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TheStreet Open House

Starbucks' Digital Tip Jar Turns Loyalty Into Money

Stocks in this article: SBUXFISAAPLAMZNGOOGBRK.A

Starbucks' mobile payments are based on two-dimensional bar codes, rather than the three-dimensional QC codes. Its collection of credit card payments are based on Square, a start-up it has invested in and that has yet to offer a chip card reader in the U.S.

It's a neat trick to get headlines for innovation when you're using older and soon-to-be-obsolete technology, but that's part of Starbucks' magic under "chief digital officer" Adam Brotman, who reports directly to Schultz.

Still, Starbucks is managing to turn a loyalty program into its own version of money, and to get that currency used by a key demographic: young workers in a hurry. Loyalty program members can start with something that looks like an ordinary credit card, loading it with cash from their own credit cards, and use the cards in Teavana stores as well as Starbucks locations.

From there it's a short trip to getting the app, which offers more convenience. But the whole program ties Starbucks directly to users' actual wallets, and lets it do market research tied to individuals' buying habits, which it can use in planning new stores or expanding its product lineup.

The expansion this year will be focused on food, a network of bakeries being built by La Boulange, acquired in 2012, and on tea, through the Teavana chain acquired last year, a deal which our Rocco Pendola said made Starbucks a "screaming buy."

Without using bleeding-edge technology, Starbucks has thus turned its loyalty program into both a virtual currency and a market research tool, distracting from what might otherwise be a high-profile management succession.

No wonder Starbucks was recently ranked as the fifth most-admired company in the world by Fortune, trailing only Apple (AAPL), Amazon.com (AMZN), Google (GOOG), and Berkshire-Hathaway (BRK.A).

At the time of publication the author owned shares in AAPL, AMZN and GOOG.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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