experience matters

Celia Jones | Critical Mass Chicago

If you’re in the working world, you’ve probably sat through a 401(k) benefits meeting and heard the spiel:

“Saving for retirement is really important. And if you just set aside a little bit per day, you won’t even feel the contributions coming out of your paycheck. For example: think about how many times you go for that morning coffee at Starbucks. Now do the math. $5 per day x 7 days a week x 52 weeks in a year…”

When it’s framed like that, it’s hard to argue that a daily Starbucks fix can add up to a pretty hefty dent in your bank account. Yet interestingly, roughly a week ago, Starbucks became the first brand to surpass the 10-million-fan mark.

From a Luxury Brand to a Listening Brand

In these tight, recessionary times, with unemployment rampant and people everywhere feeling the financial pinch, Starbucks, once an icon of edible luxury, has emerged as a winner, warming consumers’ hearts like a peppermint latte on cold winter day.

It wasn’t too long ago that Starbucks was dubbed a brand in crisis with eroding sales, rampant store closings and plummeting stock prices. But now, in August of 2010, they are firmly on the rebound and own boasting rights as part an elite group: the 10 million fan club, which includes such social media superstars as Lady Gaga and President Obama. So how did they do it?

Continue to Starbucks’ 6 Tips to Inspire Action with Social Media.

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.

What lessons have they learned? (read more)

At the annual investors meeting last week, coffee brat Howard Schultz, Starbucks CEO, went on the offensive regarding the perception that his coffee is expensive.

Howie (I feel like I can call him that since Howard is my middle name) made two key points. First, that Starbucks has “…become the poster child for excess…” Man, Ozzy Osbourne might have an argument with that if he could still form a sentence.

The second point he made was that because of the extraordinary taste of his coffee, it is a great value. “Don’t let anyone tell you their coffee is the same as Starbucks because it is not.” Oh, and by the way, they have plenty of coffee under $4.

Finally, Howie announced a forthcoming ad campaign that will convince people Starbucks is not as expensive as they are perceived. He said that recent campaigns have generated strong response. So here is my question – what exactly is a “strong response”?

I’m a believer that all campaigns should be driven by an insight, a consumer truth as one of my colleagues here likes to say (thanks for the line, Roger). So, yes, the fact that we are in a recession/depression/AIG induced spiral and people want to save money is an insight. But is it the right insight for Starbucks to act on?

Read the rest of this entry »