Over the past several months, Starbucks Coffee has released a slew of announcements highlighting the precarious situation of the once dominant purveyor of $4 lattes. During 2007, store traffic was essentially flat and Starbucks even witnessed the first quarterly decline in the US, since 2004.
The company’s CEO was ousted and replaced by founder and chairman, Howard Shultz. Starbucks plans to close 100 underperforming US stores and cut the pace of new store openings in 2008. If that wasn’t enough, McDonald’s has entered Starbucks’ market, selling new coffee, undercutting Starbucks on price, and installing coffee baristas.
In response, Starbucks has started testing $1 coffee and free refills at a few of its locations in Seattle! Moreover, the company has announced that it will stop selling warm egg breakfast sandwiches because the smell interferes with the aroma of coffee.
As a number of Wall Street Firms cut their ratings on Starbucks and as a growing number of investors write the company off, I can’t help but wonder what will happen to the best selling book, The Starbucks Experience: 5 Principles for Turning Ordinary into Extraordinary? What about the other books detailing the Starbucks customer experience and the company’s principles for success? Is the legendary Starbucks experience no longer valid? Do we still have something to learn from this iconic customer experience, or does the rash of negative announcements void them all?
Plenty to learn
Despite Starbucks’ challenges, there is plenty to learn from the company’s customer experience.
- The Original Experience – the principles that led to Starbuck’s original legendary customer experience remains as true today as it did yesterday. These are the principles that drove customer passion and loyalty, during a period in which the company never advertised (until Q4 2007). Any company that can drive customer evangelism and passion in a seemingly commoditised business (coffee) deserves serious attention and admiration!
- Rapid Growth – during the previous years of rapid expansion, Starbucks compromised on certain elements of its customer experience. This included a shift to automated coffee machines and the inclusion of breakfast sandwiches (which eroded the unique coffee smell). The delicate balance between delivering loyalty-driving customer experiences while accommodating rapid expansion is difficult for any company. Many organizations deliver great customer experiences in their early years only to compromise on those experiences as they expand. These compromises, however small, can have a debilitating effect on the overall experience, and ultimately, on customer loyalty. Learning this lesson from Starbucks is no less important than the company’s original experience principles.
- Everything Matters – the compromises at Starbucks not only led to a reduction in product quality, but as the company added breakfast sandwiches, mugs (and other paraphernalia), the perception of the company changed. No longer universally seen as a customer experience maven, consumers were increasingly viewing the company as being ‘corporate’. Starbucks was slowly losing its image and unique value – it’s original coffee soul.
- Looking In the Mirror – to its credit, Starbucks recognized and admitted its mistakes. Many other companies either make excuses for their shortcomings, fail to recognise them at all, or only recognize them after they’ve lost their customers’ trust and business. Starbucks has shown that it is willing to face reality sooner rather than later and take concrete actions to turn the company around. As Intel’s CEO once said: “paranoia is the best strategy.”
How will Starbucks react and evolve during these turbulent times? Are more changes in the offing? While I wait with anticipation to learn of the company’s five major consumer initiatives at its annual meeting in March, I have faith that the company’s prospects look bright. I have faith because the company has the wherewithal to recognize its own shortcomings. I have faith because any company that is concerned with the smell of its products, has a great chance of ensuring a bright future.
