The Reasons Behind Starbucks’ Great Customer Experience
Long before it became trendy Starbucks focused on the customer experience. For anyone who has tried to create a compelling experience for their customers, one that makes them continually come back for more, they know it’s not easy. But Starbucks has managed to do this across thousands of stores around the world. If you are curious about how Starbucks provides such a great customer experience consider these five reasons.
1. A progressive investment in its employees. Back in the early 1990s Starbucks became the first private employer in the United States to offer both full and part time eligible employees stock options. That means the happier the customer the fatter the employee’s wallet. To put this in perspective, if you had invested $10,000 in Starbuck’s IPO in 1992 that investment would be worth $4 million by 2021. Even Warren Buffett would be impressed with those returns.
Stock options are not the only employee perk. Since 1988, health care has been offered to all full time and part time Starbucks’ employees including coverage for their partners. In 2014 Starbucks introduced a complete tuition reimbursement program for employees located in the United States who worked at least an average of 20 hours per week. A champion of diversity, in 2018 Starbucks achieved gender and race pay equity for all staff in the United States. This is a feat that not many companies can say they have achieved.
Part of Starbucks’ focus on its employees stems from the fact that the father of Howard Schultz, the former CEO of Starbucks, was injured badly while working at his blue-collar job. Schultz’s dad received no health care or worker’s compensation and it ruined his ability to achieve the American dream. That “scarred” Schultz and then motivated him to create a workplace his dad would be proud to work in.
Speaking about a difficult time in Starbucks’ history in the mid to late 2000s Schultz had this to say about investing in Starbucks’ employees: “our health care costs over the past 12 months were approximately $300 million. [Starbucks employees are eligible for health care benefits such as medical, dental and vision after 60 days of employment]. The thought that we would cut that benefit—I couldn’t do it. Within this past year I got a call from one of our institutional shareholders. He said, ‘you’ve never had more cover to cut health care than you do now. No one will criticize you.’ And I just said, ‘I could cut $300 million out of a lot of things, but do you want to kill the company, and kill the trust in what this company stands for? There is no way I will do it, and if that is what you want us to do, you should sell your stock.’ What I stand for is not just to make money; it’s to preserve the integrity of what we have built for 39 years—to look in the mirror and feel like I’ve done something that has meaning and relevancy and is something people are going to respect. You have to be willing to fight for what you believe in.”
When you make meaningful investments in your employees they invest in you. Starbucks has lower employee turnover than many of its competitors allowing it to develop relationships with its customers that have a deeper degree of intimacy.
2. A personalized experience. One of the details you may not think about but is quite powerful is that each and every time you go to Starbucks the Barista greets you, asks for your name and then writes your name on your order. For a large retailer like Starbucks, which serves more than 100 million customers per week, that’s an impressive feat, the ability to greet each and every customer by name.
Details matter and at a time where communication is often more generic than personal Starbucks provides a personalized level of service each and every time. That effect is compounded when the Baristas get to know you and greet you without even having to ask you for your name. While personalization is a buzz word for many for Starbucks its old news. While it sounds fairly basic to greet a customer by name, over the next week as you go into various retail establishments take stock of how many times someone asks you for your name. The ability for Starbucks to do this should not be understated. It’s not a mom and pop store or your local bookstore. It is one of the largest retailers in the world and it has figured out a way to take a personal level of service to the masses.
Personalized experiences are not only found offline but online as well. Starbucks’ popular mobile app provides customers with personalized recommendations for additional products they may want to purchase based on their purchase history. Starbucks' chief technology officer says the company uses “a data-driven AI algorithm based on your own preferences, your own behavior as well as behaviors that [Starbucks is] trying to drive”. Starbucks has said that its personalization initiative “is the single biggest driver” of improved spend per customer it has seen.
3. A community like atmosphere. Walk into any Starbucks in your city or around the world and there is a sense of community. The Baristas are usually smiling. They ask for your name. There’s a place where you can sit and stay a while without the pressure to buy anything. Free WiFi, which has been available long before it was common place to do so invites you to stay even longer.
Even the music which sometimes sounds good and other times leaves you impatient for the next song feels familiar. Starbucks likes to call its stores a “third place” between work and home. All of these details when taken together provide a world class customer experience.
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4. Unapparelled execution. Imagine having more than 30,000 stores around the world and providing all of your customers with the same feeling. A great customer experience is always about a feeling. The last time you were out shopping how did you feel as soon as you entered the first store on your trip? How did you feel when you walked around the store? Now looking back how did that experience make you feel? There is a saying that goes like this, you may not remember what someone said but you will always remember the way they made you feel.
The feeling of being in a Starbucks always feels the same whether you are in a different city or another country and most of the time it’s a good one. Starbucks always feels familiar and comfortable. That’s an incredibly hard feeling to generate in all of their locations and it speaks to an unbelievable level of consistency provided by a retailer which is driven by robust processes.
5. Control over the customer experience. One of the main reasons Starbucks has such a consistent customer experience is because it does not use a franchise model. Speaking about this Schultz has said: “we believed very early on that people's interaction with the Starbucks experience was going to determine the success of the brand. The culture and values of how we related to our customers, which is reflected in how the company relates to our [employees], would determine our success. And we thought the best way to have those kinds of universal values was to build around company-owned stores and then to provide stock options to every employee, to give them a financial and psychological stake in the company.”
“I always viewed franchising as a way to get access to capital, because you're using other people's money to grow, essentially. And we were dealing with a premium product -- something that can be hard to learn, that you have to explain to the customer, that requires an educated staff. It would have been hard to provide the level of sensitivity to customers and knowledge of the product needed to create those Starbucks values if we franchised. You can be just as entrepreneurial and experimental in a company-owned model,” says Schultz. This strategy is in contrast to the one used by most restaurants including KFC, McDonald’s, Dunkin and Subway.
Speaking about a time when Starbucks was struggling financially in the mid to late 2000s, Schultz said this about resisting pressure to move to a franchise model. “You have to have a 100% belief in your core reason for being. There was tremendous pressure in the first three or four months after my return to dramatically change the strategy and the business model of the company. The marketplace was saying, ‘Starbucks needs to undo all these company-owned stores and franchise the system.’ That would have given us a war chest of cash and significantly increased return on capital. It’s a good argument economically. It’s a good argument for shareholder value.