I was at Costco a few weeks ago standing at the register with a shopping cart full of items — a new basketball, a Swiffer duster, etc — when I saw something pretty interesting:
Costco is selling Starbucks gift cards for 20% off ($100 of gift cards for $79.99). Why would Starbucks do this?
Because they’re reaching people at the point of checkout. It’s advertising-meets-transaction.
This is something I call “transactional advertising.” As you can see in the image above (pardon the quality, taken with my phone’s camera), Starbucks is literally at the checkout line of Costco. If Starbucks wanted to advertise in front of millions of people with transactional intent, they could not find a better place. And who’s a better quality customer than somebody who is standing in line waiting to pay?
Starbucks might have done the math and calculated that it normally costs them $30 to acquire a customer. (e.g., they might spend $100 million on advertising, and get 3.3 million customers). Or, they could just sell $100 of gift cards for $70 — a different way of spending the $30 to acquire a customer. Costco marks it up to $80, but customers still get a better deal at 20% off the actual price. And Starbucks gains customers who were just trying to buy a basketball…expanding the Starbucks empire.
–Alex Rampell
