What a Difference a Week Makes…
May 20, 2008
Last week, I wrote my Tuesday blog post on charitable events, volunteering and how they impact the community and customer loyalty. In the opening paragraph I mentioned two companies as examples of great customer loyalty, in fact, their customers are not just loyal, they’re evangelists. They seek people out to spread the word of Apple, Starbucks. Well, I read an interesting article yesterday in the Journal concerning the latter and their recent struggles they have been enduring and I thought, hmm…what great timing to make an example of customer loyalty Andrew. Considering I don’t learn from my mistakes I will venture down that road one more time and make Starbucks again the focal point of my customer loyalty rant.
The article outlines various reasons for the recent downturn of the once skyrocketing company. Obviously, the economy is a variable that must be considered, even with Starbucks ambitious goal of being the third place in our lives, home, work, Starbucks! Perhaps it was unwise to tie its fate to our homes and work given the recent events in employment and the housing market, (like a tripod if you will.) If it were that simple then Starbucks could just retrench and weather the storm, unfortunately for Starbucks this is not the case.
It can cost up to five times more to acquire a new customer than to keep an old one. Efficiency along with customer loyalty is paramount as always, and even more so times of economic uncertainty. When belt tightening happens as it is bound to do and is happening right now people reexamine their priorities, this is when loyal customers count extra. So then, what has Starbucks done wrong recently?
Starbucks genius was how they transferred coffee from a commodity to a social experience. It was new, stylish and the product was initially superior. As in every industry imitators sprung up and business followed their model to skim off the top or try to steal market share. At first no big deal, in the early part of the decade they were opening 7 café’s a day. Starbucks was still ahead of the curve, but somewhere along the way the fell off the race track it seems. Mr. Schultz, their charismatic fearless leader stepped down in 2000, but remained Chairman where he dove into side projects like signing musicians to the Starbucks Coffee label, and marketing Hollywood films. They started diversifying too much. They weren’t coming up with new quality products that fit their core competency, but rather mindlessly adding products just to sell. They started adding drink flavors that made no sense, breakfast sandwiches that would overpower the smell of the coffee in a coffee house, and stuffed animals lining the walls of the stores. Furthermore, they weren’t keeping up with new and innovative methods of brewing and pressing coffee, (apparently you can reinvent the wheel). Their customers started to get annoyed to say the least. If you’re gonna buy a $4 dollar coffee, you want it from a place that is serious about the coffee business, not one that has gimmicks and tries to sell you something at every turn. They lost sight of their initial vision, their love of coffee.
Never bite the hand that feeds you. As stated before the customer is king or boss or is always right. They broke a rule in the Tuesday model. Their customer’s expected great coffee at a serious coffee house. When Starbucks started to get into everything under the sun to make a buck they failed their loyal customers. The customer’s understanding of Starbucks started to get foggy. Trust then eroded. The relationship and inevitably the loyalty suffered and now Starbucks is going back to the drawing board to win back their customers trust.
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As a Starbucks consumer who just loves their coffee (venti/house, room for milk - no double skim half-caf soy lattes for me) - glad to see they woke up and ’smelled the coffee’.
Sometimes it’s better not to be all things to all people……
Wow, great post, Andrew. This breaks the Hedgehog concept, and the whole case study is right out of Good To Great. Schultz looks like he definitely got sidetracked. I guess he fell into the same trap I fall into with personal investing, i.e. no matter how many times the lesson has been documented and the ability to learn from history stares right in our faces, we still seem to think that somehow our situation is different. We should keep sticking to the simple concepts that we know best.