BrainTrust Query: Lessons From the Starbucks Turnaround
By Mark Price, Managing
Partner of M Squared Group
Through a special arrangement, presented here for
discussion is a summary of a current article from the Cultivating
Your Customers blog.
Who would have wanted to be in Starbucks’ shoes
a year ago? McDonald’s had launched low priced alternatives that had huge
trial, the economy had stalled and consumers were balking at spending $4
per drink, even at a familiar place. Howard Schultz announced that the company
had "lost its way," becoming too standard and corporate and less entrepreneurial
— less like a local coffee shop. The chain then closed stores on a broad scale
for the first time.
Fast forward a year later. Starbucks blows its Q4 numbers
out of the water. Get this — sales were up four percent to $2.7 billion. Comparable
store sales were up four percent, which was driven by both increases in store
traffic and average ticket price. If that wasn’t enough, the company’s margins
were up by 8.5 percent to 13 percent. As a result, the company earned 32 cents
in the quarter, up from nine cents in the year-ago quarter. Starbucks now expects
to launch 100 new locations in the U.S., and another 200 worldwide.
One of
the clues to Starbucks’ success lies in a phrase buried in their press release,
"Starbucks’ consumer research shows higher satisfaction in every major indicator,
such as value perception and experience, compared with a year ago." So the
results were not driven by price increases alone (even though prices did go
up), but by improvements in customer experience as well.
Starbucks customers
have noticed a series of improvements at the store from prior years, including
reintroduction of the Pikes Peak blend and Via instant coffee, more healthy
snacks, improved staff engagement and a new, frequency-based loyalty card.
But
I think there is something more. Starbucks two years ago launched My Starbucks
Idea, a portal that permits customers to suggest improvements to the store,
products, pricing, etc., and for other customers to vote and identify the most
popular ideas. Here is the kicker — real-life Starbucks employees actually
respond to the ideas, suggest improvements, identify logistical issues and,
when an idea is selected for development and launch (which they actually are!),
provide timetables and commentary. Imagine that — a company
that asks customers for ideas, permits them to prioritize the ideas and actually
assigns relatively senior people to engage in conversation with their customer
community!
The site profiles Starbucks employees that are engaging with customers
this week, highlights ideas with the most votes as well as the most recent
ideas, and includes a small poll to gain some quick customer insight. The question
on Jan. 31 was: "What flavor of bran muffin sounds the most appealing to you?"
Now,
My Starbucks Idea is not the sole reason for Starbucks’ success. Clean execution,
new products and a motivated salesforce all contribute in a big way. The idea
of soliciting ideas from customers is not new either. But the execution is
so clean, the relationship so transparent and results so clear for mystarbuckidea.com
that I believe it helps to motivate Best Customers to return, refer and do
all those other things that make Best Customers so important.
Discussion
Questions: What do you think of My Starbucks Idea? Do other retailers have
as much of an opportunity to explore ideas and gain feedback from customers?
What role might it have played in Starbuck’s turnaround?
I don’t like pointing out the obvious (ok, I do sometimes) but aren’t we in business for the customer? If the customer changes their buying behavior in the realm of $4++ coffee, isn’t it up to SBUX to change their offering? You go there for the experience and they were not delivering for quite some time. I equate ‘My Starbucks’ to the suggestion box of days gone by (see my post about retail technology on CUEHub). The Starbucks customer spoke, and amazingly, they listened.
If only there were a silver bullet like MyStarbucksIdea.com, every struggling retailer would have an epic turnaround like SBUX. Sorry, it’s not that simple but there is a consistent theme: customers.
A bloated (i.e., too many stores, too many people) and less-focused (too many initiatives off strategy) SBUX became less relevant and less special to customers in a sagging economy.
They cut costs, improved their product–though Consumer Reports just came out and didn’t rate a single coffee excellent–and put their customers back in the center of their model. My Starbucks Idea was a start but so was the redesign and launch of their loyalty program and the re-training of their associates.
Starbucks put themselves in a position of strength to leverage the inevitable economic turnaround. It’s not so much luck as the Jim Valvano principle of being in a position to win.
Who else but Starbucks could close down their entire store to learn how to remake a latte–and do a PR campaign on it? Starbucks tried a lot of things as they grew but it took Howard’s return that brought focus back to the brand at a time it needed it. Lesson to everyone is keep your eye on the ball so you can consistently deliver the same experience day in and day out.
