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A Business Lesson From Starbucks

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A lesson that tastes good

A lesson that tastes good

I enjoy the coffee at Starbucks and have been a recent convert to their brand.  The usual criticism of Starbucks is that the coffee costs $5. That is not the case. It is higher than most coffee at a convenience store or fast food restaurant but not that much. It is only about $2 for an average size cup that would normally be $1.50 at other places. That is pricey, but nowhere near $5 per cup. They do sell $5 drinks but they are usually the fancy ones that I can’t pronounce and don’t drink. Enough about my rationalizing on my expensive coffee habit and on to today’s topic.

What I want to talk about today is the preloaded card concept that Starbucks utilizes very effectively.  On their balance sheet for the 2012 year-end they had over $510 million of cash in their accounts from customers like me for these prepaid cards. That represents 43% of all their cash at the end of the year.  In 2012 Starbucks recognized $65.8 million of income from cards they deemed to have a remote likelihood of redemption based on long periods of inactivity and historical experience.  The United States consumer just gave away $65.8 million to Starbucks!

I also find it interesting that they call the prepaid cards “Stored Value Cards” rather than a prepaid card.  I personally feel much better holding a stored value card than a prepaid coffee club card.  I am sitting on “stored value” not allowing Starbucks to keep my money due to a prepayment.  This stored value card might be part of my investment portfolio.  Heck the way the banking system was failing in 2008-2009 I should have put all my money on this stored value card.

What can you, as a small business owner, do that is creative to bolster your cash flow?  Perhaps, you can start selling stored value cards as a great gift idea for Christmas.  Maybe you can offer “insurance” on your products to cover the cost of early obsolescence or as a warranty.  Why do you think electronics stores try to sell the extended warranty?  Are they doing it to be nice or do they know they have it priced so the odds are stacked in their favor?

Have a great week coming up with your own Stored Value Card idea.

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Written by pacelinebiz

December 30, 2013 at 8:01 am

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