journeys," fun activities and challenges about Starbucks and coffee culture. Completing these earns a digital "Journey Stamp" (an NFT). So far, users could complete 10 journeys.
One ongoing journey, "2023 Unwrapped," involves three activities:
The Gift of Coffee: A purchase-based task requiring users to buy at least two specific items in one order.
Holiday Flavor in Review: Users vote for their favorite holiday menu items.
Cup Chronology: A game where users match holiday cups to their correct year.
Stamps
Starbucks released 21 unique stamp collections, with four types available:
Journey Stamps: Earned by completing journeys.
Limited Edition Stamps: Unique stamps available for purchase.
Open Edition Stamps: Non-unique stamps available for purchase.
Airdropped Stamps: Earned by owning certain Journey and Limited Edition Stamps.
Note: Not all stamps are earned. Some, like The Siren Collection, The First Store Collection, and Green Apron Collection, can only be bought.
Here’s a list of all 21 collections:
Starbucks regularly works with artists to create unique stamp designs.
Earning points
Collecting stamps earns "Odyssey Points." Points from Limited and Open Edition Stamps accumulate, but Journey Stamp points do not stack. More stamps and points unlock exclusive rewards, from virtual classes to trips to Starbucks locations. In an earnings call, Starbucks’s CMO said:
"We really try and add experiential benefits to the program to make people feel genuinely valued for being their Starbucks customer.”
Leveling up
Members level up (1 to 4, with 1 being the lowest) by accumulating points. Higher levels offer unique benefits, but reaching them typically requires purchasing limited edition stamps. A recent addition is level 5, featuring exclusive experiences like an Empire State Building sunrise event.
Annual Cycle
Points for each stamp expire yearly, with new journeys and rewards introduced annually. The program includes 3-4 "benefit selection periods" annually, allowing users to choose one level-appropriate benefit, ensuring ongoing engagement.
Marketplace
Members can trade their stamps in the Starbucks Odyssey Market operated by Nifty Gateway.
Payment, Minting & Wallet
Purchases use regular currency and credit cards via Nifty Gateway, which also provides a custodial wallet for NFTs. NFTs are minted on the eco-friendly Polygon blockchain, with transaction fees covered by Nifty Gateway as long as the stamp remains in its wallet.
Community
Starbucks highlights how Odyssey should foster a community of Starbucks enthusiasts:
“For the first time we are connecting our Starbucks Rewards loyalty program members not just to Starbucks, but to each other.”
Its Discord channel hosts about 11,000 members.
That sums up Starbucks' Odyssey: Complete journeys, collect points, enjoy unique rewards. Simple.
Performance Analysis
Starbucks has maintained minimal public communication about Odyssey. The only available public data are the on-chain activities of its collections and statements made to investors. Industry insiders believe Odyssey has been successful for Starbucks so far.
Key statements from past investor and earnings calls support this sentiment:
After Odyssey’s launch, Starbucks stated in its Q4 2022 earnings call:
“Customer response to Starbucks Odyssey has been overwhelming. […] We're incredibly optimistic about our continued momentum in digital following the unprecedented interest in Starbucks Odyssey.”
In a Q1 2023 earnings call, Brady Brewer, Chief Marketing Officer, said:
“With digital, our digital platforms have been very sticky with customers. And we're just making those better as you look at things like Odyssey and Reward Together”
In its most recent Q4 2023 earnings call, Starbucks attributed part of its financial performance to its tech-enabled loyalty experiences (incl. Odyssey):
“Our fiscal year 2024 US comparable store sales are expected to grow in the range of 5% to 7%, as our business continues to have substantial headroom, spurred by our leading innovation and technology, increasing customer loyalty and strong digital engagement as evidenced by the US finishing fiscal year 2023 with strong performance of 9% comp growth.”
On-Chain Analysis
Wallet analysis
Wallet analysis data below comes from Web3Sense, a blockchain analytics company, that combines on-chain data and open-source intelligence. Check them out!
Based on the amount of unique owners, I estimate that Starbucks Odyssey has just over 35,000 users own at least one stamp. This represents only 0.04% of its 75 million Starbucks Rewards members.
Let's examine some on-chain data from Web3Sense:
1% of the estimated 35,000 token holders are Web3-savvy participants who have transferred their Starbucks token(s) to self-custodial wallets. That’s about 300 wallets.
Why Web3-savvy? These wallet holders hold either a high amount of ETH and/or an ENS address in their wallet. For context, generating an ENS address requires wallet proficiency, unlikely for a Web3 newcomer.
These 300 wallets hold $2.85 million in ETH and MATIC holdings.
They have an average wallet age of 1,380 days; most created them in 2020 or 2021, but several were from 2017 or 2018.
They have the following dominant personas/trading behaviors:
67% are holders, i.e. they tend to mint and hold
16% are what Web3Sense calls believers, meaning they tend to mint/collect multiple tokens in a community and hold onto them long-term.
According to Web3Sense, the top 100 wallets (by holdings) have:
$2.4 million in total holdings
An average wallet wealth of $24,292; median wealth of $5,724
$385k in liquid ETH holdings
54 ENS holders among these top 100, which is a higher % than we even see among a lot of "OG" NFT collections
This indicates that while Starbucks Odyssey targets a non-Web3 audience, it appeals to active collectors in the space.