It appears this is working and getting direct feedback from customers is always a can’t lose situation.
As for a turnaround, it’s too early to tell. Any company can play with the numbers for one quarter. It’s easy to brag about opening a few hundred new stores but if you are closing 500 in the rear-view mirror, perhaps that tells another side of the story.
Okay; first off, I have to offer full disclosure: I am a Starbucks addict and there is a Starbucks downstairs in my office building that I frequent two or three times every day, not to mention that the employees are like “family.” In addition, I usually stay at hotels on the road that have Starbucks in the lobby and I hardly ever pass by a drive-through Starbucks without getting my “fix.” And by the way, my clients also love Starbucks because they know how well Starbucks impacts the great quality of work I do for them at all hours of the day and night!
All that said, I might be the typical Starbucks consumer. You see, I did try McDonald’s and other establishment’s lattes but as a loyal–uh addicted–Starbucks consumer, I know that there is no real replacement!
Starbucks is a lot of things that other places simply are not: aroma, experience, personalization, clean, smart, consistent, and now even very convenient. The drive through stores are wonderful.
The Starbucks recovery is not surprising. Long live Starbucks. Long live my green paper cup. Long live my expensive Skinny Vanilla double shot Venti Latte!
You have to applaud a retailer that asks customers for their input and then directly follows up on their requests. There is a practical lesson to be learned here: Listen to your customers. How many retailers actually “get” this simple concept?
I think it’s a sad state of retail when it’s considered newsworthy that a business is actually listening to its clients. Aside from the slick methods and cool interactions, this is just a high tech version of a suggestion box (as Doron Levy points out). Perhaps if Starbucks had implemented this kind of policy years ago, they would not have needed to take two steps backwards before taking one step forward.
It is very likely that the My Starbucks Idea contributed to the success observed. Listening and responding to customer needs usually produces favorable outcomes. The exceptional results suggest that the impact of the program was not limited to the Best Customers. In all probability, the views of the franchise per se are being reflected in the suggestions being offered by those who participated by offering suggestions.
The transferability of the idea to other retailers may depend on the composition of their franchise (online usage) and the scope of their offering. It is easier to implement suggestions when you have a relatively narrow offering and small footprint. It would be more difficult to execute, if you are operating a 150,000+ sq. ft. department store, general merchandise store, or supermarket. Not impossible, just more difficult.
When Starbucks first launched My Starbucks, I visited and was impressed by the organization and authenticity of the forum (letting the good, bad and ugly voices in), not to mention the amount of feedback they were getting.
I think My Starbucks is a big part of the turn around but not necessarily because Starbucks heeded useful feedback (one of the more vehement threads on My Starbucks has been about Starbucks recycling cups in every store. Still not happening). Simply engaging customers rather than keeping the old “We know what you like” vibe going was a big, positive goodwill step.
Contrast that with Best Buy’s Idea Exchange (IdeaX) which has a much more lively “We’re listening and acting” tone to it. The complex and innovation-driven nature of Best Buy’s business makes IdeaX inherently more relevant (getting all of that customer feedback right when they’re exploding their private label tech offerings? Sweet!); so much so that more than one of my CE colleagues has told me that they go to IdeaX to get ideas for their own products!
Every retailer and brand should have some version of an idea and feedback forum.
First, dispose of the easy stuff. In Q4 of 2008, all the air was sucked out of the room for the economy. People were submitted to non-stop “End of the World” scenarios. They were scared to death and cut way back on all discretionary spending (like $4 coffee). The point is that all retailers, Starbucks included, were up against easy numbers for Q4 2009.
That aside, however, Starbucks has worked hard to and succeeded in developing one of the best, most consistent brands in retailing. As a result, it has also attracted and maintained a very loyal customer base. Reaching out to them for their ideas and input and then, far too uncommonly, actually acting on that input, was a brilliant move which, not surprisingly, has paid off handsomely.
It’s interesting to stand back a bit and look at some recent announcements. To wit, Macy’s announces a big success in its “My Macy’s” program, Wal-Mart breaks US operations into 3 zones with separate merchandising strategies to better “stock items that match local tastes,” and now Starbucks shows big success by listening and responding to local customers.
