Thanks, Debre, for pointing out the strategy that Starbucks have been following: cutting costs and downgrading service in a bid to stave off competition from MacDonalds.
The troubled coffee chain Starbucks, renowned for its elaborate frappuccinos and mochas, is going back to basics by testing a cut-price brew costing only $1 (51p). Fighting slowing growth at its US stores, the firm is offering an eight-ounce “short” measure of ready-made coffee for a price undercutting fast-food rivals such as McDonald’s in a trial at branches in its home city of Seattle.
This looks like an appalling strategy. For the simple reason that it focuses on coffee.
Experience vs Commodity
Starbucks didn’t build a business on selling coffee. Coffee is cheap. They built a business on selling a customer experience.
The term they used was a “third place” a restful, aromatic, aesthetically pleasing, sociable space that is neither work nor home. Coffee was the hub of it, but without the surrounding experience, would any of us really consent to pay two pounds a cup?
Apparently, the experience is now all but gone. And hence it’s becoming rather difficult to justify the price tag for coffee alone. More from the Guardian…
Schultz recently warned in a leaked internal memo that the brand’s charm was in danger of diminishing as it became a mainstream “commodity”. He said the sense of theatre had evaporated, thanks to automatic espresso machines, and he complained some stores even no longer had an aroma of fresh ground coffee due to vacuum-sealed packaging.
Innovation pundit Bruce Nussbaum relates his recent experience of walking into a Starbucks in New York City…
I thought […] I’m going to feel like a sausage on an assembly line, waiting, talking to people not paying attention, then waiting again. And for what? A cup of coffee? It was all so transactional. I don’t need Starbucks for that.
CEOs who get it
Apple has been down this road. During their darkest hour, they were producing a bewildering array of uninspiring machines and an ageing, unreliable operating system. They wanted to compete with the frequently drab IBM PC clones, and in so doing seemed to forget their “think different” mantra. It was Steve Jobs, much to everyone’s surprise, who put Apple back on track by helping it deliver a unique user experience again – starting with the brightly coloured iMac.
It seems that Starbucks has also smelled the coffee. Howard Schultz, the newly appointed chief executive is the guy who built Starbucks up in the first place. He does seem to know what he’s doing – note that he talks about the “sense of theatre”.
So why the $1 cup of coffee? No matter home much pressure Starbucks is under, competing on price to “lure” customers back in doesn’t make sense for an experience-based company. Better to refurbish the stores, refocus the staff and refresh the coffee. Then let word of mouth bring customer back for what they were always buying anyway: the experience.