Initial Sales, Engagement & Value Increase
Starbucks' first limited edition, The Siren Collection, priced at $100 per piece for 2000 pieces, sold out in under 20 minutes.
Starbucks generated approximately $800,000 from initial sales of limited and open collections.
User engagement in Journeys is average. On average, around 9,400 users participated in journeys (median: 8,000), which is about 25% of total members.
Only about 2.47% of stamps are for sale, suggesting either loyal collecting or disinterest in market listing.
Most of the collections increased in value on the secondary market
Journey Stamps, mintable for free but with upfront journey costs, have an average floor price of $74. The average value of the three limited editions is $147, up from an initial $100.
Volume & Financials
Tokens are minted on the Polygon blockchain and stored in Nifty Gateway's Omnibus wallet. All tokens in each collection are minted in a single transaction. Many users don't move tokens from Nifty's wallet. For example, about 8% of The Siren Collection owners transferred NFTs to personal wallets; the rest are in Nifty's wallet.
This implies:
Nifty Gateway's volume accounts only for trades that take place with non-custodial wallets.
Secondary on non-Nifty-managed wallets need to be looked at separately.
Starbucks earns a 7.5% royalty on Nifty Gateway trades only. Secondary trades on other exchanges, which mostly don't enforce royalty fees, don't generate revenue for Starbucks (except OpenSea3).
Nifty Gateway's total volume is $3.2 million, with Starbucks earning $240,000 in royalties.
Starbucks thus generated at least $1,040,000 in its first year from 0.04% of its 75 million Starbucks Rewards members. Projected revenue estimates are:
1% of Rewards members = $26 million/year.
5% of Reward members = $130 million/year.
10% of Reward members = $240 million/year.
$240 million is about 0.7% of Starbucks's 2023 total revenue. Not bad for a loyalty program, right?
These estimates are – of course – extremely rough. But they show that Web3-enabled loyalty’s potential.
Execution & Go-to-Market Strategy
Starbucks excelled in six key areas:
Simplicity & strategic focus
User Experience
Effective Gamification
Staged Roll-Out
Infrastructure Partnership
Separation from Core Business
Simplicity and strategic focus
Odyssey aligns with Starbucks' existing customer base and loyalty experience. Unlike other brands that initially targeted Web3 audiences and then shifted towards their core audience (e.g., Nike), Starbucks began with its core audience, offering a Web2-like experience. For Starbucks, Web3 is a loyalty tool for existing super fans. Nothing more, nothing less.
User Experience
Starting with what users know: Odyssey allows users to log in with existing Starbucks Rewards accounts, streamlining the experience compared to using separate wallet credentials. Account management, including buying and selling stamps, is integrated into the Starbucks interface.
Guided user journey: Compared to other brands, the experience is heavily guided. Users apply through a waiting list, after which they’re taking through an onboarding journey. Starbucks regularly informs them about program updates, new journeys and benefit selection periods by email.
Technology abstraction: Technology abstraction through credit card purchases and non-custodial wallets makes the program accessible to those unfamiliar with blockchain. Users also don’t need to worry about transaction fees.
Effective Gamification
The program intertwines gamification with the brand identity. The mix between Journey and Limited/Open Edition Stamps appeals to collectors. While loyalty points expire annually, stamps remain collectibles with potential value increase, appealing to devoted fans.
Gradual introduction
Starbucks conducted a pre-launch phase for employees, which allowed for feedback and refinement, building internal expertise and anticipation.
For the public rollout, Starbucks initially invited a limited group of Starbucks Rewards members to participate. Today, Odyssey still runs as a “Closed Beta” program, which allows mistakes and keeps all options open. New users still have to join a waitlist before being accepted to the program.
Infrastructure partnership
The collaboration with Nifty Gateway to establish a branded marketplace and a custodial wallet infrastructure was a smart strategic move. It not only saved Starbucks a lot of time and money, but more importantly, it created a secure interface and trading environment for users without worrying about falling victim to scams (yes, faking brand NFTs is a huge thing).
Note: Creating a safe, branded space for NFT collections is a big issue for brands. Most rely on public marketplaces, such as OpenSea. These marketplaces are littered with scam tokens and provide a very bad user journey for consumers.
Separation from Web2 Loyalty Program
So far, Starbucks has kept the Odyssey program separate from its main loyalty program. This allows to experiment and grow without risking the brand reputation.
Starbucks’ GTM compared to Nike
Starbucks' approach to Web3 Go-To-Market (GTM) differs significantly from other brands like Nike:
You can find the full Nike case study here.
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Why Web3
One of the most pressing questions I’ve heard is:
If Starbucks could launch Odyssey again, would they do it on Web3 rails again? And why did they use Web3 in the first place?
My short answer is: Yes. Absolutely.
