The Starbucks Scam You Actually Like
Starbucks found a way to earn billions before serving a single cup. This case study breaks down the overlooked feature powering their most profitable behavioural loop — and what PMs can learn from it.
Most people think Starbucks makes money by selling coffee.
But here's the truth:
Yes, Starbucks makes money from your coffee order — but makes millions from the ones you never place.
In 2024 alone, Starbucks reported over $200 million in revenue from unused gift cards. That’s money customers handed over — and never claimed back.
This isn’t just a cool feature. It’s a smart system that shows how payments, rewards, and user habits can work together to make a business stronger.
This breakdown explains how Starbucks made this work—and what product teams can learn from it.
The context: How Starbucks turned a small feature into a major financial system
By the late 2000s, Starbucks was already a global brand. It was still opening stores—but growth wasn’t just about scale anymore. The company began focusing more on making its business model stronger: more efficiency, more predictability, better margins.
Coffee, after all, is a tough business:
Labor and real estate are expensive
Inventory goes bad quickly
Customers can easily switch to a cheaper option
Meanwhile, across retail, gift cards were becoming more popular—not just as gifts but as convenient tools for spending and loyalty. Many companies still saw them as seasonal or promotional items.
But Starbucks noticed a deeper pattern:
Customers were loading gift cards—and not always redeeming them.
Some gift card balances just sat there, unused.
That meant Starbucks already had the money, but didn’t have to make the coffee. It was a clear advantage: they got paid without spending anything.
Once Starbucks noticed this, they began turning gift cards into a bigger part of their app and business strategy.
The decision: Turn a simple gift card into a system that runs the whole experience
Starbucks didn’t just offer gift cards as a way to buy coffee — it turned them into a core part of how people interacted with the brand.
Starbucks used gift cards as the starting point to build a system that shaped how customers paid, earned rewards, and came back for more:
Gift cards weren’t just physical anymore—they became digital, easy to reload, and linked to your app
Customers earned loyalty points (“Stars”) only when they paid using stored balance
The app nudged users to turn on auto-reload, making preloading money a habit
Paying with the stored balance was quicker than using cash or card, so it became the default for regulars
Every product detail reinforced the same behavioral loop:
Load money before buying coffee. Get rewarded. Come back to use it. Repeat.
By 2025, Starbucks held $1.85 billion in stored value from customers. And in 2024 alone, it reported $207 million in breakage revenue—money from balances that were never redeemed.
This wasn’t accidental. It was the result of intentional product, UX, and business design.
How it works: The mechanics behind gift cards
Let’s look at what actually happens when a user loads money into their Starbucks app:
Preload – A customer adds $25 to their Starbucks balance. Starbucks now has the cash upfront.
Float – The company keeps the money for days or even weeks before it's used. That cash can be used in the meantime to fund operations or earn interest.
Breakage – Some users forget to use the full amount. For example, if someone loads $25 but only uses $22, Starbucks keeps the leftover $3—without delivering any product.
Redemption – When users do use the money, it’s often in small purchases spread over time, which makes each transaction faster and more convenient.
Here’s why this matters: Starbucks earns money even before delivering a single drink. And sometimes, it earns money without delivering anything at all. That’s a powerful advantage most businesses don’t have.
Product thinking: Why this works beyond finance
This system doesn’t just help Starbucks financially—it taps straight into how people think and act. That’s the real genius.
Preloading removes friction: no digging for your card, no thinking. Just scan and go.
Stored balance feels like play money: users are more willing to spend when it doesn’t feel like real cash.
Stars = rewards: users feel like they’re winning, even when they’re just spending money they already gave away.
Auto-reload creates habit: once it’s set, users forget it’s even happening.
This is behavior design at its sharpest. Starbucks didn’t just make payments easier. They made leaving harder.
Once you’re used to loading money, earning rewards, and breezing through checkout, even better coffee elsewhere doesn’t feel worth the switch.
That’s how you build a product loop that prints money and locks in loyalty.
What changed: Starbucks’ app became a strategic asset
What started as a gift card program became a fintech-style wallet.
As of Q2 FY2024, Starbucks Rewards had 32.8 million active members in the U.S., up 6% year-over-year. While the company didn’t share an exact percentage of transactions made through stored value or gift cards, they consistently emphasize that Starbucks Rewards and app-based payments play a significant role in driving customer engagement and repeat purchases.
The app isn’t just a convenience layer. It’s a moat.
Starbucks isn’t just a coffee chain with a digital app. It’s a consumer wallet with a retail front-end.
The lesson? When you control the payment flow, you don’t just improve UX—you reshape the business model.
The CASH framework: How to design your own version
If you're thinking about building a similar system in your product, consider the following:
C – Commit early: Encourage users to preload, subscribe, or buy credits upfront. You reduce CAC payback time and increase LTV.
A – Align incentives: Reward users for behaviors that improve margin—like using stored balance over credit cards.
S – Simplify usage: Make the committed behavior easy and natural (e.g., default to stored value, allow auto-reload).
H – Hold value: Design your system so that unused value benefits your business (e.g., breakage, float, or re-engagement triggers).
Starbucks didn’t just check these boxes—they optimized each one.
Metrics worth tracking (if you build a similar loop)
If you're building a stored-value, credit, or prepaid system, these are the signals to watch:
% of users with stored balance over time
Average days between load and first spend
Breakage rate (value unused after 12 months)
Prepaid user LTV vs pay-as-you-go user LTV
Change in frequency or retention among preloaders
These metrics reveal not just usage—but business leverage.
Lessons for product teams
1. Don’t wait until value is delivered to monetize
The hardest time to charge is after someone uses your product. The easiest time? When they’re excited about the outcome.
Gift cards, credits, and preloads let you earn trust and cash before delivering value. That shifts risk off your books.
2. Design features that make finance and product both win
Most features serve one side: the user or the business. This system serves both.
Users get ease and rewards. The business gets cash flow, retention, and margin. That’s how you know it’s a great loop.
3. Look at what users already do—and formalise it
Gift cards existed long before the app. Starbucks didn’t invent the behavior—they just amplified it.
Study what your users are already doing informally. Build systems that make those behaviors easier, more rewarding, and more valuable to you.
4. Understand margin, not just growth
Growth hides problems. Margin reveals them. Starbucks’ system grows without increasing cost linearly. That’s real leverage.
Great PMs don’t just build features. They build systems that print margin.
Final thought: You don’t need a gift card to use this playbook
Plenty of companies do this differently:
Amazon gift cards drive revenue before shipping anything
Apple’s App Store cards lock in spend to a closed ecosystem
Games like Roblox or Fortnite sell currency upfront — and deliver value later
None of these are the core product. But they’re critical business engines.
The real question for your team isn’t “Should we launch a gift card?” It’s:
What are our users already pre-committing to?
Can we turn that into cash flow or loyalty?
Are we rewarding that behavior in a way that benefits everyone?
When done right, these systems are invisible, delightful—and extremely profitable.
Want more breakdowns like this? I write weekly teardowns on why some products work so well (while others don’t.)
Until next time,
—Sid
Gift cards are such an efficient way of delivering value if it's defined the right way. Earning through breakage/pilfrage, is good. Every product manager should sit with a GC industry veteran atleast once in their career to understand customer acquisition and retention strategies.
One thing I think that was missed is how gift card balance works like or even better than Credit cards/plastic money. Since money is already there, the tendency to spend money and buy products is also much higher. A transaction which could've been lost during consideration stage is now guaranteed as no one wants to waste money