“More people would give up sex before they’d give up coffee.”
That’s according to Taylor Clark author of the new book, Starbucked: A Double Tall Tale of Caffeine, Commerce, and Culture.
Whether you agree or not, the Starbucks’ story illustrates some dynamics that are counterintuitive to conventional business wisdom.
For example, Starbucks increases sales at rival nearby coffee houses—sometimes up to 25%. It also can spur the opening of new independents.
Conventional wisdom would worry that the market size and each businesses share would hurt the viability of the weakest players. That might be true when the businesses focus on market share and compete with each other.
The Starbucks’ coffee experience has sparked a growth in the desire and consumption of coffee in America. Fueled by desire for the experience, customers scrimp elsewhere to splurge on something (an experience) they find of value.
However, independent coffee houses don’t thrive if they try to compete directly with Starbucks. They do thrive when they offer a differentiated experience.
John
An important and often overlooked point. Radical innovations like Starbucks do expand the overall marketplace for their products. Just look at how low-cost airlines expanded the aviation industry.
But as Starbucks is finding with its over-expensive coffee and sometimes lacklustre service, it is also prey to disruptive innovations offering just what the customer wants at a much lower price, like McDonalds McCafe for families who want the best of both worlds. Even though I don’t generally eat at McDonalds, I definately prefer McCafe to Starbucks.
We wil have to see whether the arrival of low-cost competitors will stir Starbucks to reduce its prices, to innovate with the coffee experience or to leverage its platform effect by creating a coffee-related meeting place for 3rd-party products.
Graham Hill
Independent CRM Consultant
Interim CRM Manager
Graham,
I am not familiar with McCafe so it is hard to relate specifically to your example. However, in my case, price at a coffee house is not the deciding factor. The experience is. There are Starbucks I avoid for the reasons you mentioned. This is especially easy to do it the alternative has more experiential appeal. In the case of coffee for me the experience is a little luxury. In fact, I will pass on the experience if I think it will fall below a arbitrary standard.
That’s how I operate for the coffee experience. If I am buying gasoline for my car, I chose based on the best percieved trade-off between price and convenience. I am sure there are circumstances where the two rules overlap.
It will be intereting to see if the small luxuries effect gives way to price over time or whether the alternatives thrive because the experience is more appealing.
John
John I. Todor, Ph.D., author of Addicted Customers: How to Get Them Hooked on Your Company.
Dear Graham and John,
It’s an interesting discussion. Let me ask a hypothetical question:
How about, to Starbucks customers, if price is not an important issue to them. But, to Starbucks brand, a premium price is one of the key differentiators (of course people buy Starbucks not because of pay more, but for the e.g. new coffee experience, or third place, etc.) from her competitors.
Should Starbucks raise price?
Sampson Lee
Sampson
Everyman has his price. Even Starbucks customers. As Pine & Gilmore describe in their The Experience Economy book, punters will happily pay USD10 for an Espresso Doppio Crema in St Marks Piazza in Venice, because it is a truly unique experience. But few people would pay USD10 for a Starbucks in a mall in Plano, Texas.
Today, Starbucks has plenty of competition. Some of it is global like the McCafe that I like so much, some of it local like Peets in and around San Francisco. Starbucks have to be careful that they don’t provide space for a disruptive inovator to take away their market, through incrementally adding unwanted featues and simultaneously raising prices to the point where even regular customers found it easy to try switching.
My napkin calculation suggests that Starbucks will struggle to raise their prices significantly. Not without significantly improving the 3rd-place experience. Good coffee is not enough by itself.
Graham Hill
Independent CRM Consultant
Interim CRM Manager
Sampson and Graham,
I agree with Graham that everyone has his price limit. Starbucks not only has to worry about the disruptive innovator that takes away their market, they have to worry that the Starbucks experience becomes tired. Just like people habituate on drugs, they habituate on experience. That is to say, experiencs that become to common and frequent lose emotional appeal. I don’t think you have to be a disruptive innovator to use this advantage to attract the customers for whom Starbuck is losing appeal.
John I. Todor, Ph.D.,
author of Addicted Customers: How to Get Them Hooked on Your Company.
Dear John,
Should the target brand values of Starbucks be changed?
For example, if the original brand values of Starbucks are the New Coffee Experience and The Third Place, should they be changed to adapt to the different needs of different markets (countries / markets), or, to cater to the needs of broadener customer segments due to her fast local and global expansion?
In the twin cities that I spent most of my living time — Shanghai and Hong Kong — the number of Starbucks outlets are more than McDonald’s in downtown area.
Is Starbucks McDonalizing?
Sampson Lee
Sampson
As has been discussed elsewhere, a brand is what customers think it is, NOT what marketers think it is. Sitting in the Stanford Mall Starbucks in the summer, it was more third place thean coffee experience judging by the number of eager students sitting at laptops discussing business plans. I was there for the coffee. But sitting in the Cologne Neumarkt Starbucks a few weeks ago, there wasn’t a laptop or business plan to be seen, instead, shoppers with mountains of bags huddled over steaming cups of coffee chatting about what was on TV last night during breaks in their hectic shopping schedules. I was there because the ambience was much nicer than the local McCafe.
One marketed brand but two very different local interpretations by customers, the real brand deciders. Marketed brands need to be flexible enough to appeal to local customers, not just to myopic marketers.
On another note, I would be most surprised if the Starbucks experience despite trying to look unscripted, wasn’t in fact highly scripted, just as it is at McDonalds. Without this scripting, the whole service process would just clog-up, speed of coffee delivery would drop and service quality would rapidly decline, once queues built-up beyond a certain threshold.
Graham Hill
Independent CRM Consultant
Interim CRM Manager
Sampson & Graham,
If companies “do listen to the voice of their customers” the customers will increasingly define the brand as Graham suggests. Starbucks and others must walk a fine line between localization of the experience and maintaining the bigger theme. The third place theme seems to have surpased the new coffee experience as a metaphor for Starbucks, at least in areas where Starbucks has been around for awhile.
Most Starbucks are not adapting to the laptop crowd and their definition of the third place. Most are lacking in power outlets. I have only seen one that retrofit power outlet and it is almost always full. Whether this translates to more sales is an open question. I use coffee houses as a third place and deliberately spend time in them in less than peak times. I definitely do my share to increase their bottomline, but I frequent those who are wifi and power source friendly.
John I. Todor, Ph.D.
Author of Addicted Customers: How to Get Them Hooked on Your Company.