Game Changer

CHAPTER 16 AI: Perfecting Price Differentiation

With contributions from Javier Anta, Jean‐Sébastien Verwaerde, and Sebastian Bak

One important pillar of Starbucks' enduring success in the Choice Game is its mobile app, which is second only to Apple Pay in usage among US consumers.¹ Over 31 million customers used the Starbucks app to complete a payment in 2021,² but as we described in Chapter 12, Starbucks also uses the app to provide its most loyal customers with support and added value at every point in the life cycle.

The app also enables Starbucks to fulfill one of the biggest promises of sophisticated artificial intelligence (AI): personalized pricing on a large scale.

For each customer, the app creates offers based on a wide range of inputs, including prior purchases, menu preferences, and location. It embeds gamification to drive customer behavior, from trial of a new product category to more store visits. Its individualized offers have massively increased customer engagement and member revenue. This high level of precision targeting means that Starbucks almost never runs mass promotions to drum up sales.

One could argue that Starbucks' position in the Choice Game creates such an opportunity for large‐scale personalized pricing. A CPG company in the Uniform Game probably has little chance, however, because it has a functionally undifferentiated offering with 100% price ...