Convenience, Mobile Payment, and Geo-targeting
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Convenience played a major role in the rise of Starbucks (NASDAQ: SBUX) as customers showed up to get a quick cup of coffee, and possibly a pastry, before going to work. The fast casual chain also catered to the lunch crowd, where speed was just as important for workers on short breaks. Starbucks' Square investment shows that the coffee shop chain understands how much convenience matters for its customers, although other factors could come into play for department stores that plan to use mobile payments.
Starbucks doesn't serve the cheapest coffee around, but a blended drink could still be an impulse purchase for a wealthier customer. If the customer will pay a premium for speed and quality, Starbucks can still come out ahead. Even adding a sandwich or a bagel to the bill might not tip the balance in favor of a coffee shop that has lower prices if Starbucks can get the food and coffee out faster. Payments can always be a potential source of delays for a retailer, especially if a shopper pays with low denomination coins or a check, so speeding up the payment process is very important. A Starbucks store can be extremely busy in the early morning, serve very few customers later in the morning, and then become packed once again at lunch.
Jamba Juice (NASDAQ: JMBA) decided to work with Paypal on its own mobile payment initiative, and several factors that help Starbucks could also work in Jamba Juice's favor. A shopper that decides she wants a smoothie in the morning instead of coffee may decide to visit Jamba Juice, and she'll still want to pay for the smoothie quickly so she can get to work on time. Jamba smoothies also aren't the lowest price drinks available, but the speed advantage could also give Jamba the edge over slower smoothie shops. As with Starbucks, Jamba can be busy in the early morning and lunch hours and empty in the late morning and afternoon, so payment speed is very important with limited high traffic periods.
Mobile payments might not be as beneficial for clothing stores. Although a mall shopper might decide to buy several new dresses on impulse during a good economy, shoppers watch their purchases much more carefully during a bad economy. There's a big difference between spending $5 on a premium drink and $200 on a bag of clothing. Although waiting in line for clothing is still inconvenient, a shopper might be willing to wait in line at TJ Maxx, owned by TJX Companies, (NYSE: TJX) instead of checking out faster at JC Penney (NYSE: JCP). Mobile payments are a big part of JC Penney's turnaround plan, but they might not be enough to give the department store an edge over cheaper competitors.
TJ Maxx does have its own mobile plans, which are built around geo-targeting. Geo-targeting offers convenience benefits of its own because a shopper might not want to drive across town to save a few dollars. Lauren Johnson, at Mobile Commerce Daily, reports that TJ Maxx does not even sell clothing online, and the clothing each TJ Maxx store stocks varies widely. Deep discounters don't always shell out cash for expensive Internet and mobile marketing initiatives, as word of mouth can attract bargain hunters, but it seems like geo-targeting could be worth it for TJ Maxx.
Starbucks and Jamba seem like they can benefit greatly from mobile payments. Although a coffee shop can also swipe a credit card quickly, the incremental speed benefits from mobile could make a big difference with customers who are really in a rush. It doesn't seem like a department store can pick up the same advantages by accepting payments slightly faster. TJ Maxx' geo-targeting initiative seems like a better strategy for getting shoppers into a department store.
enovinson has no positions in the stocks mentioned above. The Motley Fool owns shares of Starbucks. Motley Fool newsletter services recommend Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.