Gee, maybe the center of retailing gravity is shifting out of the large corporate offices and back towards the individual sales floors, where it was when old guys like me started.
Back to the Future.
I think the big takeaways from Mark’s astute observations are that while many businesses recoil from their customers in tough times and actually become more insular, Starbucks did just the opposite.
When adversity set in, they sought to more closely engage their consumers, listen to them and actually increase their degree of transparency and inclusiveness.
It takes nerves of steel to do this and they did so admirably and in the process, solidified what they stand for.
After reviewing their 10Q for the period ending December 31, 2009 verses 2008, it appears that most of the improvement came from cost reductions. I don’t know how many customers may have suggested ways for them to save money. The largest savings appears to have come from reducing store costs. I assume this is because of the vast number of closings, not something customers would have appreciated. But since they were able to keep revenues relatively flat in light of the store reductions, maybe better customer communications had something to do with the results.
So, as with many CRM activities it is difficult to know what really motivates customers. I would imagine that some of the more loyal customers appreciated the opportunity to provide feedback. Whether that caused them to buy another cup, or drive farther to reach a less convenient location, is difficult to know. Personally, I don’t think an online screen would cause me to change my habits. I attribute more to the retraining program and emphasis on new products. A smiling employee who appreciates a customer’s business goes a long way…. The bigger lesson to take from Starbucks is the way they manage their employees, train them, provide employee benefits, and support them.
Starbucks’ rebound is packed with great leadership lessons. Let’s review several:
Courage begins with an Inward Battle–every test you face as a leader begins within you. Howard Schultz has it. Courage is making things right, not just smoothing them over. Courage in a leader inspires commitment from followers. Commitment starts in the heart, commitment is tested by action, commitment opens the door to achievement. Howard Schultz and his team are ALL-outs; people who set goals, commit to them, and pay the price to reach them.
Ask questions; change is always the goal of learning. You cannot have growth without change. My Starbucks Idea can be a catalyst for change if they listen.
Do other retailers have as much of an opportunity to explore ideas and gain feedback from customers? Opportunities are there for ALL; the compass of leadership ability determines a person’s (or team’s) level of effectiveness.
As I respond here, 80% of respondents say that the opportunity for sales uplift is large or very large. Why aren’t more retailers doing this?
Customers love to feel involved, noticed, treated as if they matter. This piece is must reading for all those retailers who say that they really, some day, at some point, should develop a social media strategy….
For me personally, I never had any doubts about SBUX. As I traveled the globe over the last 2 years and saw a unit on every corner, still packed, the whole “lost our way” story seemed a bit like a set up for a wonderful P.R. “comeback” tale. Their product never really wavered, that was key, and anyone that deals at that macro of a level will be susceptible to massive economic whims every now and then–just ask McDonald’s. Besides, true quality (vs. marketing quality) will reign supreme every time in the long run.
Re: the My Starbucks campaign–very nice, but their devotion to great service and quality coffee is a far better, and more difficult to imitate, promise. Just ask McDonald’s.
It is ironic that an upscale retailer like Chanel is instituting training for their associates that is called the Starbucks way. The Starbucks way has always been on target, unfortunately, they lost their own way for a period of time. It took Howard Schultz’ return to refocus the company. My Starbucks Idea is not the reason for the turnaround. My Starbucks Idea is the result of a corporate attitude turnaround.
Frequenting Starbucks, I have seen associates being trained. There is heavy emphasis on positive customer interaction, which includes not only VERY friendly greetings but also knowledge of the products. I have seen the grumpy disappear very quickly.
I had a recent experience that really impressed me. I ordered some kind of prepared drink and for some reason, it was dropped from the preparation queue. So, I had to wait while a couple of the folks who ordered behind me got theirs first. When I got mine, I was given a very nice apology. I took my drink and went to my table. A few minutes later, an associate comes to my table and again apologizes and hands me a coupon for a free coffee. Mind you, I did not fuss or make a scene. This action was completely self initiated.
On the other hand, while I can’t speak for Dunkin’ D’s outside of Manhattan, I can say, absolutely, their associates are the most rude and impatient one would find in the city.
Gee, engaging the customer and empowering the associates, what’ll they think of next?
