Monthly Archives: February 2010

Have Starbucks broken the code or solved the puzzle?

Photo of Howard Schultz - Starbucks CEO
No wonder he’s smiling

So we can all rest easy now that Starbucks have managed the “crack the customer experience code”. This was reported across the “wire” after Starbucks CEO, Chairman and President Howard Schultz reported record earnings and explained that Starbucks had lost its way and would rediscover its “laser like focus on customer experience”. In fact the code cracking report wasn’t quite true and what Schultz actually said was that they have been able to “crack the code at creating and environment where people are treated well, they’re respected and they’re valued” as Carmine Gallo reported for Business Week.

I like what Schultz has to say and he certainly comes across as a man who is passionate about what he believes in which in essence is that if you get the staff environment right you can get the customer experience right. I believe the staff element is a contributing and potentially critical component of the customer experience but there is more to it than that.  I am not sure that you can really crack the code of customer experience or even that there is a code to crack.

The code analogy is a useful starting point when thinking about how to discover the solution for providing a differentiated customer experience but in fact we need to move on to puzzles quite quickly. A code is a secret language designed to hide the meaning of a message and I am not sure that the mystical secrets of customer experience have been deliberately or unconsciously hidden from us. More likely this is a puzzle where all the pieces are visible and known and our challenge is to get them in the right combination in order to reach the solution. For this we need a vision of what the end should look like so that we can started fitting together the pieces.

Schultz certainly understands a key piece and that is that front-line staff are the brand in human form.  He also talks about the need for theatre and this is further investigated by two previous Starbucks marketeers in the blog “Brand Autopsy”. The post I link to here describes in detail the internal issues surrounding espresso machine selection as it would seem Starbucks have selected a semi-automatic machine for stores that need high through-put and manual machines for those where the pace is slower. The rationale for the selection by Starbucks besides speed is that the semi-automatic machine would provide the Barista with more time to interact with the people because they would be spending less time making coffee.

The blog authors draw the wrong conclusion to me when they say that the automatic machine would not “detract from the customer’s experience because their experience is based upon the need for speed. I don’t agree with this and also don’t think it reflects Schultz view of the world. If speed is the only differentiating factor then it is going to be short lived as anyone can make a fast espresso when it is the machine doing the work. Surely the need for theatre exists in every Starbucks and long run shareholder value is not created by building a brand that is based on volume in what is the epitome of the experiential industry?

The business model seems to me to rely to heavily on staffing with low skilled and low salaried people. If you analyse the earnings report the revenue growth is marginal and the operating margin is up due to costs savings from stores closed in 2008 (100 in the US) vs. store openings in the US of 53 in 2009. Internationally store openings are up year on year but references to “in-store labor efficiencies” in the earnings report that have driven costs savings in store operating expenses do not point to an experience rich strategy.

There are examples of this low cost staffing model working, say at ASDA in the UK, but the recruitment strategy is fundamental.  ASDA use assessment centres to select store staff and they were the first and I believe are still the only grocer to do this. Expensive yes, needing of time and energy also yes but they get staff that like people. David Smith, formerly Director of People at ASDA is writing a book on the subject and spoke about his experiences at this years CIPD annual conference and how ASDA transformed the way they selected their people.

Another code breaker that brings the brand dimension to the argument is Lois Boyle who wrote in 2007 about “cracking the multi-channel code: The Brand Experience“. Her explanation of how brands create a differentiated and personalised experience I particularly like. You do this, Boyle says, “by creating a differentiated brand that can be translated into meaningful benefit and then delivered in an engaging experience that will connect with the hearts of customers and prospects” and goes on to explain that this is a process that “must be defined and managed”.

Too often the creation of a differentiated customer experience is