Last year, Kleostoday introduced 'The Starbucks Index' to gauge how businesses were faring and coping with the ongoing recession. Starbucks is nearly a perfect measuring tool for the economy due to purveying an expendable consumer product and having a considerable international presence. Hence, the strategy behind its survival is a genuine microcosm of how businesses have retrenched in difficult times..
In the last quarter of 2008, fewer and fewer people were willing to layout nearly $4.00 for a paper cup of espresso and milk. As profits diminished, executives at the Seattle headquarters made several bold decisions to stem the decline. Hundreds of underperforming stores were closed within only a few months worldwide, and all units were ordered to shut down for a couple of hours one evening in order to retrain employees on the art of making excellent coffee. Indeed, the quality of the average Starbucks drink had fallen over the years as a result of longer lines and high staff turnover. While the foam on a Grande Latte may or may not have improved from the session, Starbucks did succeed in sending a strong signal to both customers and investors alike. Customer satisfaction would come first once again.
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Since then, the company has taken several other measures to reinvigorate its base and broaden its appeal:
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Starbucks Retail Restructuring (October 2008-August 2009)
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1) The Starbucks Gold Card: Late last year, Starbucks announced the creation of a savings card. For an annual fee of $25, customers can obtain a Starbucks Gold card and thus be entitled to 10% off all drinks and merchandise. Considering Starbucks had rarely (if ever) offered discounts in the past, the introduction of a $25 black and gold plastic coupon was not only an acknowledgement of the need to incentivize consumers to buy rather than make coffee at home but also an ingenious idea to raise cash by collecting multiples of $25 upfront.
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2) Tea Time: A few months ago, Starbucks began a mass advertising blitz on its Tazo Tea lineup and published coupons in local papers entitling consumers to enjoy a tea beverage for only $2.00 after 2:00pm. Traffic increased in some stores significantly in the afternoons, and Starbucks was able to remind the public about its non-coffee options.
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3) De-Cluttering: As Starbucks diversified its product line over the years to include CDs, a range of coffee cups and even stuffed animals, walking aisles became narrower and the number of tables for sit-in customers became fewer. At some point, the merchandising reached a crescendo and began driving people out or away from stores entirely. Upper management addressed the problem by ordering stores to remove intrusive displays and obstructive racks. The result? Many stores have returned to having an unfettered atmosphere - one more conducive to customers planning on gathering to meet friends or clients.
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4) The Starbucks Red Card (pictured): Unlike the Gold Card which costs $25 annually for the entitlement of a 10% discount on all purchases, the Red Card is a gift card with a twist. Rather than simply being a convenient payment method or a perfect portable gift, the Red Card is all that and more. For every purchase made with the Red Card, Starbucks donates a small percentage to aid Africa. Hence, customers can serve humanity in a small way while being served a cappuccino before the start of another work day. Starbucks should be applauded for its Red Card program as not only people but businesses must be responsible community citizens - locally, regionally and globally.
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5) Finally, Quality Pastries!: Yes, the maple scone is delicious, but it is only seasonal. For years and years, devoted Starbucks customers have relayed some version of the following statement an untold number of times, 'Yeah, the coffee is great, but I just wish they had a wider selection and better quality pastries to go along with it.' Last month, Seattle finally got the message. In an unprecedented move, Starbucks Gold Card members received a coupon for a free pastry between the hours of 6:00am and 10:30am in their e-mail accounts. In a word, pandemonium ensued. Recipients printed off the coupon to share with their friends, and armies of coffee-craving, pastry-mad people rushed the stores to take advantage of a unique moment in the company's history. Many stores reported empty food cases before 10:30 arrived. Despite losing money in the short term, Starbucks cleverly performed a mass-demonstration of its new baked goods lineup - which now includes a new, round raspberry scone and a tasty morning bun among other additions. Once again, Starbucks managed to address consumer needs and pull off yet another marketing coup.
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Starbucks & Survival
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All businesses, particularly small ones, need to follow the Starbucks survival strategy in order to remain stable through the lingering recession. Customer service must always be a top priority, and managers will need to align their products and services even more closely to customer expectations to remain viable. As a return to sustained economic growth does not yet appear on the horizon, businesses cannot afford to make anything less than common sense decisions. Yet, pragmatism must not be allowed to suffocate ingenuity, and finding a balance between the two will be the greatest challenge to businesses in the foreseeable future.
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J Roquen