Unsolicited Advice for Starbucks

Starbucks’ early success was the result of a lot of very smart, new thinking, including creating a market for higher-end coffee drinks and tapping into consumers’ need for a “third place” outside of work and home.  For many years it thrived as it competed on its innovative business model, a relatively focused positioning. Starbucks delivered a specific experience to a specific set of customers (think Southwest not United).

For all its breakthrough thinking, its status as a public company meant that it still had to tame the growth beast.  And then it came to an inflection point that most focused competitors reach, how to continue to grow after the first wave of saturation.   It’s here where I think Starbucks stumbled.  The company had two choices for growth — continue to expand its focused service offering at the risk of diluting the Starbucks brand or creating a new brand that would allow Starbucks Inc. to grow and learn outside of the constraints of its original offering.

The company chose the former – all too many focused competitors do – and has suffered the consequences.  In doing so, it’s made a classic mistake, essentially trading off quality for growth.  But this is a false tradeoff that can be overcome  in creative ways that do not require abusing the brand.  Yum Brands is a good example. Yum is a collection of five quick-serve restaurants.  The overall Yum organization has ambitious growth expectations, but it doesn’t rely on any one brand to get there.  Yum reveals that it’s possible to have a multi-focused organization. For the sake of my tall skim, extra hot, no foam latte with an extra shot, I hope Starbucks gets this message soon.

2 Responses to Unsolicited Advice for Starbucks

  1. Jon Cahill says:

    Frances, this makes sense. I wonder about publicly-held cos. and strategic service/quality issues; do you find the (historically) quarterly impetus to meet/beat the Street working at odds with strategic thinking in this area? Is it as chronic as I seem to think? Apart from UMich. CSI, there seem to be little sat.metrics paid attention to by analysts, certainly on a quarterly basis. 10Qs and the like tell us so little about how customers view these companies….

  2. Frances Frei says:

    Quarterly pressures mean that growth ambition can be more relentless for a public company. But this needn’t lead to a growth/quality tradeoff. It is absolutely possible to grow while delivering excellent quality – the trick is to do so within an existing service model until growth starts to undermine the experience. At that time, it often makes sense to create additional growth avenues underneath the corporate umbrella.

    Satisfaction metrics can be a tricky thing. There are plenty of people who think more attention should be paid to them no matter the context – that sounds reasonable but I think it may be misguided. For example, if customer satisfaction is an intermediate measures of performance, then it should be used internally to gauge whether efforts to improve ultimate performance are working, but not necessarily as an independent measure of performance in its own right. This would look something like: I am more satisfied as a customer when I am served faster, and I buy more often if I am more satisfied. If this is the logic at work in your business – that speed of service leads to satisfaction which leads to profit – then externally reporting on satisfaction is not necessary. Your financial performance gives the entire story to analysts. The satisfaction measure is important to you internally because it can help you improve, but external audiences wouldn’t need it.

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