Starbucks is simply not what it used to be. The brand that was one of the pioneers of the notion of the brand experience is struggling to be relevant in a turbulent marketplace. The stock price is down and Howard Schultz is back at the helm, admitting that his company expanded too quickly, opening stores within no more than 100 metres of each other in many US cities and in major cities abroad. Now, Starbucks is pulling back, closing stores around the world and stooping to offering free refills in its UK stores — a concept that most customers would associate with mainstream brands like Howard Johnsons and IHOP — certainly not what one would expect of Starbucks.
Howard was the guy who legitimatized the $4 cup of coffee and took Starbucks to a special place in the lives of many consumers — a “third place.” Although he didn’t invent the notion, Schultz did take the concept of a third place from its academic roots and gave it a practical retail application.
It was an American urban sociologist named Ray Oldenburg who first coined the phrase “third place” back in the early 1970s. Oldenburg’s research demonstrated that certain commercial places, such as restaurants, bookstores, and bars, took on a special meaning for their customers, representing places to which they could retreat to unwind, relax and talk with friends and even strangers. This was a place that was neither home nor work, a place where customers just felt comfortable. Think of Cheers and the stereotypical English Pub.
Oldenburg’s original view of the “third place” was centered around association and sociability. In fact, the central role of the third place, as Oldenburg defined it, was to facilitate conversation, certainly with friends, but also with individuals who may not be known outside of the context of the particular restaurant or pub. In the early days, Howard Schultz succeeded in creating precisely this kind of atmosphere at Starbucks for millions of customers. We saw them all there, chatting with friends, reading magazines, working on History assignments with laptops open. But, the rapid expansion of recent years has served to move Starbucks away from this brand positioning.
The appeal of the Starbucks brand experience has changed. While it is still a place to meet friends for many customers, others in downtown business districts now see Starbucks is a place to grab a quick cup of coffee to take back to the office. There is no stopping to chat or sitting to read a newspaper. In fact, in many Starbucks locations in the basements of office towers, there is nowhere to sit. Others now see Starbucks as a drive-thru — a concept historically associated with Dairy Queen and McDonald’s. Ordering a Caramel Macchiato from the window of your car just doesn’t seem to have the same cachet.
The Starbucks experience is just not the same when it involves picking up a coffee from a drive-thru window. Where is the “third placedness” in that? Is coffee still worth $4 a cup when you are drinking it in the privacy of your own office cubicle? Without the convivial atmosphere of the original Starbucks, it’s just not a third place any more. The brand has lost some of its value for millions of loyal customers. The challenge that Howard is facing is one of getting back the value that those millions had associated with the Starbucks brand. I’d close the drive-thrus first.
Jim,
As Starbucks continued to expand they diluted or confounded the experience to appeal to more and more customers. The result, they lost the mojo that made people passionate about them. If it was the “third place” notion they diluted this aspect. Interestingly, many of the thriving independents that are neighbors of Starbucks have played up the “third place” concept by offering free wifi, more seating etc.
One questions this raises, is it possible to have explosive growth without the loss of focus?
John
John I. Todor, Ph.D.
Author of Get with it! The Hands-on Guide to Using Web 2.0 in Your Business
Companies, or rather the investors behind them, want to grow. If something is successful, let’s make it BIGGER!
But bigness/ubiquity is often the undoing of that special something that made a company, um, special.
Starbucks may get some of its mojo back, but I for one have found myself going elsewhere more than I used to. Sometimes to a local Peets which caters to strong coffee lovers (if only it was open longer hours). Other times to a local donut house with no ambiance whatsoever, but I can get two cups of good coffee plus donuts for the cost of one Cafe Latte at Starbucks.
Bob Thompson, CustomerThink Corp.
Blog: Unconventional Wisdom
Bob,
There is nothing wrong with growth, the challenge is to do so without losing the essence of what makes you worth growing.
Zingerman’s is a highly successful delicatessen in Ann Arbor, Michigan that just might have the best corned beef in the world. What makes Zingerman’s special is that all their products are exceptional, their service is friendly and unpretencious and the amibiance is about food. When the partner started thinking about growth they thought about opening new delicatessen’s but the thought stopped them in their tracks.
What worried them was the ability to export what made them exceptional to new locations under new management. But grow they did. Now, in addition to Zingerman’s Delicatessen, there is Zingerman’s Bakehouse, Zingerman’s Train, Zingerman’s Catering, Zingerman’s Creamery, Zongerman’s Roadhouse, Zingerman’s Mail Order and Zingerman’s Coffee House. All are headquartered in Ann Arbor and all are run by a managing partner. They service each other and a continuely growing customer base in Ann Arbor and around the world.