**Sigh**
Unfortunately, the author gives too much credit to the My Starbucks Idea and not enough to the underlying culture of customer service that birthed the concept and executes it day in and day out. Without a deeply ingrained customer service culture, all the fancy schemes and elaborate strategies never go anywhere and are reduced to break room posters or ignored tabs on the website.
What brings these ideas to life and makes them work are the people who are charged with executing these ideas and are directly responsible for their success or failure and it is the culture of the company that drives them.
My Starbucks is nice but nice doesn’t necessarily improve sales. Better blocking and tackling on a daily basis improves sales. As pointed out, reflect a bit on comparing Q4 2008 vs. Q4 2009. Also, it is one quarter. Real proof lies in consecutive quarters. My Starbucks likely had very little to do with anything as a percentage of contribution to performance. It’s being given way too much credit.
As a regular Starbucks customer, I see the improvements in just plain old fundamentals. However, there are some chinks in the armor. I think some of their measures for cost reductions hurt sales. While only once have I left due to only one choice being available after noon, I wonder how many others have. Sure they are reducing waste and directly saving on the bottom line, but I for one think it’s penny wise and pound foolish.
Should their performance turnaround be sustained, it will be a result of reduced costs and reinforcing fundamentals in their operations. My Starbucks might give a warm feeling to a very small percentage, but it’s not going to swing the doors. Getting it right every time does. That’s what they were good at doing. That’s what they had lost a bit of for a time. That’s what they are doing better at once again.
Fluff is nice. Fundamentals win. Yet, as mentioned, it’s a quarter. Let’s see this time next year if they have strung together 4 consecutive quarters. That being the case, there will be room for a little rah rah Starbucks.
And now, off to the drive thru for a Pikes Place with a little bit of ice. Yum.
I would not argue that the main contributor to the turnaround was re-dedicating itself to the fundamentals including cutting underpeforming stores, having a clean and friendly experience in the store, the right offerings, and making sure the staff knows how to make the product correctly. At the same time, using many of these modern tools to leverage the collective wisdom of the associates and the customers will provide a transformational opportunity for retailers in the coming years.
We are in year 1 of the journey and the best is yet to come.
All very interesting but what I just tried–unsuccessfully–to find was our discussion here when mystarbucks was originally launched. I wonder what we all thought way back then. Perhaps George or Rick will have better luck searching the archives than I did. But based on the results in the piece written here, I have to agree with those who have ho hummed about the earthshattering incite that created the program. Listen and learn? What a cool idea.
In an IBM consumer research study, that I conducted in Nov 2009, I asked how likely are consumers willing to collaborate or co-create to help retailers determine product variety, store layouts and service ideas? 78% said they were likely to co-create and the percentage didn’t differ across markets (US, UK, Canada, Brazil, China or India). This is a great way to allow consumers to create items and preferences with retailers to make them better and better meet the consumer’s needs. I applaud Starbucks in taking the collaboration idea to the store employees too. Through social networks, we finally have a means to more easily express our ideas.
Having been involved in rapid growth Fortune 200 + retail chains for over 30 years, I’ve seen many come and go. While there are always ways to “improve”, all of the internal “science” is rarely the tipping point in success or failure.
What I’ve seen happen time after time is usually consistent and it applies to Starbucks as well. It’s the Success Syndrome, meaning that because we were successful here, we can be successful anywhere. Stated simply, when senior management becomes more strategically focused upon real estate than what brought them to the dance, everything tanks. Suddenly, because the attitude at the senior level is, “lets open as many stores as possible as fast as we can,” EVERYONE’S focus becomes real estate and nothing else. Intense pressure is placed upon multi-unit field management to meet opening dates regardless of circumstances to avoid lease costs starting without incoming revenue.
Stores and/or entire markets open so quickly that sub-standard hiring occurs due to time constraints, service suffers because training is expedited to meet an opening date and “under-performing stores” or potentially whole markets are created.
Sooner or later, the real estate grab becomes their downfall but few admit it.
There is a core group of Starbucks brand loyalists that were allowed to drift away as the result of declining store experience and product quality.
Through this “listening” project, Starbucks not only did the right thing but acted on the feedback and made changes that re-energized the base.
I am not convinced however that the relaunch of the rewards program was the right move. The program structure was changed from value to frequency based. There is an element of simplicity that I have heard anecdotally to be desirable, but basing status on frequency without regard to value opens a dangerous door for the brand.
Let’s see how it works out.