The perks of personalized marketing: Starbucks' use of AI

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“Would you like fries with that?” That one-size-fits-all recommendation was about as far as upselling at the point of sale used to go.  Starbucks has come a long way from that with marketing powered by data — and AI.  It's marketing that is uniquely tailored to the behaviors, preferences, and context of each customer.

Matt Ryan, Starbucks EVP and global CSO, and Gerri Martin-Flickinger, EVP and global CTO discussed the strategy at the company's Investor Day.  He explained the impact of digital on Starbucks sales, while she explained what their algorithms do, in The Digital Flywheel: Strategy and impact.

Ryan began by saying that for Starbucks digital represents the “core customer experience.”  He sees it as what distinguishes their business approach from “the rest of the retail world,” and what “gives us the advantage we have.” As proof he showed how the "digital flywheel" contributed to Starbucks' growth in the past three years, and the increase in its rewards program from five million to 12 million customers.

The incentives in the rewards program is one of the ways Starbucks personalizes its marketing.   Martin-Flickinger demonstrated the evolution of the personalization by showing how it has progressed in just a single year. Its baseline is the form of marketing that many businesses still use today, rooted in historical data that they view in spreadsheets, which in turn powers algorithms to fit their general customer base.

In January 2016, Starbucks' marketing messages were limited to 30 variants of weekly email messages that were based on data that was already two weeks old. In June last year, Starbucks moved to a to a real-time personalization engine capable of producing of 400,000 variants of hyper-personalized emails each week. The company continued to tweak its AI engine so that in October, it was able to launch real-time 1:1  personalized offers that are uniquely generated based on each individual customer's behaviors and marked preferences.

Read more in A.I. Informs Personalization for Starbucks