Four Lessons from Starbucks: A Brand on a Mission

Posted by Scott Weisbrod / January 25, 2010 1:39 pm

Nearly two years ago, I wrote about Starbucks as a brand in decline. They were suffering because they had lost sight of what differentiated them from other companies competing for the “third place”: their product and the customer experience.

After years of focusing on cutting costs and driving efficiencies across their global footprint, the benefits of these activities plateaued in 2006 – as reflected in their all-time high stock price, just shy of $40.

They installed automatic espresso machines, introduced flavor lock packaging, ‘templatized’ store layouts and expanded their available selection of merchandise. While this all sounds good, it was implemented at the cost of the customer experience. The automatic espresso machines took all the romance and artistry out of pulling the perfect shot and the machines were so high that they blocked the line of sight between barista and customer. The flavor lock packages of coffee stripped the air of the rich scent of coffee beans. Stores became carbon copies of one another – sharing, for the most part, similar footprints and interior design. And their merchandise selection reflected a weakening focus on coffee.

By the time I wrote my post in 2007, Starbucks had lost 25% of its market capitalization. By the end of 2009, as bad as it was for just about every company, Starbucks shares had dropped to just under $10 – a whopping 75% loss of market cap.

Fast forward to today – something has changed. Starbucks is now a brand on the rise with a renewed focus and commitment to customer experience. Bruce Temkin put it well Monday when he said “Starbucks brews a comeback with purpose”. (Bruce wrote a post about Starbucks’ misfortunes in 2007 too.) Starbucks stock is now trading in the $22 range and is rising.

Starbucks has learned a few valuable lessons over the last four years and their change of fortune is a reflection of applying what they’ve learned.

So what did they learn? Bruce points us to a New York Times article that provides us with clues:

As Starbucks CEO, Howard Schultz, explains it, they “went back to start-up mode, hand-to-hand combat”. In essence, they went back to their roots, looking for those jolts of energy that fuel inspiration and innovation – a vital head space to be in when trying to tackle challenges as large as the ones faced by Starbucks.
They’re speaking the language of customer experience again. In the New York Times article, Schultz is quoted as using phrases like “the authenticity of the coffee experience” and “the romance, the theater of bringing that to life” in reference to one of their new Seattle shops.
Local matters! Starbucks is no longer out of touch with what their customers want and how those needs differ across the country. They’re also rolling out store designs that are more reflective of their locale.
While this isn’t called out in the New York Times article, we can’t ignore the importance of top down executive vision. The best customer experience companies rest on the shoulders of their CEOs and that CEO’s ability to galvanize employee belief in customer experience. Schultz had retired as CEO and came back to lead the organization out of the mess that had been created. Schultz’ vision for customer experience at Starbucks is absolutely essential to their continued success.

Starbucks’ rise is great news for other large companies who have lost focus of their core values. The strategy is simple: it really does come down to customer experience and product (or service). What’s not easy is the execution. But, if you can get the focus right, get a vision in place and create a team that is committed – you can do it. If Starbucks can, any large organization can.

Photo attribution to Flickr user Seadevi.

http://www.gazoobot.com deborah loercher

Great review of the Starbucks story. There are lessons to be learned about offering consumers ‘more’. People seldom buy a ‘product’ they buy an experience and as you pointed out they look for a ‘third place’ that is where Starbucks started and hopefully where they will continue to return to. Great blog!
http://trendsage.com windycityexpat

i’ve been a fan of starbucks for a long time now. on a professional level, they’ve always struck me as an interesting case study in the making. on a personal level, i have always loved the experience. even though they are a HUGE organization, i root for starbucks like they’re the little guy. i’m not sure why that’s the case. i guess i just appreciate the brand.
http://www.criticalmass.com/ Scott Weisbrod

Deborah – you nailed it. Consumers – especially when it comes to non-essential purchases – are buying an experience, even if it appears, at-a-glance, that they’re exchanging funds for a product or service.

Starbucks has known this all along. They just got distracted. They’re now back on track. And, like windycityexpat, I’m rooting for them too!
Celia Jones

Scott I couldn’t agree with you more. Admittedly I was a huge skeptic when I heard that Starbucks announced that they were getting into INSTANT coffee. “A cute name like ‘VIA’ can’t mask the fact that they’re sinking into commoditization and devaluing what was once a brand iconic for mass luxury”…or so I thought.

As much as I tried to discredit the new instant coffee line, I was impressed with what I saw. The packaging feels luxe, the flavor is rich (at least compared to others in the instant category), and the product gives people the same value they once derived from that frothy $5 latte: a little taste of luxury in an otherwise ordinary day.

In addition, Matt Giuste and team have done a great job engaging the community of brand loyalists in the social sphere–with Starbucks now one of the top brands in terms of Facebook fans and Twitter mentions.

All of the changes you outlined above are a great reminder that it’s never too late for a brand (in distress or not) to stop, listen, and determine what it takes to truly deliver value to your customers.
http://www.criticalmass.com/ Scott Weisbrod

Celia, what’s great about VIA is that it marks a return to focusing on coffee. To your point, they’ve struck a balance between commodity and luxury with their instant coffee: it’s really good! And, it couldn’t come at a better time given that we’re in a post-recession consumption era.
http://AuthenticOrganizations.com CV

Scott, great summary of the key insights from the NYT article–especially when juxtaposed against all the things that Starbucks supposedly did right just a few years earlier.
I’m sure I’m not alone in having a kindof schizophrenic starbucks experience– with dismay at the overall feeling of the chain and its non-specialness, and delight when I discover individual stores that have whatever it is that makes them authentic.
I’ve written a bit about one store in particular, and you might enjoy this post: What’s going on at my favorite Starbucks? [[http://authenticorganizations.com/harquail/2010/01/13/whats-going-on-at-my-favorite-starbucks/ ]] I’d love your take on what I’m seeing.
thanks Scott!
cv
http://AuthenticOrganizations.com/harquail/2010/01/13/whats-going-on-at-my-favorite-starbucks/ What’s going on at my favorite Starbucks?

[...] check out Scott Weisbrod’s post:: 4 Lessons fromStarbucks:A Brand on a Mission at Experience Matters [...]
Emily

This is a great post and I couldn’t agree more, Scott! I worked at the Bux for 2 years and enjoyed it so much that I was inspired to read 3 books about the brand (including Schultz’s biography), join fan clubs, and even visit the original Pike Place store. Ok, maybe I was a bit of a nerd, but I loved my job! So just one comment for you…I believe Charles Schultz is the Peanuts man…Howard Schultz is the CEO of Starbucks
http://www.criticalmass.com/ Scott Weisbrod

CV – I left a comment on your blog, but you’re absolutely experiencing the evolution of the Starbucks first-hand. The Starbucks locations in my neighborhood (Atlanta) are starting to catch up too.

Emily – regarding, Schultz: duly noted and updated. Thanks to your eagle eyes!