This just one model for growth. I applaud the folks at Zingerman’s because the recognized, before the fact, how attempts are replicating the original store in new locations might cause them to lose their mojo.
John I. Todor, Ph.D.
Author of Addicted Customers: How to Get Them Hooked on Your Company.
The convenience offered by a drive thru service is greatly appreciated by those with small children in tow. Have you considered that Market’s potential in your 3rd Place Protection Strategy?
ctr
Hi ctr
Of course, you are right. By moving to the provision of drive-thru windows, Starbucks did, I am sure, attract new customers who appreciate the convenience. By the same token, by opening countless locations in urban office towers, they more easily reached the “grab and run” crowd. It is probaly accurate to suggest that this is precisely what Starbucks wanted; to make the brand an option for people who were previously not buying Starbucks coffee.
The point is that neither of these segments would have been the principal target for Starbucks as originally envisaged by Howard Schultz. His vision redefined the coffee shop category in North America and gave Starbucks a distinct competitive edge, not to mention the ability to charge prices never before seen or considered for a cup of coffee — because he was offering much more than a cup of coffee.
Now we see a dilution of the concept and of the positioning of the Starbucks brand. Sure, they are still selling loads of coffee and reaching some people who have not been regular Starbucks customers before, but by so doing Starbucks has moved the brand away from what many of their most loyal customers wanted, that third place in their lives.
Jim
Jim Barnes
The New York Times had a great article, shortly after the announcement that Starbucks would be closing so many stores: Lax Real Estate Decisions Hurt Starbucks, that concludes it wasn’t the in-store experience (or lack thereof) that really hurt the company but, rather, its failure to keep to its principles regarding real estate decisions. Times writer Brad Stone says it all boiled down to the age-old “location, location, location.”
The company opened stores too close together and continued opening stores in regions hard hit by the housing crisis and general economy. This was a departure from a previously meticulous study of such things as traffic flow and neighborhood demographics.
You can try to create the best customer experience in the world, but if you’ve got more stores than coffee drinkers, you’ve got a problem.
Gwynne Young, Managing Editor, CustomerThink
Hi Gwynne
Thanks for that interesting addition to the discussion. The location/real estate component of the expansion of Starbucks is not unrelated to the notion of third place and their move away from the original brand positioning. By moving into downtown office buildings, often on opposite corners, or having two or three outlets in the same complex, Starbucks moved closer to a mass market positioning — “no matter where you are Starbucks is there.”
So, too, by the way, did the addition of drive-thrus, and the fact that Stabucks coffee came to be “proudly served” at literally every business meeting and conference, at least in the US. What was happening was a dilution of the brand — suddenly, Starbucks was everywhere, doing everything to sell coffee to everybody.
These expansion tactics represented a move away from the somewhat exclusive positioning that was Starbucks and that made it acceptable for many people to pay unheard-of prices for a cup of coffee with an exotic name. Starbucks was no longer that special place. So, it’s not simply a real estate issue. Sure, rapid expansion into questionable locations may have contributed to the fall, but what that did to the brand image, positioning, cachet, equity is more problematic in the long run.
Jim Barnes
Interesting comments. I am inclined to agree with all of them however, there is beauty in simplicity. Starbucks and other such higher ticket products or “experiences” have seen declines for several reasons each specific to them. In this case I feel it’s rather simple. Many consumers simply can NOT afford the $4 coffee any longer nor do they have or wish to spend time sipping it amongst strangers with their faces in a laptop or a book. “The hurry up grab a cheap coffee on the run” is the dominant consumer.Simple isn’t it?
Intino
I’d suggest it’s not that simple at all. There has always been a “grab-a-coffee-on-the-run” segment, but they were never top of Starbucks’ target list. Every market has coffee retailers in the buck-a-cup sector, but that’s not where Starbucks has been playing. Starbucks loyalists have never objected to the price of their coffee — the value they were receiving was clear to them. I’d suggest the problems Starbucks has experienced are not so much related to their price point, but to the fact that they’ve wandered from their prime positioning and devalued their brand experience for their most loyal customers, some of whom may well now be asking “why am I still paying $4 a cup for THIS experience?”
Jim Barnes
Jim, you raise an interesting point about the ‘third place’. The fact that Howard Schultz used that term for Starbucks and how it should be the anchor in the community conveyed the vision he had for the company.
