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November 28, 2007

Solving Starbucks Problems

As a leading authority on customer evangelism and word-of-mouth marketing, Jackie Huba has added her voice to the discussion about the problems Starbucks is facing. She highlights how Starbucks losing its authenticity has driven the company from using customers as its primary advertising vehicle, to using national television commercials as an advertising vehicle.

Back in March, Paul Williams and I dissected many of these authenticity issues Starbucks faces in a series of back-n-forth blog posts. Together, Paul and I have a combined 19-years of marketing experience with Starbucks and we tapped into that experience to talk strategies and tactics Starbucks could follow to reclaim its authenticity.

At the time, we were responding to Howard Schultz’s leaked internal memo where he admitted that Starbucks has “… had to make a series of decisions that, in retrospect, have lead to the watering down of the Starbucks experience, and, some might call the commoditization of our [Starbucks] brand.

Our series of posts have been given new relevance since Starbucks has decided to use national television advertising to solve some of its business problems. Re-read, or read for the first time, the laundry list of strategies and tactics Paul and I believe Starbucks could implement to become the company it once was.


We began by addressing the LOSS OF COFFEE THEATRE issue:
Paul analyzed the switchover from the La Marzocco espresso machine to the Verisimo automatic machine and offered up tactical ideas Starbucks can use to course-correct itself back to espresso authenticity. I riffed off Paul’s post and added the idea Starbucks needs to give permission to store partners to showcase their flair and personality while on the bar in order bring some of the coffee theatre back.
Next on our list was the LOSS OF COFFEE AROMA issue:
I explain in detail how “operational efficiencies” (not Flavorlock packaging) have led to Starbucks stores no longer smelling of coffee. I offer the quick-fix solution of finding ways to grind coffee in-store again. Paul disagrees with my exoneration of Flavorlock packaging and he smartly offers up the idea of implementing an “Aroma First” rule. This “Aroma First” rule would have Starbucks making in-store decisions based upon how any proposed activity would impact the aroma of coffee inside a Starbucks.
We also addressed the LOSS OF STORE SOUL issue:
Paul breaks down what it means to be a Mom & Pop shop and gives specific ideas on how Starbucks store design should stop being all things to all people at all its stores. I offer up thoughts on how Starbucks should give more control to its stores to run store-specific marketing programs and post store-specific marketing signage.
We touched upon the LOSS OF MERCHANDISE focus:
I explain how Bearista Bears and Finger Puppets sell very well, but it a great cost to the brand. As a solution, I propose Starbucks ask itself two questions to ensure its merchandise focus: (#1) Does the product link directly to coffee? If yes, sell it. If no, don’t. (#2) Does the quality of this product match the high-quality of Starbucks coffee. If yes, sell it. If no, don’t. Paul adds-on and modifies my two questions by asking if the merchandise links directly to either the preparation, consumption, and/or enjoyment of coffee. He closes his thoughts by expressing just because Starbucks can sell music, DVDs, and plush toys doesn’t mean they should.
We close by addressing the LOSS OF IDENTITY issue:
Paul likens Starbucks returning to its core to restoring antique furniture to its core, original finish. He also brilliantly points out Starbucks needs LESS INNOVATION and MORE EXPLORATION. Starbucks didn’t invent coffee, it explored the world of coffee and brought interesting flavors to its customers. Paul says Starbucks should concern itself with digging deeper into the world of coffee and uncover exotic coffee concoctions and share them. I take the IDENTITY conversation in a different direction and explain how Starbucks needs to standup to the bullies working on Wall Street by pruning all of its unhealthy growth in order to rejuvenate its soul and refertilize its reason for existing.

For even more ideas on how Starbucks can solve its business problems, read what myself and a cadre of other marketing-minded folks have to say in the WHAT MUST STARBUCKS DO? manifesto published online by ChangeThis in April of 2007.


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Almost verbetim.

Interesting, I think.

I love this laundry list summary and I think that if Starbucks implemented some/all of these it would surely make a difference.

