Starbucks and Spotify Create Customer Loyalty Plan

In a tie up between one successful company and one that is beset by competition, Starbucks Corp. (NASDAQ: SBUX) will add Spotify services to it loyalty program. The deal may help Spotify gain ground on competitor Pandora Media Inc. (NYSE: P) and an army of much larger music distribution companies.

According to comments made by the coffee shop company:

Starbucks Coffee Company today announced that it has entered into a letter of intent with leading music streaming service, Spotify, to establish a multi-year relationship that will link its 7,000 company-operated stores in the U.S. and 10 Million My Starbucks Rewards loyalty members with Spotify’s more than 60 Million global users to offer a first-of-its-kind music ecosystem. This interconnectivity will allow Starbucks MSR members unique access to Starbucks music on Spotify, the ability to influence in-store playlists as well as opportunities for Starbucks MSR members to earn “Stars as Currency.”

As is the case with many companies, Starbucks uses it loyalty reward system as a means to be “sticky” to use of its stores, with the knowledge that repeat customers are easier to hold than adding new ones.

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The war between Spotify and Pandora has deepened. According to an article at The Street:

There is a subtle difference in the way Spotify and Pandora operate. Spotify is an online music streaming service whereas Pandora is an online radio service. What they have in common is that they’re both going after deep music fans, and, for now, Spotify has the edge.

As of November 2014, Pandora is ahead in terms of total users, with 77 million, versus Spotify’s monthly active user base of about 50 million.

One difference between the two is that Pandora is primarily supported by advertising, while Spotify relies on subscriptions. However, the real competition for both are huge multimedia companies such as Apple Inc. (NASDAQ: AAPL) and Inc. (NASDAQ: AMZN), which have balance sheets, distribution to existing customers and among America’s largest marketing budgets.

The announcement shows how Starbucks could help Spotify gain a customer base it could not have otherwise:

“For over 40 years, music has played a vital role in Starbucks Third Place experience — inspiring our partners and customers in unexpected ways that have helped to shape the global pop culture. And we are delighted and honored to bring Spotify directly to our customers,” said Howard Schultz, chairman and ceo of Starbucks. “Throughout its history, Starbucks has worked closely with the music industry, offering a variety of artists a platform for their work. By connecting Spotify’s world-class streaming platform into our world-class store and digital ecosystem, we are reinventing the way our millions of global customers discover music.”

Spotify gets a new moat, but not deep enough to keep out its largest competitors.

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