However, just as with everything else, change happens and it’s the ability of an individual or a company to adapt to the change that spells success or failure. Growth is also a change and many companies don’t handle that very well.
When your business is built on providing an social anchor in the community, you need to be agile in accepting the changing times, whether it is the unwillingness of the people to afford the $4 cup of coffee or the desire for people to re-live the environment that you are selling. Starbucks expanded too rapidly relying on standardization of product and execution style (which was very effective in rolling out new sites). What, I believe, it lost in the process was a part of its ‘soul’.
It is this ‘soul’ of a company that stirs emotions in people, drives loyalty, brand experience and willingness to be a part of a social setting. When companies go through geometric growth cycles it is really hard to keep the soul intact; and this is a major reason for customer dissatisfaction or fallout. I believe Zingerman’s did a great job in recognizing it’s soul and conserving it through a planned growth cycle by putting a managing partner to run each of its businesses without exploding. This is where Starbucks could have improved their strategy.
Having visited several Starbucks across the world from Seattle to Shanghai, the evident thing missing was the consistent ‘feeling’ one looks forward to and associates with a brand. Each country has its unique cultural set up and it is important for a global company to recognize the nuances and tailor make its products/services to align with the desired ‘feeling’ that they want to impart to the customers. Just standardizing process doesn’t make it happen.
Question I must ask myself – did the ‘third place’ vision that Howard Schultz have get propagated to watch guards in the Starbucks growth cycle? Were there folks keeping an eye on the ‘soul’ of this company as it grew leaps and bounds? Probably not – that’s why we need a visionary like Howard S to come back at the helm to regain the soul.
– Vishal
Vishal Sarkar, CRM Principal @ Ascentium
Vishal
You make some solid points with which I agree. In striving for growth, many companies fall victim to the temptation to sacrifice their original values (or “soul” as you put it) in order to attract more and more sales. It is difficult to argue with Starbucks’ success. The company has been the darling of branding gurus for a decade or more. I suspect there have been more articles and books written about Starbucks than about any other consumer brand in recent years. The company truly understood its positioning and its appeal to its loyal customers.
So, why did they go off course? Could Starbucks continue to grow and still retain the essence of its brand? I suspect there would be widespread agreement that much of its growth agenda ran counter to its values and to the values of those who visited its stores regularly, who counted it their home away from home, their temporary office, their study room. Make no mistake, Starbucks stll attracts such customers, but maybe fewer of them, and maybe they don’t feel quite as comfortable in the newer locations. And, just maybe they don’t feel quite as good paying hefty prices for the current Starbucks experience.
What is Howard to do? Can he regain the Starbucks’ soul, or is the original soul somewhat outdated in 2008? He has shareholders to answer to who want to see the company resume its growth. Maybe reinvention of the brand is in order.
Jim Barnes
I totally agree with you. Also I think that the experience gaps became closer between Starbucks and competitors as they all inspired from Starbucks. Starbucks should take another step to return its core value back and differentiate its memorable experiences.
I’m a Master student now doing a design research in UK. The topic is “Building brand community through the integrated connections of offline and online interactions to enhance brand loyalty for Starbucks UK.”
Could you please share your opinions on this topic, I would be really appreciated to hear opinions and suggestions from you.
Building brand community to especially increasing the level of physical interaction (offline), could be the answer for Starbucks to achieve its core value of being a real Third place.
*What do you think if Starbucks take advantages of using technology to create the postmodern form of the "Third Place” that aligns with its business as well as well-integrated as a part of people life in the twenty-first?
(Ex. The idea of having interactive wall in the shop could bring people together and feel more open to exchange ideas through the media rather than face to face conversations at sores. Only customers who are memberships could share, vote, comment their story with photos or VDO. Customers would be less frustrated they could enjoy inspiring from others’ ideas while getting long queue. Prospects would at least interact with those messages while they come in “grap and go”.)
In addition, in order to make interactions vibrant, Starbucks will need to have a clear theme driven lifestyle and passions that Starbucks customers would love to talk and share about.
“The value of looking professions and a sense of success while holding Starbucks cups is almost disappeared unlike in the past. The new mission statement of Starbucks is "to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.”
*What do you think can Starbucks achieve its new mission and also bold the meaning of success by creating a theme of “Anyone can be succeeded”?
(Ex. Starbucks could be an inspiration hub for people to achieve their life and dream. Showing quotes from young successful professions in any fields and also asking for Starbucks customers to share their success stories, relationships, love, or quotes and also recommended their favorite drinks.)
Best Regards,
Tanarat K.