But I also think that, even if Starbucks hadn't decided to cut these corners and water down its experience, it would have eventually hit a wall.

Sooner or later retail companies reach a point where they simply can't keep on increasing same store sales and profits. Either they price too high and/or bring in too many high-priced items that their customers don't want (the Gap's problem?) or they cut corners to cut costs/improve efficiency.

There's just an inevitably to this once a company has signed up for this shareholder-driven program. And not signing up for the program means you end up like Peet's, pure and inconsequential so that's not an option either. Are there any exceptions? Maybe Nordstrom's?

Still, I agree that Starbucks needs to go back to its roots, and following some of your recommendations would be a far better approach than TV advertising. That just seems like it will push them even deeper into the hole.

I think this report is a good approach at addressing the essential aspects of the brand that have led to the unusual success of Starbucks. The inclusion of marketing concepts like aroma show the complexity of their brand appeal, and the expertise of John and Paul, with respect to addressing these current sales issues.   However, I don’t think their problem has to do much with product or process, but evolution. Once Coca-Cola had done all they could do for the soft-drink, they tried to create the New Coke to get beyond the stagnation they were experiencing in the market. They brought back Classic Coke with great success, but that still didn’t address the problem. It wasn’t until they began to diversify their product line and expand their brand to different beverage market segments that movement began to happen again for them.
The most amazing thing about the Starbucks phenomenon is the speed of their growth, but its growth nonetheless. I’m not sure they can do much more to improve on what they have accomplished, with respect to the retail experience. I would rather see them begin to expand their brand from maximizing the coffee experience to maximizing the warm-beverage experience. By expanding into the tea market and emphasizing “relaxing stimulation”, I believe they would find more success than improving on something that has succeeded beyond the understanding of the market.
I’m a big fan of Teavana, which in my opinion is a spinoff of the Starbucks experience. They’ve taken the tea concept and built a great product and accessory line around it. As I see this retail newcomer expand in the U.S., I realize the product cycle for these types of retail environments is coming to an eventual end, in terms of unusual growth. Before the Starbucks concept totally loses its appeal, why not acquire an alternative experience like Teavana to support the brands mission to enhance the warm-beverage experience?
Although Starbucks didn’t invent coffee, I believe their strongest segments (obviously without justifiable research data) value both innovation and exploration. I would venture to say the average Starbucks customer is progressive, compared to the norm, but they lack the time to explore authentic and culturally-enhancing products. Through convenience and iron-clad mainstream brand control, Starbucks has offered this opportunity for Americans to consider themselves unique and different, in a mainstream way. To capitalize on this appeal, I think, would create various opportunities that are not available to existing companies who have failed to initially address the cultural, explorative and enlightening aspects that the “New America” values today.
Again, I’m a novice at this, but I hope this helps.

Kenyatta ... I agree totally with you that the problems SBUX is facing has a lot to do with its hyper-speed evolution. In the past, it would take business six-decades to reach the place SBUX did in three-decades.

Not sure the tea opportunity is big enough to make a difference at SBUX. Since we are talking tea, I have to express my disappointment in how SBUX has handled the TAZO brand. SBUX bought the offbeat but high-quality TAZO tea brand in around 2000. They've buried it. They've homogenized the funky TAZO personality--the package redesigns have sucked the creative soul outta the tazo brand). They've blown it with TAZO. TAZO is irrelevant to SBUX. Back in the day we SBUX-marketers were hoping the company would open up TAZO retail stores, but they didn't.

Teavana has been increasing their presence. I've been to a few and found them to be adequate. But adequate ain't good enough. They do nothing remarkable beyond selling tea. It seems they are trying too hard to be the SBUX of Tea than to be the Teavana of Tea. Dig?

does starbucks use an activity-based accounting system?

I go back to this post often--I am obsessed with Starbucks because it's more frustrating that they get SOME stuff right (enthusiastic people), than the stuff that they get wrong.

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