Namely for the three reasons:
Ownership and value: The Odyssey experience revolves around “collecting”. Collecting implies ownership. True digital ownership allows users to control digital assets, i.e. the ability to transact them. This makes them valuable. Digital assets (or NFTs) are powerful, as they can be issued on the platform and exchanged off the platform without a brand having to build all the infrastructure for it. This is only achievable with blockchain. Without it, digital collectibles are locked into a platform, which makes them less valuable (or even worthless).
Revenue: The ability for users to trade “collectibles” has made Starbucks $240,000 in revenue. If collectibles have less value, revenue will be smaller.
Future proofing: We’re early. Starbucks is pioneering, experimenting and future-proofing. It’s very likely that we’ll see tremendous innovation happening in the Web3 consumer space, particularly around loyalty (read my Web3 loyalty deep dive here). For a company that runs one of the most successful Web2 loyalty programs in the world, it should be a no-brainer to be at the forefront of this development.
Without blockchain, Odyssey would differ significantly:
Stamp Collection: Users could collect stamps within the Starbucks app, relying on Starbucks to ensure their uniqueness and limited quantity.
Lock-In: Stamps would be confined to user accounts, unable to leave the Starbucks ecosystem.
Reduced Value: Without true ownership and transferability, stamps would likely hold less value.
Where Starbucks Falls Short
Here are a few areas that Starbucks could improve:
Integration with Starbucks App: As of now, Starbucks Odyssey is not integrated with the Starbucks app. Users access it through a web browser. An app integration would be a next-level user experience. Considering the program is still in Beta, Starbucks may integrate it in the future.
Interoperable loyalty: A significant opportunity in Web3 is interoperable loyalty, where blockchain's open data layer could enable multi-company rewards and co-branded loyalty programs. Although Starbucks has collaborations with its "Rewards Together" program, it hasn’t extended these to Odyssey token holders.
Community Engagement: Odyssey lacks a strong community. Only about a third of the members are part of their Discord. Active members told me that the program is somewhat reserved in community communication and activation. In a Q2 2023 earnings call, Rachel Ruggeri, Chief Financial Officer, said:
“What it does for us is it – be able to create a digital community. And so, it allows us to be able to create that opportunity to connect even outside the four walls of our stores. So, those are the ways that we continue to find value and we believe that will help us to capture even share of wallet in the future.”
I still struggle to see how Starbucks might evolve that.
Learnings For Your Brand
All in all, Starbucks executed Odyssey extremely well. It’s truly impressive what Starbucks has achieved in the first year.
Here are 6 key learnings that you can apply for your brand:
Focus on one use case: Zero in on a single use case that resonates with their brand's identity and their customers' expectations. Starbucks focused on one single application (loyalty), with a confined range of experiences on a single platform. Keep it simple.
Build experiences around your core product: To engage your most loyal customers, build experiences that are tied to your core product and brand ethos. All Odyssey journeys are always tied to the Starbucks brand.
Make it fun and useful: Gamification and storytelling can transform routine transactions into engaging experiences and educate users about the brand. Starbucks' different types of collectible stamps and limited edition mints, and its mix of genuinely interesting digital and physical activations that tie back to its core offerings, demonstrates this.
Make use of blockchain: Avoid making it the primary cause of your activation. Blockchain is only worth as much as the use-case it enables. For Starbucks it unlocked a core mechanic (collectability) of its loyalty experience which creates tons of value for users.
Design for Web2 users: Starbucks Odyssey's strategy of using existing Starbucks Rewards accounts for login purposes caters to Web2 users, offering them a familiar entry point into the Web3 space. This is possible today with tools like Magic.
Partner up: Don’t waste your time building your own infrastructure. Many state-of-the-art companies can provide you with ready-made infrastructure pieces. Instead, focus on storytelling, content, utility, and user experience.
What’s Next
The Web3 loyalty opportunity is real – and Starbucks is leading the way. Even though Odyssey is far from reaching its full potential, it sets the pace:
"We believe NFTs have broad potential to create an expanded, shared-ownership model for loyalty, the offering of unique experiences, community building, storytelling, and customer engagement.”
Loyalty is set to be supercharged with Web3, allowing brands to shift from transactional to more direct, reciprocal relationships with their customers, moving beyond the diminishing utility of cookies.
Future loyalty programs will be entrenched in an open, competitive loyalty rewards ecosystem, amplifying the value for both brands and consumers.
They will turn consumers into active participants, cultivating a sense of belonging and agency, and ultimately making them owners of the value they generate.
The best brands will link loyalty to the cultivation of brand culture, with community and ownership built in.
– Marc
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At the heart of the Starbucks Rewards programme is a currency called "Stars". Customers earn stars by doing certain things, but the main action is spending money in the Starbucks ecosystem. Depending on the payment method, customers get awarded 1-3 stars per dollar spent. Today, customers can redeem their stars not only at Starbucks, but at partners such as Delta Air Lines, Chase, American Express, and others.
"We have been working on a very exciting new digital initiative that builds on our existing industry-leading digital platform in innovative new ways, all centered around coffee and—most importantly—loyalty," Howard Schultz, founder and former CEO, said.
OpenSea will enforce royalty fees for existing collections on all non-Ethereum blockchains through February 29, 2024.
Love where Starbucks is heading with this!
I was genuinely surprised by your case study; I appreciate you sharing it with us.